Non-educational property taxes, state and non-educational city and county sales & use taxes, and/or mortgage and recording taxes
- Who do I contact to get an abatement? Abatements are authorized to be granted by the governing body of:
- A municipality for private use industrial property located within the corporate limits of the municipality or within the police jurisdiction of the municipality
- A county for private use industrial property located in the county and not within a municipality or its police jurisdiction, unless consented to by resolution of the governing body of the municipality
- A public industrial authority for private use industrial property located within the jurisdiction of the public authority
- What qualifies as a major addition for an abatement? Any addition 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 $2,000,000.
- 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 ten years. However, the granting authority may grant an abatement for any period less than the ten year maximum.
- 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.
Sales & 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, effective August 1, 1998, 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? An Application for Certification of Exemption (form ST:EX-A2) should be submitted to the Alabama Department of Revenue. Effective August 1, 1998, Act 98-600 allows the private user, as well as any contractor or subcontractor who will incorporate tangible personal property into the project, to receive a certificate of exemption. Effective August 1, 1998, the contractor or subcontractor will no longer be required to purchase the property in the name of the private user or as agent of the private user; have the property billed to the private user; and have the property paid for with funds belonging to the private user in order to purchase the property exempt from sales and use taxes.
- 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 sales 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 the Department, 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 the Department, the certificate holder would be responsible for coordinating the amount of local abatements and taxes due with the local authority.
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.