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Statutory Tax Abatements and Exemptions
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Property Tax
2022 Rates per $100 of assessed value City of Montgomery $1.25 Montgomery County $2.95* State of Alabama $0.65** Total $4.85 *$2.00 educational portion **$0.30 educational portion
Qualifying projects are eligible for an abatement of up to 10 years from property taxes levied for non-educational purposes. A project can request an abatement extension for years 11 – 20. The availability of all abatements is determined by the results of an economic impact analysis.
Alabama does not levy a property tax on inventory of goods, wares, and merchandise that is offered for sale. Inventory that is used for lease or rental purposes is subject to property tax.
All equipment, facilities or materials constructed or acquired primarily for the control, reduction or elimination of air or water pollution are exempt from property tax.
Sales and Use Tax
Area General Rate Manufacturing Machinery Rate City of Montgomery 3.5% 1.750% Montgomery County 2.5%* 0.333%** State of Alabama 4.0% 1.500% Total 10.0% 3.583% *1.0% designated for education **0.133% designated for education
Note: 1/2 of City rate is levied for purchases made outside city limits/inside police jurisdiction.
Qualifying projects are eligible for an abatement of non-educational construction-related sales and use taxes associated with constructing and equipping a project. The abatement must be granted prior to placing project in service.
Business Privilege Tax
The business privilege tax is an annual tax paid by corporations and limited liability entities (including disregarded entities) for the privilege of conducting business in Alabama. The tax base is the taxpayer’s net worth apportioned to Alabama. For business entities new to Alabama, the tax accrues as of the date of organization, qualification, or beginning to do business, and is due 30 days thereafter. The tax for existing entities accrues as of January 1 of every taxable year, and is due March 15.
Business Privilege Tax Rate
The tax rate for business privilege tax is graduated, based on the entity’s federal taxable income apportioned to Alabama. The rates range from $.25 to $1.75 for each $1,000 of net worth in Alabama. The minimum tax is $100.
Business Privilege Tax Cap
The maximum business privilege tax for most business entities is $15,000. The exceptions are for financial institutions, financial institution groups, and insurance companies that have a maximum business privilege tax of $3,000,000.
Corporate Income Tax
Corporations pay Alabama income tax based on their net taxable income derived from business conducted within the state. The amount of net income apportioned to Alabama is determined by applying a four factor formula of property, payroll, and double weighted sales to total net income. The rate of corporate income taxation is 6.5% (Individuals are taxed at a rate of 5%). Corporations that anticipate having a tax liability of $500 or more must file and pay estimated tax on a quarterly basis.
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Discretionary Jobs and Investment Credits
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Alabama Jobs Credit
Qualifying projects may be eligible for an annual cash rebate of up to 3% of the previous year’s gross payroll (not including fringe benefits) for new, direct jobs. The incentive period is 10 years.
- For companies employing at least 12% veterans in their eligible workforce, up to an additional 0.5% job credit is available for the wages of veterans.
- Amounts are paid as refunds of taxes for utility services.
- There is no job minimum for chemical manufacturing, data centers, metal/machining, engineering, design, and research projects. All other projects must create 50 jobs.
- This is a discretionary incentive. The availability of this incentive is based on the results of an economic impact analysis performed for each project.
Alabama Investment Credit
Qualifying projects may be eligible for a credit up to 1.5% of the qualified capital investment expenses each year for up to 10 years.
- This credit can be taken against the Alabama income tax liability and/or utility tax liability.
- This credit can be carried forward for 5 years.
- This credit may be transferable for the first 3 years to generate cash for the project. Investment credit transfers must be at least 85% of face value and be approved by the Alabama Department of Commerce.
- There is no job minimum for chemical manufacturing, data centers, metal/machining, engineering, design, and research projects. All other projects must create 50 jobs.
- This is a discretionary incentive. The availability of this incentive is based on the results of an economic impact analysis performed for each project.
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State Tax Credits
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Alabama New Market Tax Credit
A tax credit against state income, financial institution excise, and insurance premium tax is available 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. This credit 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.
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Employer Hiring Credits
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Full Employment Act
Tax years beginning January 1, 2012, employers who had no more than 50 employees as of January 1, 2011, are eligible for a $1,000 nonrefundable income tax or financial institution excise tax credit for each qualifying job created. The job created must be a net increase in employment and the employee hired must be paid more than $10 per hour and the credit is available in the tax year during which the employee has completed 12 months of consecutive employment.
Heroes for Hire Income Tax Credit
Tax years beginning January 1, 2012, employers who had no more than 50 employees as of January 1, 2011, are eligible for a $1,000 nonrefundable income tax or financial institution excise tax credit for each qualifying job created. The job created must be a net increase in employment and the employee hired must be paid more than $10 per hour and the credit is available in the tax year during which the employee has completed 12 months of consecutive employment.