New Market Tax Credits in Alabama

by Bradley Arant Boult Cummings LLP
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The Alabama Department of Commerce has adopted rules regarding the Alabama New Markets Development Act, which implemented Alabama’s New Markets Tax Credit (NMTC). The rules, which are codified at Alabama Administrative Code § 281-5-1, became effective December 20, 2012. The new market tax credit allows a tax credit for qualified equity investments to acquire stock in a qualified community development entity (CDE). Additionally, the federal NMTC program was renewed for 2013 by the American Taxpayer Relief Act of 2012, which averted the fiscal cliff. The combination of these two programs indicates a promising opportunity for economic development in Alabama this year.

Highlights

Rule 281-5-1-.01 defines certain terms for purposes of the Alabama NMTC, including “CDFI Fund” to mean the Community Development Financial Institutions Fund of the U.S. Treasury Department and “Controlling Entity” to mean an entity which has entered into an allocation agreement with the CDFI Fund. It also defines “Applicant” to mean a qualified CDE that submits an application to have an equity investment or a long-term debt security designated as a qualified equity investment eligible for the Alabama NMTC.

Rule 281-5-1-.02 provides that the program began on August 31, 2012, and that only an applicant that is certified as a qualified CDE under the Federal NMTC Program and has entered into an allocation agreement with the CDFI Fund is eligible to apply for an allocation of qualified equity investment authority under Alabama’s NMTC program. A nonrefundable application fee of $5,000 must accompany each application. Within 60 days after receipt of a completed application, the Department of Commerce must review the application, either grant or deny it in full or in part, and inform the applicant of the grounds for any denial. The applicant will have 15 days from the notice of denial to complete and/or modify the application and, if it was denied because of insufficient documentation, to provide any additional information the department requires. If the applicant provides sufficient additional documentation within 15 business days, the department will provide the applicant with a notice of certification within 30 days of receiving the additional information.

Rule 281-5-1-.03 caps each qualified equity investment at $20 million in tax credits in any tax year.

Rule 281-5-1-.04 provides for recapture of the Alabama NMTC, as appropriate under the statute, upon written notice from the Department of Commerce, the Department of Revenue, or the Department of Insurance.

Rule 281-5-1-.05 provides the Secretary of Commerce with the ability to grant waivers and/or make exceptions for particular situations where the purposes of the act would be furthered by that waiver or interpretation.

(See Ala. Admin. Code § 281-5-1-.01 et. seq.)

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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