Tax Abatement FAQ

 

If you are a contractor or a subcontractor looking for information specific to contractor/sub-contractor requirements, please visit the contractor’s page for details.

Non-educational property taxes, state and non-educational city and county sales
and use taxes, and/or mortgage and recording taxes

• Who do I contact to get an abatement? Abatements are granted by the governing body of a municipality or county, or public industrial authority, depending on the location of your project. However, the local economic development agency is the point of contact and will assist you with the necessary documents that are required to be remitted to the governing body. This could be economic development units within the municipality or county, city or county economic development agencies or associations, and chambers of commerce. 

• What qualifies as a major addition for an abatement? Any addition (real or personal property) to a qualifying existing industrial development property that equals the lesser of 30 percent of the original cost of the existing land, building, and equipment (industrial development property), or $2 million.

Sales and use taxes

• When should an abatement of non-educational sales and use taxes be obtained? An abatement for non-educational sales and use taxes must be granted to the private user prior to any purchases being made with regard to the project. 

• What is a certificate of exemption? With regard to abatements, a certificate of exemption is issued by the Department of Revenue to the private user and to any contractor or subcontractor who will incorporate tangible personal property into the project, allowing purchases for the project to be made without the payment of sales/use taxes to the vendor (in-state or out-of-state).

• How is a certificate of exemption obtained and who can be issued one? To receive a certificate of exemption, an Application for Certification of Exemption (form ST: EX-A2) should be submitted to the Alabama Department of Revenue by the private user, as well as any contractor or subcontractor who will incorporate tangible personal property into the project.

• Can the applications or extension requests for sales and use tax certificates of exemption be made online? These requests can be mailed, faxed, or emailed to incentives@revenue.alabama.gov.

• What should the certificate holder provide to the vendor when making purchases? The certificate holder should provide the vendor with a copy of his/her certificate of exemption.

• How often does the certificate holder have to file sales and use tax returns with regard to the certificate of exemption? The only time a certificate holder must file a monthly state sale or use tax return is when the certificate holder uses the exemption certificate to make tax-exempt purchases that are not qualified for the abatement. For local sales and use taxes that are administered by ALDOR, the certificate holder is required to remit monthly local sales and use tax returns for the portion of the local sales and use taxes which have been earmarked for educational purposes and local taxes due on property which does not qualify for the abatement but was erroneously purchased tax-exempt using the exemption certificate. For those local sales and use taxes that are not administered by ALDOR, the certificate holder would be responsible for coordinating the amount of local educational tax due with the proper local tax authority. Please click here for a list of unabated locality codes and contact information.

• Can a private user or general contractor make copies of the sales and use tax exemption certificates and distribute to their subcontractors to make purchases on behalf of a project? No. Each private user, contractor or a subcontractor must apply for their own certificates of exemption. Certificates are not transferable and may only be used by the person, firm, or corporation whose name appears at the bottom of the certificate. 

• How can I get an extension on the sales and use tax certificate?  ALDOR is able to extend the certificate of exemption for up to a year from the original expiration date. If an extension request is beyond one year, or if the original expiration date has been expired for over a year, the granting authority must approve the extension. In order to request for the extension through ALDOR, the private user must send to the Office of Economic Development a letter on their company letterhead requesting an extension along with the reason for the extension. The granting authority must also be cc’d in the letter and provided a copy of the request so they are aware that an extension has been requested through the Department of Revenue. Extensions can only be requested if the original capital investment amount does not increase by 10% or more than the capital investment amount listed on the abatement request.

Note: A contractor or a subcontractor can only request the extension once the private user has been approved an extension through our office.

Property taxes

• When should an abatement of non-educational property taxes be obtained? An abatement of property taxes must be granted prior to the property being placed in service or becoming owned, for federal income tax purposes, by a private user. 

• How long does an abatement of non-educational property taxes last? The maximum period of an abatement of non-educational property taxes is 20 years for all projects except data processing center projects, which have up to 30 years. However, the granting authority may grant an abatement for any period less than the maximum period.

• When does the abatement of non-educational property taxes begin? The date on which an abatement of non-educational property tax begins varies. If revenue bonds are issued, the abatement period will begin on the date of the initial issuance of such bonds. If no bonds are ever issued, the abatement period will begin on the latter of the following dates:
  • the date on which the title to the property was acquired by or vested in a county, city, or public authority.
  • the date on which the property is or becomes owned, for federal income tax purposes, by a private user.

• If a business which has an existing abatement is sold, may the new owner then apply for another abatement of non-educational property taxes? No; however, the new owner is entitled to receive the remainder of the benefits of the existing abatement.

• Do revenue bonds have to be issued for the Industrial Development Board to grant the abatement? No; however, the property must be in the Industrial Development Board’s geographical jurisdiction.

Mortgage and recording tax

• Does the governing body have to be a party to a mortgage, deed, etc., for the private user to claim the abatement of mortgage and recording taxes? Yes. Pursuant to Section 40-9B-4(d), Code of Alabama 1975, mortgages, deeds, and documents convey “title into or out of” the governing body in order to receive an abatement. Therefore, it is necessary that the governing body be either mortgagor or mortgagee in each mortgage under consideration. If the governing body is not a party to a mortgage (or other such document), then that mortgage does not convey title “into or out of” the governing body and, therefore, does not qualify for an abatement.