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Property Tax Incentives

All real and personal property in Alabama is subject to property tax unless specifically exempted by law.

 

The Alabama property tax law is found in Chapters 7 through 9, Title 40, Code of Alabama 1975. The Alabama Constitution of 1901 and Alabama law contain various property tax provisions that may be considered as industrial incentives.

 

Assessed Value fixed by Alabama Constitution

Amendment 373 of the Constitution provides that all real and personal business property will be assessed at 20% of its fair market value.

Example – For a property with a fair market value of $1,000,000, assessed value is calculated as follows:

Fair market value * 20% = Assessed value

$1,000,000 * 20% = $200,000

 

The combined state and local millage rate would then be applied to the assessed value.

Low Millage Rates

Section 214 of the Constitution limits the state millage rate on both real and personal property to 6.5 mills. The 6.5 mills comprises:

  • 3 mills for education
  • 1 mill for relief
  • 2.5 mills for general use

Millage rates are used in property tax assessments and are determined by the county commissions and other taxing agencies. Millage is the tax rate expressed in decimal form. One mill equals one tenth of one cent (0.001). The state millage rate is equivalent to a tax of $6.50 for every $1,000 of assessed value.

However, both cities and counties may levy millage rates in addition to the state’s 6.5 mills. These local rates vary, but the average millage rate statewide is 42 mills, including the state’s 6.5 mills.

Example – For real and personal business property with a fair market value of $1,000,000, the average property tax is calculated as follows:

Fair market value * 20% * Millage Rate = Property Tax

$1,000,000 * 20% * .042 = $8,400

 

For current millage rates see the property tax division millage rates information page.

Tax Abatements

Alabama offers various abatement programs that allow qualified industries to receive abatements of non-educational property taxes for new businesses locating to Alabama, as well as for expansions of existing facilities in Alabama. Please click here to learn more about tax abatements.

Pollution Control Equipment Exemption

All equipment, facilities or materials constructed or acquired primarily for the control, reduction or elimination of air or water pollution are statutorily exempt from property taxation. The pollution control exemption is provided in Section 40-9-1(20), Code of Alabama 1975. Please click here to learn more about property tax exemptions.

Raw Materials, Finished Goods, and Inventory Exemptions

All raw materials, finished goods, and stocks of goods, wares, and merchandise held for resale are statutorily exempt from property taxes. The raw materials exemption is provided in Section 40-9-1(13), Code of Alabama 1975. The finished goods exemption is provided in Section 40-1(14), Code of Alabama 1975. The inventory exemption is provided in Section 40-9-1(23), Code of Alabama 1975, and in Amendment 373 to the Alabama Constitution of 1901.

Class 6 City Exemptions

Sections 11-51-220 through 11-51-241, Code of Alabama 1975, allow the governing body of a Class 6 City to grant two kinds of exemptions from city property taxes – separately from and in addition to the tax abatements mentioned above. Alabama cities are classified by population according to the 1970 Census – Section 11-40-12, Code of Alabama 1975.

  • A partial or complete exemption from “city property taxes” (not including the city educational property taxes) for “any parcel of land or personal property located within the city for a period of not more than 15 years” – Section 11-51-221, Code of Alabama 1975.
  • Along with the board of education of the municipality, “may grant, with respect to any parcel of commercial property located within the municipality, for a period of not more than 15 years, a partial or complete exemption from the portion of the municipal and county ad valorem taxes allocated for municipal educational purposes which exceeds 20 mills” subject to the provision that the property taxes from the parcel of property, for municipal educational purposes, for the year preceding the first year of exemption, do not decrease under the exemption – Section 11-51-241, Code of Alabama 1975.

 

Class 6 Cities According to the 1970 Census

Alexander City Athens
Auburn Cullman
Enterprise Fairfield
Homewood Opellika
Ozark Prattville
Sheffield Sylacauga
Talladega

 

Learn more about property tax >>