This alert summarizes the incentives-related legislation recently enacted by the Alabama Legislature during the 2012 Regular Session, which was certainly focused on proposals to create jobs and spur investment in Alabama’s economy. The House and Senate leadership successfully passed many of the proposals that were supported by Governor Bentley, many of which expand the scope and improve the operation of Alabama’s existing statutory incentives. However, the cornerstone of the Governor’s incentive package – H.B. 160, the Alabama Job Creation and Retention Act of 2012 – failed to pass this session.
Act 2012-210 – Alabama Data Processing Center Economic Incentive Act of 2012: In order to encourage large data center projects to locate in Alabama, this act enhances the current statutory sales, use, and property tax abatements ("TIRA") available to these qualifying projects. The act extends the existing abatement periods as follows: (i) If the aggregate capital investment in a data center is more than $200 million during the 10 years after it is completed, the abatement period is extended from 10 to 20 years; and (ii) If the aggregate capital investment in the data center is more than $400 million during the 20 years after it is completed, the abatement period is extended to 30 years.
By extending the abatement period, the act provides for an abatement of all state sales and use taxes and local noneducational sales and use taxes, as well as the noneducational property taxes on computers, software, and other property acquired after a data center is completed, but before the end of the applicable 10-, 20-, or 30-year exemption period. For purposes of both the capital credit and TIRA abatements, the Act also reduces the number of new jobs from 50 to 20 in order to qualify as a data processing center, but it requires that the average annual total compensation for these new jobs be at least $40,000 (including benefits).
The act also makes certain warehousing and storage facilities (NAICS 493) eligible for Alabama’s primary tax incentives (capital income tax credits and TIRA abatements), provided the project also provides logistics services related to the distribution of goods. In order to qualify for these incentives under NAICS 493, the project must have capital costs of at least $5 million (or $1 million if the facility is located in a favored geographic area) and create at least 50 new jobs within at least two years after the project is placed in service.
Act 2012-185 – Airplane Parts Sales Tax Exemption: This act provides a sales tax exemption for any of the parts, components, or systems used in the conversion, reconfiguration, or maintenance of a transport category airplane. The bill includes transport planes from military, federal, state, local, or commercial classes. However, the bill limits the exemption so that it will not apply to the county and municipal sales tax unless the local exemption is expressly provided by the locality or approved by a resolution of its local governing body. That provision could limit the benefit of the exemption since the combined municipal/county tax rate often exceeds the 4% general rate imposed by the state. Oddly, the bill does not provide an exemption from use tax.
Act 2012-212 – Increased Grants for Film Production Incentives: This act increase the aggregate yearly cap for film incentives from $10 million to $15 million for the fiscal years ended September 30, 2013 and September 30, 2014; and to $20 million for the subsequent fiscal years. The Act also increases from $10 million to $20 million the amount of qualifying expenses incurred by a production company that are eligible for rebates from the Film Office. To highlight the importance of the available film incentives, the Film Office stated that it has already committed an estimated $6 million in incentives funding for projects in the first quarter of 2012 alone.
Act 2012-524 – Amendments to Tornado Recovery Tax Incentive Protection Act of 2011: This act expands the scope of Act 2011-709, which provided that any tax abatement shall not be subject to disqualification solely because the underlying property or transaction relates to repairs or replacement of property, to apply to any property damaged as a result of a natural disaster (including the devastating tornadoes last April). In addition, the Act provides that tax abatements granted with respect to certain replaced property could continue even if the project was forced to locate to another site as result of the disaster.
Act 2012-54 – Expansion of Statutory Incentives to Coal Mining Industry: This act expands Alabama’s primary tax incentives (capital income tax credits and TIRA abatements) to projects primarily engaged in the coal mining industry (NAICS 2121). However, these incentives are subject to special limitations under the act. The state portion of the tax abatements for a coal mining project is limited to 50% of the state taxes eligible for abatement (this limit does not apply to local taxes eligible for abatement). The maximum aggregate capital credit that could be utilized by a coal mining project over the 20-year period is limited to 50% of the project’s capital costs, which cannot include certain land acquisition, architectural, and engineering costs under the Act. These incentives for coal mining projects will sunset on March 1, 2014 (two years from the effective date of the Act), unless the Legislature votes to extend the incentives by passing a joint resolution.
Act 2012-483 – Alabama New Markets Development Act: This act provides state income, financial institution excise, and insurance premium tax credits to investors in community development entities which provide funding to businesses that located in qualified low-income or impoverished communities, especially central business districts, in Alabama. The Act parallels the provisions of the federal New Markets Tax Credit (I.R.C. § 45D) in many ways. The total amount of tax credits the Department of Commerce can grant to all applicants for any given tax year is capped at $20 million and the maximum qualifying credit for a particular project is $10 million. Initially, the version that passed the House would have allowed for a transferable credit; however, the Senate struck this provision and the version ultimately enacted prohibits transferring the credit.
Act 2012-385 – Carryforward of Capital Credits for Certain Large Projects: This act allows certain large projects (minimum capital investment of $100 million and must create at least 100 new jobs) to carry forward any unused capital credits for a period of up to four years after the normal 20-year period for utilizing the credit expires, depending on the level of capital investment (e.g., $400 million eligible for four years, $300 million eligible for three years, etc.). Additionally, these qualifying projects can also delay the initial utilization of the credit for a period of up to three years after the date the project is placed in service. The act is generally effective for all qualifying projects placed in service after December 31, 2011.
Act 2012-391 – Agricultural Irrigation Systems Tax Credit: This act allows any agricultural business (NAICS Sector 11) to elect to expense qualified irrigation equipment under the provisions of IRC section 179, as such section existed on January 1, 2011. These businesses are also eligible for a state income tax credit of up to $10,000, which credit is calculated based on 20% of the cost of purchasing and installing any qualified irrigation equipment or qualified reservoirs. The credit is effective for all tax years beginning after December 31, 2011, but is limited to one project per taxpayer and must be taken in the year in which the qualifying property is placed in service.
Act 2012-436 – Alabama Tourism Destination Attraction Incentive Act: This act expands Alabama’s primary tax incentives (capital income tax credits and TIRA abatements) to include a “tourism destination attraction,” which is a commercial enterprise designed to attract visitors from inside or outside the State of Alabama, such as a convention hotel and conference center or a spectator venue or arena, provided that the facility is not primarily devoted to the retail sale of goods. In order to qualify, the project would have to create 50 new jobs within the first year and involve a capital investment of $20 million, unless the project was located in favored geographic area (20 new jobs and $5 million minimum investment).
Act 2012-168 – Heroes for Hire Act of 2012: In an effort to assist recently deployed, and now discharged, unemployed veterans in finding jobs and starting their own businesses, the act provides a non-refundable $1,000 income tax credit to employers for each qualified veteran hired. Veterans who were residents of Alabama at the time of entry into military service, received an honorable or general discharge within two years of the hiring date, and receive the proper unemployment certification are eligible under the bill. There is no limit on the number of tax credits the employer may claim, but employers may not hire veterans they have previously employed or veterans who are related to the employer. Although the credit is limited to reducing current year’s taxable income, any unused credits may be carried back one year and forward 20 years to offset future state income tax liability.
Additionally, the act provides for a $2,000 non-refundable income tax credit to the same qualified veterans who start their own businesses. The credit is limited to the start-up expenses of the business; including expenses incurred developing a business plan, legal and accounting fees, advertising expenses, etc. The veteran is required to be at least a 50% owner of the entity, and the business must show a net profit of at least $3,000 to qualify.