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Income Tax Capital Credit

INCOME TAX CAPITAL CREDIT

Section 40-18-190 through Section 40-18-203, Code of Alabama 1975

 

The Income Tax Capital Credit program, repealed by Act 2015-27, sunset on January 2, 2016, for new projects. Projects that filed a Form INT with the Alabama Department of Revenue on or before January 2, 2016, have been grandfathered into the program.

The provisions of the Capital Credit include:

  • The credit of up to 5% of the capital costs of a qualifying project.
  • The credit can be applied against the Alabama income tax liability or financial institution excise tax generated by the project income, each year for 20 years.
  • The credit is non-refundable, and with the exception of certain projects meeting the requirements under §40-18-194(b)(10)b, the Capital Credit cannot be carried forward.
  • The credit follows the income generated by the project; therefore, it will be allowed to “pass-through” entities such as: S-Corporations, partnerships, limited liability companies, etc.

Additional provisions include:

  • Each qualifying project must meet and maintain the annual statutory employee and wage requirements specific to its type of the qualifying project to utilize the Capital Credit as required by §40-18-193.
  • The minimum employee requirement and average wage requirement of all new employees of the project is determined at the time the Form INT is filed and must be met annually throughout the life of the credit.
  • The project entity must report the minimum requirements annually on the Annual Report for the Capital Credit (Form AR-C or AR-PTE).
    • If the project fails to meet the employee or wage requirements in the first year, the project is ineligible for the Capital Credit Program.
    • If the project becomes non-compliant in any subsequent year, the investing company will forfeit the annual credit available in the noncompliance year and will be subject to noncompliance forfeitures imposed under §40-18-193.
    • An investing company will be ineligible for the remainder of the program if the investing company fails to meet the minimum requirements after three noncompliance years (whether or not consecutive) within the 20-year period of the investing company’s Capital Credit.

Applicable Forms

Report of Intent to Invest in Project: Form INT-2

  • Form INT-2 is filed after the project has been placed in service and before the project claims the credit on an Alabama income tax return. The actual amount of capital costs reported on Form INT-2 is used to compute the annual five percent (5%) allowed to the project and its recipients. The capital costs shall not include costs incurred prior to the commencement of the project, assets placed in service prior to the filing of Form INT, or costs incurred after the project was placed in service. The date the project is placed in service is the date the capital credit begins. To verify the capital costs, the asset depreciation schedule is required to be submitted with the filing of the Form INT-2. The schedule should include the description, in-service date and cost of each asset.
  • A list of the employees meeting the definition of a new employee may be required to be submitted with the Form INT-2.
  • Form INT-2 must be approved by the Department of Revenue before any credit can be claimed.
  • For purposes of the capital credit a qualifying project shall be considered placed in service on the earlier of the following days neither of which shall be deemed to have occurred prior to the first day on which the qualifying project’s total capital costs have been incurred:

→ the day on which, under the taxpayer’s depreciation practice, the period for depreciation with respect to such qualifying project begins
→ the day on which the qualifying project begins a specifically designed function for the production of revenues

Note that the INT-2 must be approved by the Office of Economic Development prior to the credit being claimed.

Notice of Change of Ownership, Interest, or Participation of Interest in Project: Form INT-4

If at any time after filing the Form INT the project has a change in ownership, interest, or participation of interest in the project, the project should file a Form INT-4 indicating the current recipients of the capital credit. This form should be completed in its entirety. Please click here to access the form.

Form AR-PTE

All project entities that are organized as pass-through entities must file Form AR-PTE. The ALDOR has a new process which requires the pass-through entity to submit the AR-PTE through MAT.  Once the online submission has been reviewed, the pass-through entity will be notified whether the annual requirements have been met. Please see the bottom of this page for detailed instructions on the new procedures.

NOTE: The new system for processing credits will require the pass-through entity to submit the Form K-RCCs through MAT under the Credit Claim once the Form AR-PTE is approved.

Form AR-C

All project entities organized as C-Corporations or financial institutions must file Form AR-C. The Form AR-C replaces the Form AR and Form K-RCC; as such, the Alabama income tax liability for the tax year in question must be known and included in the submission of the Form AR-C. Therefore, the Form AR-C should be submitted through MAT at the time of filing of the income tax return. The income tax return must be filed according to the normal filing requirements. Please see the bottom of this page for detailed instructions on the new procedures.

Employment Requirement

  • Industrial, warehousing or research activity projects, and renewable energy projects:
    • At least 20 new employees for projects not located in favored geographic areas.
    • At least 5 new employees for projects located in favored geographic areas.
  • Headquarters facility projects for which Form INT was filed on or before May 21, 2009: at least 20 new employees.
  • Small business addition projects: at least 15 new employees
  • Headquarters facility projects (for which Form INT was filed after May 21, 2009), data processing centers, and warehousing activity projects (NAICS 493): at least 50 new employees
  • New employees must meet the statutory definition of “new employees” found in §40-18-190(10). “New Employee” is defined as a person that did not work for the investing company prior to the project being placed in service, works full-time, and is subject to Alabama personal income tax. Required jobs must be provided no later than one year after the project is placed in service, continuing each year thereafter. Required jobs and average base wages for “warehousing activity projects” must be provided no later than two years after the project is placed in service, and continuing each year thereafter.
  • Pursuant to §40-18-193(a), the investing company’s qualifying project must create a net increase in employment. If an investing company places a qualifying project in service within two years of reducing its workforce, only the number of employees in excess of the number of employees who worked at the existing facility prior to the reduction qualify as new employees for the Capital Credit. The Department may require a two-year look-back period to determine if the existing employee base decreased prior to or during the commencement of the project. Further, if an investing company places a qualifying project in service within two years of closing a facility, only the number of employees in excess of the number of employees who worked at the existing facility prior to the closure qualify as new employees for the capital credit.

Wage Requirement

§ 40-18-190(1) defines the base wage requirements for new employees for purposes of the Capital Credit. The base wage requirement for a qualifying project is determined based on the date the project’s Form INT was filed with the Alabama Department of Revenue and will be the minimum average wage the project must meet throughout the life of the Capital Credit.

  • For qualifying projects that filed a Form INT on or before December 31, 2009, and earlier, the average wage requirement for all new employees must be at least $8 an hour.
  • All qualifying projects that filed Form INT on or after January 1, 2010, must meet the lesser of the annual indexed hourly rate for their type of project or the average hourly wage of the county where the qualifying project is located. The minimum average wage requirement was determined when the Form INT was filed.

Annual indexed hourly rate for projects located in favored geographic areas, for Form INTs received in a respective calendar year are as follows – 2015: $13.07; 2014: $12.97; 2013: $12.69; 2012: $12.44; 2011: $12.18; 2010: $12.00.

Annual indexed hourly rate for all other projects for Form INTs received in a respective calendar year are as follows – 2015: $16.33; 2014: $16.20; 2013: $15.85; 2012: $15.55; 2011: $15.23; 2010: $15.00.

The Average Hourly Wage by County listings can be retrieved under “Additional Resources”.

The average wage of direct processors of agriculture food products are subject to the local labor market rate and the average wage was determined at the time the Form INT was filed.

Other Filing Requirements

  • A company must file a report of investment in project (Form INT-2) when the project is placed in service.
  • A company must file an Accounting Practices Agreement with the Department (under Section 40-18-192) before the Capital Credit can be utilized. This agreement denotes how the income from the project will be determined and is not necessarily the same method used in determining Alabama income.
  • Once the project has been placed in service and the Form INT-2 has been filed and the Accounting Practices Agreement has been executed, annual forms must be submitted to the Alabama Department of Revenue. For more information, please refer to the page on how to file the Capital Credit.

Noncompliance Provisions

  • Minimum statutory requirements must be met by the first year the project is placed in service and maintained each year annually to receive the credit.
  • The project is ineligible for the credit if the requirements are not met by the first year the project is placed in service.
  • After the first year, the Capital Credit statute allows a project to fall below minimum employee and wage requirements for up to three of the 20 years of the life of the credit; however, the credit is not available in the noncompliance year(s).
  • After the third noncompliance year, the project is disqualified from the Capital Credit Program.

For qualifying projects in which the investing company files Form INT with the Alabama Department of Revenue after May 22, 2009, if the qualifying project meets the minimum requirements by the first year but fails to meet such requirements in a subsequent year, then the investing company shall forfeit a percentage of the capital credits claimed in the prior five years as follows:

  • The forfeiture shall equal 100% of the capital credits claimed in the year immediately preceding the year in which the investing company fails to maintain the employment and wage requirements of this section.
  • The forfeiture percentage shall be reduced by 20% for each successive prior year in the five-year forfeiture period.

 

Click here for information on how to file the Capital Credit.