Chapter 9C Abatements

 

Chapter 9C of Title 40 (also known as the Brownfield Development Projects) gives cities and counties the authority to abate the following taxes:

• Non-educational county and city sales and use taxes
• Non-educational state, county, and city property taxes – up to 20 years.

To receive an abatement for any or all of these taxes, a project must meet certain qualifications and follow certain procedures, as determined by law and regulation.

Statutory Requirements for Brownfield Abatements

In order to qualify for the Chapter 9C (Brownfield) abatements, the property must be in the Alabama Department of Environmental Management’s voluntary cleanup program.

Capital Investment Requirement

New Company

There is no threshold or a limitation on the investment amount for new Brownfield abatement project. The total amount of the capital investment by a company that is located in Alabama is eligible for the tax abatements.

Major Addition

The additional capital investment by a company that is expanding their current facilities on a Brownfield development property must equal the lesser of:

• 30% of the original cost of the property as remediated; or
• $2,000,000.

To receive an abatement of sales and use taxes, property taxes, and/or mortgage recording taxes under Chapter 9C of Title 40, Code of Alabama 1975, certain actions must be taken by the private user, the granting authority, the Department of Revenue, local taxing authorities, and/or the Governor.

 

 

 

To receive an abatement of sales and use taxes, property taxes, and/or mortgage recording taxes under Chapter 9C of Title 40, Code of Alabama 1975, certain actions must be taken by the private user, the granting authority, the Department of Revenue, local taxing authorities, and/or the Governor.

General Overview of an Abatement Process

Private User

The private user is any individual, pass-through entity, or corporation organized for profit that is or will be treated as the owner of private use property for federal income tax purposes. The private user must be in the Alabama Department of Environmental Management’s voluntary cleanup program to qualify for the Brownfield abatements. Once a project site is determined, the private user must apply for the appropriate sales, use, and property tax abatements at or about the time the voluntary cleanup plan is approved by the Alabama Department of Environmental Management (ADEM) by submitting a completed “Application to Granting Authority for Abatement of Taxes under Chapter 9C” (Form CO:CAAC) to the appropriate governing body.

After the abatement is granted, the private user is responsible for submitting a completed abatement package to the Alabama Department of Revenue within 90 days after the abatement is granted.  The package must include the following:

• • A copy of the executed abatement agreement.
  • A copy of the certified resolution by the public body.
  • A copy of the application to local granting authority (Form CO:CAAC) and the list of property to be acquired under the abatement.
  • The certificate of exemption application (Form ST:EX-A2).
  • Documentation that the private user is enrolled in the E-Verify program- https://www.e-verify.gov/.

Once the completed abatement package is received by the Department of Revenue, the Department will issue a certificate of exemption, which is used in making the necessary purchases to be incorporated into the project.

Note! Contractor(s) or subcontractor(s) who will be making purchases to be incorporated into the project must file an application for a certificate of exemption (Form ST: EX-A2) with the Department of Revenue, along with a letter from the private user (or contractor) verifying that they will be making purchases for the project. For further details please click here.

Claiming the Sales and Use Tax Abatement

A certificate of exemption is issued to the private user (and their general and subcontractors, if applicable) to make all purchases of tangible personal property to be incorporated into the project without payment of sales and use taxes to the vendor.  The statute does not allow the state sales and use tax to be abated; therefore, the certificate holder must file and remit any state sales and use tax monthly on all purchases of property.

For local taxes, the certificate holder is required to remit separately the portion of local sales and use taxes which have been earmarked for educational purposes, along with any local taxes due on purchases which do not qualify for the abatement but were purchased tax-exempt using the exemption certificate. The certificate of exemption is effective as of the date the abatement is granted and will expire on the date of the completion of the project.

Claiming the Property Tax Abatement

For property tax purposes, the private user should contact the local county assessing official in the county where the property is located to claim the abatement for non-educational property taxes.

For the county assessing official to properly credit the abatement, certain information must be provided.  The county assessing official must receive a copy of the abatement application, resolution, and abatement agreement.  In addition, an itemized list of all abated property (real and/or personal) that has attained situs in Alabama as of October 1 must be provided before the abatement can be applied. Per Section 40-7-4, Code of Alabama, 1975, such property must be reported annually between October 1 and December 31 with the county assessing official. Therefore, property subject to abatement should be reported and identified as such each year on Form ADV-40, Business Personal Property Return. This form is available on the department’s website. Failure to provide this information to the local assessing official may delay the credit for the abated taxes.

 

The governing body is statutorily authorized with granting of the tax abatements to qualifying projects and is subject to geographical or jurisdictional limitations.

Governing Body for Chapter 9C Brownfield Tax Abatements – Sales and Use Tax and Property Tax

• The governing body of a county may grant abatements (for certain state, county, and city taxes) on property located in the county and not within a city or the police jurisdiction of a city; provided, however, that the governing body shall not grant an abatement of any city taxes unless consented to by resolution of the governing body of the city.
• The governing body of a city may grant abatements (for certain state, county, and city taxes) on property located within the limits of the city or the police jurisdiction of the city provided, however, that the governing body shall not grant an abatement of any county taxes unless consented to by resolution of the governing body of the county.

Responsibilities of the Governing Body

The governing body (county or city government), must adopt a resolution granting the abatements for the applicable taxes. The abatements must be embodied in a written abatement agreement between the governing body (county or city government) and the private user. The abatement agreement should specify the following:

• An estimated amount of tax abated for each type of tax.

• The maximum exemption period for each abatement.

• Good faith projections, by the private user, of the amount to be invested, the number of individuals to be employed, and the payroll (initially and in the succeeding three years).
• 2012 North American Industrial Classification System (NAICS) code as provided to the private user by the Department of Labor or specific qualifying business activity allowed by statute.
• If the Brownfield project is for an addition to an existing industrial development property, the agreement must reflect that the addition is at least the lessor of 30% of the original cost of the industrial development property or $2,000,000.

 

 

An abatement applies to all real and personal property incorporated into the project. However, certain restrictions apply.

Sales and Use Tax

• For sales and use tax, the abatement becomes effective on the date the abatement is granted by resolution and continues to be in effect until the entire project is placed in service.
• Only the purchases made after the abatement is granted will qualify for the tax abatement.
• Once the Certificate of Exemption is issued, it will be used to make all purchases of tangible personal property to be incorporated into the project, without incurring sales and use tax. The certificate holder must file and remit any state sales and use tax monthly on all purchases of property.
• When local sales and use taxes are administered by the Department of Revenue, the certificate holder is required to remit separately the portion of local sales and use taxes which have been earmarked for educational purposes, plus any local taxes due on purchases which do not qualify for the abatement but were purchased tax-exempt using the exemption certificate. If the site is located in a locality which administers its own local sales and use taxes, then the certificate holder is responsible for coordinating the amount of local abatements and taxes due with the local taxing authority.
• Once an abatement is granted, the Department of Revenue will supervise the valuation, equalization, and assessment of the abated property.
• For sales tax, the overall capital purchases must not exceed the approved investment amount plus a 10% deminimis deviation. For the additional investment to be included, the abatement agreement must be amended to reflect the additional investment.
• The Department may review, audit, and conduct inspections and investigations of property for which abatements are granted.

Property Tax

• An abatement for non-educational property taxes must not exceed 20 years from the date the voluntary cleanup plan is approved by ADEM.

• No additional property (real or personal) may be eligible for abatement once the project is placed in service unless a “major addition” project is made.
• Once the abatement expires, all real and personal property will become fully taxable.
• A change of ownership or assignment of interest of an operating industrial or research enterprise does not qualify the property for a new or additional abatement. The new owner will be allowed to receive the remainder of abatements previously granted.
• For property tax, the overall real and personal property investment must not exceed the approved investment amount plus a 10% deminimis deviation.  For the additional investment to be included, the abatement agreement must be amended to reflect the additional investment.
• The property tax abatement will terminate if the property ceases to be used in the active conduct for six consecutive months.