TAX INCENTIVES

The state of Alabama and the Wiregrass area have an array of available resources to customize and meet the needs for new and expanding industrial development. Working with Alabama’s governor, legislature, and local leadership, major revisions have been added and upgraded to the Alabama incentive laws. The below highlights the latest incentives available to new and expanding industry.

• Corporations’ income tax based on net taxable income derived only from business conducted within the state determined by applying a four-factor formula of property, payroll and double-weighted sales to total net income.
• Corporate income tax rate of 6.5 percent (individuals taxed at a rate of 5 percent).
• Full deduction for all federal income taxes apportioned to Alabama creating a significantly reduced net effective rate.
• 15 year carry forward of net operating loss

• Constitutional limit of the state mileage rate on both real and personal property to 6.5 mills, of which 3 mills are dedicated to education.
• Business property, both real and personal, taxed on 20 percent of fair market value.
• Inventories and goods-in-process are not taxed. Pollution control equipment statutorily exempt from property taxation.
• Exemption of all tangible personal property being warehoused in Alabama for shipment to a destination outside the state.

• The Alabama Privilege Tax is levied for the privilege of being organized under the laws of Alabama or doing business in Alabama.

Businesses with 50 or fewer employees may receive a one-time income tax credit equal to $1,000 per new job paying.

A one-time $1,000 income tax credit for each recently deployed, and now discharged, unemployed veteran hired and a $2,000 income tax credit to recently deployed, and now discharged, unemployed veterans who start their own businesses. Employer must also meet the requirements of the Full Employment Act of 2011 and pay over $10 per hour.

• Abatement of non-educational portion of sales and use taxes on construction materials.
• Abatement of non-educational portion of property tax for up to 20 years.
• Existing Facility: Refurbishments, Upgrades or Placed Back in Service:
• Abatement of non-educational sales and use taxes on construction materials and equipment.
• Abatement of non-educational property taxes for up to 20 years of the incremental property tax increases.
• Exemption from taxes for increased utility services for up to 10 years.

• Consistently one of the top three statewide workforce training agencies in the U.S., Alabama Industrial Development Training is an innovative training program that provides value-added solutions for Alabama’s new and expanding industries. Services are offered at no cost to qualifying companies.
• Services include:
  • Pre-employment Training
  • Post-employment Training
  • Maintenance Assessments
  • Safety & Assistance Training
  • Leadership Development
  • Process Improvement
  • EMPACT
  • ExTra
  • Comprehensive Training
  • Employee Recruitment

• 1.5% rate for manufacturing and farm machinery.
• 2% rate for automotive vehicles.
• 3% rate for food sold through vending machines.
• 4% general rate for all other items.

• Raw materials used by manufacturers or compounders specifically exempt from sales and use taxation
  • Pollution control equipment statutorily exempt from taxation
• Credit for sales and use tax paid to another state and its subdivisions.
• Exemption for quality control testing and donations to charitable entities.
• Abatements by cities, counties and public authorities may include:
  • For qualifying industries, all state and the local non-educational portion of construction related transaction (sales and use) taxes associated with construction and equipping a project.
  For coal mining projects, half of the state sales and use tax may be abated.
• Utility gross receipts tax exemptions for:
  • Sewer costs
  • Water used in industrial manufacturing in which 50 percent or more is used in industrial processing
  • Exclusions for utility services used in certain types of manufacturing and compounding processes
  • An electrolytic or electrothermal manufacturing or compounding process
  • Natural gas which becomes a component of tangible personal property manufactured or compounded, but not used as fuel or energy
  • Natural gas used to chemically convert raw materials prior to the use of such converted raw materials in an electrolytic or electrothermal manufacturing or compounding process
  • Increased utility tax for refurbishment, up-grades or reopening of a facility

• Constitutional limit of the state mileage rate on both real and personal property to 6.5 mills, of which 3 mills are dedicated to education.
• Business property, both real and personal, taxed on 20 percent of fair market value.
• Inventories and goods-in-process are not taxed. Pollution control equipment statutorily exempt from property taxation.
• Exemption of all tangible personal property being warehoused in Alabama for shipment to a destination outside the state.

An increasing number of firms are making use of the ability to transfer merchandise from one zone to another. Because the merchandise is transported in-bond, Customs duty may be deferred until the product is removed from the final zone for entry into the U.S. Customs territory.

Customs duties are paid only when and if merchandise is transferred into U.S. Customs territory. This benefit equates to a cash flow savings that allows companies to keep critical funds accessible for their operating needs while the merchandise remains in the zone. There is no time limit on the length of time that merchandise can remain in a zone.

In a foreign-trade zone, with the permission of the Foreign Trade Zones Board, users are allowed to elect a zone status on merchandise admitted to the zone. This zone status determines the duty rate that will be applied to foreign merchandise if it is eventually entered into U.S. commerce from the FTZ. This process allows users to elect the lower duty rate of that applicable to either the foreign inputs or the finished product manufactured in the zone. If the rate on the foreign inputs admitted to the zone is higher than the rate applied to the finished product, the FTZ user may choose the finished product rate, thereby reducing the amount of Customs duty owed.

No Customs duties are paid on merchandise exported from a FTZ. Therefore, duty is eliminated on foreign merchandise admitted to the zone, but eventually exported from the FTZ. Generally, Customs duties are also eliminated for merchandise that is scrapped, wasted, destroyed or consumed in a zone.

Elimination of Drawback: In some instances, Customs duties previously paid on exported merchandise may be refunded through a process called drawback. The drawback law has become increasingly complex and expensive to administer. Through the use of a FTZ, the need for drawback may be eliminated allowing these funds to remain in the operating capital of the company.

In calculating the dutiable value on foreign merchandise removed from a zone, zone users are authorized to exclude zone costs of processing or fabrication, general expenses and profit. Therefore, Customs duties are not owed on labor, overhead and profit attributed to production in a FTZ.

By federal statute, tangible personal property imported from outside the U.S. and held in a zone as well as that produced in the U.S. and held in a zone for exportation, are not subject to state and local ad valorem taxes.

U.S. quota restrictions do not apply to merchandise admitted to zones, although quotas will apply if and when the merchandise is subsequently enter into the U.S. commerce. Merchandise subject to quota, with the Foreign-Trade Zones Board, may be substantially transformed in a FTZ to a non-quota article that may then be entered into U. S. Customs territory, free of quota restrictions. Quota merchandise may be stored in a FTZ so that when the quota opens, the merchandise may be immediately shipped into U.S. Customs territory.

An increasing number of firms are making use of the ability to transfer merchandise from one zone to another. Because the merchandise is transported in-bond, Customs duty may be deferred until the product is removed from the final zone for entry into the U.S. Customs territory.

Additional benefits, sometimes referred to as intangible benefits, have begun to play a greater role in a company’s evaluation of the FTZ program. Many companies in FTZ’s find that their inventory control systems run more efficiently, increasing their competitiveness. FTZ users also find that in meeting their FTZ reporting responsibilities to the U.S. government, they are eligible to take advantage of special Customs procedures such as direct delivery and weekly entry. These procedures expedite the movement of cargo, thereby supporting just-in-time inventory methodologies.

Long-term, low-interest financing, federally tax-exempt or taxable, for fixed assets and soft costs secured by a bank letter of credit. 100 percent of the cost of a project with minimum amount of $1,000,000 may be financed. Tax-exempt bonds are exempt from federal income taxes and limited to manufacturing projects, and must be issued by local industrial boards. Taxable bond interest rates are higher, but are not limited to manufacturing, and do not require a local industrial development board issue.

Guarantee loans by eligible local lenders. The primary purpose of this loan is to create and maintain employment and improve the economic climate in rural communities. Eligible loan purposes are business and acquisitions, constructions, expansion, repair, modernization, developing costs, working capital and start-up costs.

Long-term, federal, low-interest financing which can be used for the acquisition of real property, rehabilitation of publicly owned real property, relocation, clearance and site improvements. Eligible activities include manufacturing, major warehouse/distribution and other activities that have a significant economic impact. Terms are 10 to 20 years.

Short-term, federal, low-interest loans ranging from $1 million to $10 million. Terms are up to two years for fixed assets. Eligible activities include manufacturing and distribution. Of the jobs created (or retained), at least 51 percent must be occupied by or made available to low and moderate income families.

Allows companies to finance, on a tax-exempt basis, certain aviation projects related to improvements at local airports. The Airport Authority issues the tax-exempt bonds with the proceeds being used to make the desired improvements (i.e. construct new hangers, etc.). The authority would own the facility and lease it to the FBO and pledge the revenues from the lease as security for the bonds. The company may be able to deduct the entire amount of the lease payments for tax purposes.

Fixed-rate, long-term financing below conventional market rates for real estate acquisition, construction, expansion, renovation, and equipment. Source of funds is 50 percent bank loan, 40 percent Small Business Administration and 10 to 20 percent cash or equity from the company. Terms are from 10 to 15 years from bank and 15 to 20 years from the SBA portion.

Long-term financing for fixed assets, inventory and working capital by guarantee or direct loan. Terms range from 10 years for equipment, 25 years on real estate and buildings, and seven years on inventory and working capital. Guarantee is limited to 75 percent up to a maximum loan amount of $1.5 million.

Zero Interest Loans: Federal, low interest loans, made through Pea River Electric Cooperative for project feasibility studies, start-up costs, incubator projects and other reasonable expenses. Amount for loans ranges from $10,000 to $400,000. Loan requires a letter of credit from the borrowing company. Terms are up to 10 years and deferrals of payments are possible. Selection of recipients is based on job creation, unemployment rates and other factors.

Zero percent interest, short-term loans to public and nonprofit organizations through Alabama Municipal Electrical Authority (City) Member Systems. Funds can be used for fixed assets, utilities, design and construction of industrial parks and shell buildings. Source of funds is AMEA and is limited to $200,000 and/or 75 percent of project costs. Repayment term is five years. Limited to geographic areas served by AMEA member cities.

Loans to small businesses and industries that are financially healthy and growing, but need gap financing. The loan’s primary goal is to create jobs. The loan amounts range between $10,000 and $125,000, but are limited to 33 percent of the project and $10,000 per job. Funds can be used for purchase and development of land and facilities, construction of new buildings, purchasing or renovation of existing buildings, purchasing equipment, and working capital needs. No more than 30 percent of a loan may be for working capital.

Dothan-Houston County Microloan Program: Through partnerships with the Southeast Alabama Regional Planning and Development Commission, area banks, city of Dothan, Houston County Commission and Dothan Area Chamber of Commerce, the microloan fund was created. The Dothan-Houston County Microloan Program will provide direct and gap financing to businesses and individuals that are sound and growing, but cannot obtain adequate financing to carry out a new or expanding project. Loans are available from $4,000 to $20,000, or up to a maximum of 90 percent of the project cost. Working capital loans will be limited to 50 percent of the Microloan portfolio, and must be repaid within five years.