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incometaxincentives

Alabama Income Tax Incentives

Alabma Income Tax law is found in Chapter 18, Title 40, Code of Alabama 1975.  Corporations and other business entities pay Alabama income tax based on the net taxable income derived from business conducted within the state.  The amount of net income apportioned to Alabama is determined by applying an equally weighted three-factor formula of property, payroll, and sales to total net income.  Alabama law offers several income tax incentives for new, existing, or expanding businesses in Alabama.

Constitutional Income Tax Limits and Federal Income Tax Deductions

There are constitutional restrictions in the Alabama Constitution of 1901 that add to the stability of Alabama's business income tax environment:

  • Amendment 25 limits the individual rate of income taxation to no more than 5%.
  • Amendment 225 allows the individual taxpayer to deduct federal income tax paid from his individual gross income.
  • Amendment 662 limits the corporate rate of income taxation to no more than 6.5%.
  • Amendment 662 allows the corporate taxpayer to deduct, from its gross apportioned and allocated Alabama income, the full apportioned Alabama amount of federal income taxes paid.

Income Tax Capital Credit

  • If a business entity invests in a qualifying project that meets certain requirements and is approved by the Alabama Department of Revenue, the company may receive an annual credit against its income tax liability generated from the qualifying project.
  • The capital credit is equivalent to 5% of the capital costs of the qualifying project, and can be utilized for a period of 20 years beginning during the year the project is placed in service.
  • The credit is available to all types of business entities, including: S corporations, C corporations, limited liability companies (LLCs), partnerships, trusts, and sole proprietorships.
  • The capital credit is available under Sections 40-18-190 through 40-18-203, Code of Alabama 1975.
  • More Income Tax Capital Credit information.

Income Tax Net Operating Loss Carryforward

Corporate income tax law provides for a 15 year carryforward of net operating losses. In computing net income, a corporation is allowed a deduction for the sum of the net operating losses which are carried forward. Each net operating loss may be carried forward and deducted only during the 15 consecutive year period immediately following the year in which it arose. See Section 40-18-35.1, Code of Alabama 1975.

Income Tax Enterprise Zone Credit or Exemption

The corporate income tax enterprise zone credit or exemption is offered to help encourage economic growth to areas in Alabama that are considered economically depressed.  To qualify for either the credit or the exemption, a business must meet detailed requirements concerning site location and employee qualifications.  The enterprise zone tax incentive is available under the Alabama Enterprise Zone Act, Sections 41-23-20 through 41-23-32, Code of Alabama 1975.

For information please contact:

Alabama Department of Economic and Community Affairs
Enterprise Zone Coordinator
401 Adams Avenue
P.O. Box 5690
Montgomery, AL 36103-5690
334-242-5477

Income Tax Education Credit

An employer could qualify to receive an income tax credit of 20 percent of the actual cost of an employer sponsored educational program that enhances basic skills of employees up to and including the twelfth grade functional level.  This concept would include programs which teach English as a second language.  This credit is available under Sections 40-18-135 through 40-18-139, Code of Alabama 1975.

For information please contact:

Alabama Department of Education
Adult and Community Education Program
Gordon Persons Building, Room 5343
50 North Ripley Street
Montgomery, AL 36130
800-392-8086 or 334-242-8181