When Should Forms Be Filed
There are five (5) forms related to the Alabama income tax capital credit program. Three (3) are application forms, filed only once, and are used to notify the Department of the intent to utilize the capital credit, that the project has been placed in service (Form INT-2); and any administrative changes in the project owners (Form INT-4)
The other two (2) forms are utilized after the project is placed in service and are filed annually with the Alabama income tax return to compute project income (Form AR) and to compute the amount of credit to be utilized by the recipient (Form K-RCC)
Three (3) initial to be filed with the Commissioner’s Office of Department of Revenue
Report of Intent to Invest in Project
The capital credit program is not available to projects that have not filed a Form INT on or before January 2, 2016.
Accounting Practices Agreement
- The accounting practices agreement serves as an agreement between the project and the department for the determination of income at the project as required by law. The agreement indicating the preferred income determination method on the Form INT will be mailed to the companies with the project approval letter.
- There are four types of agreements available: four factor method, three factor method, two factor method, and separate accounting. Separate accounting is allowed only in special circumstances when the two-factor or three-factor methods are not feasible. Once the agreement has been signed and remitted by the project, the Department Secretary will sign the agreement on behalf of the department. A copy of the signed agreement will then be sent to the project.
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.
- 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
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.
Forms Attached to Alabama Income Tax Returns
The Annual Report (Form AR) and Schedule of Recipient’s Share of Capital Credit (Form K-RCC) are to be filed annually by companies to receive the capital credit by attaching them to their Alabama income tax return.
Annual Report: Form AR
- Form AR should be completed and attached to the Alabama income tax return of the project. Although several companies may combine to form a joint venture, the companies must form a joint entity for Alabama income tax purposes. Therefore, this form is to be attached to the Alabama income tax return of the project entity (or joint entity) which reports the income from the project.
- Each project entity will file one (1) Form AR each year for each project. It will be attached to the Alabama income tax return of the project entity. This form will indicate that the requirements for the capital credit have been maintained for the tax year.
- Form AR will provide the computation for the income attributable to the project. The two, three and four factor methods are computed similarly to computation for the Alabama corporate income tax return. However, instead of a fraction consisting of Alabama to everywhere, the fraction shall consist of Project to Alabama.
- In year one, the credit will be pro-rated for the portion of the year that the project was in service. The remainder of the 5% credit from year one will be applied to the tax year after the last full year of available credit.
- A project may file a short year return. This will occur mostly in new projects where the company did not previously have sufficient nexus in Alabama and is placed in service in the middle of a tax year. This computation will mirror the computation for the part-year filers.
Schedule of Recipient’s Share of Capital Credit: Form K-RCC
- Form K-RCC should be completed and distributed to all recipients receiving the capital credit and must be attached to the recipient’s Alabama income tax return to receive the credit.
- This form shows the income from the project which is distributed to the recipient. If the qualifying project is a C corporation, this form should be attached to the project entity’s return along with the Form AR.
- A Form K-RCC will be filed by all recipients of the capital credit. The project entity will complete Lines 1-3, 5, and 6 while the recipient of the credit will complete lines 4 and 7.