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TEST 9B

CHAPTER 9B ABATEMENTS (TAX INCENTIVE REFORM ACT OF 1992)

Section 40-9B-1 through Section 40-9B-13, Code of Alabama 1975

 

Under Chapter 9B of Title 40 (also known as the Tax Incentive Reform Act of 1992), cities, counties, and public industrial authorities have the authority to grant the following tax abatements for new and expanding qualifying projects (including upgrades):

  • State sales and use taxes
  • Non-educational county and city sales and use taxes
  • Non-educational state, county, and city property taxes – up to 20 years (except data processing centers which can be abated for up to 30 years)
  • Mortgage and recording taxes for which property is conveyed into or out of a public authority, city, or county government

 

Some examples of types of projects that may qualify for 9B abatements

→ New companies with a qualifying activity that establish or move their qualifying activity to Alabama (no minimum capital investment required).→ Existing companies with a qualifying activity looking to expand or upgrade property (minimum capital investment required).

→ Existing companies with qualifying activity expanding to a new location (no minimum capital investment required).

 

Data processing centers under Chapter 9B are eligible to receive abatements as follows:

  • Property tax abatement for 10 years from and after the date the private use property becomes owned for federal income tax purposes for projects that invest up to $200M within 10 years from the commencement of the project.
  • Sales tax abatement for 10 years for projects that invest up to $200M from the commencement of the project.
  • Property tax abatement for 20 years from and after the date the private use property becomes owned for federal income tax purposes for projects that invest over $200M but less than $400M within 10 years from the commencement of the project.
  • Sales and use tax abatements for 20 years for projects that invest over $200M but less than $400M within 10 years from the commencement of the project.
  • Property tax abatement for 30 years from and after the date the private use property becomes owned for federal income tax purposes for projects that invest over $200M within 10 years from the commencement of the project and exceed $400M within 20 years from the commencement of the project.
  • Sales and use tax abatements for projects that invest over $200M within 10 years from the commencement of the project and exceed $400M within 20 years from the commencement of the project.

Capital Investment Requirement

New Project

There is no threshold or a limit on the capital investment amount for a new abatement project.

Major Addition

The additional capital investment by an industry that is expanding their current facilities in Alabama must be at least:

  • 30% of the original cost of the currently existing industrial property (sum total of the original facilities and equipment and any expansions and additions prior to the current addition); or
  • $2,000,000.

 

Procedures for Tax Incentive Reform Act of 1992 Chapter 9B Abatements

 

To receive an abatement of sales and use taxes, property taxes, and/or mortgage recording taxes under Chapter 9B 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 should determine the site for development.  The site must be determined before an abatement can be granted, because the source of the abatement is dependent upon the location of the site. Once a project site is determined, the private user must apply for the appropriate sales, use, and property tax abatements by submitting a completed “Application to Granting Authority for Abatement of Taxes” (Form CO:CAA) to the appropriate governing body.

After the abatement is granted, the private user (or its representative) 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:CAA) 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/ .
    • Proof that a copy of the resolution was submitted to the county commission must be sent to the Department of Revenue if the abatement is granted by a municipality or a municipal industrial development board.  The resolution must be either mailed by certified mail or by physical delivery to the county commission and proof of delivery of affidavit or service (in the case of physical delivery), or by copy of certified mail receipt (in the case of mailing by certified mail) is required to be sent to the Department of Revenue.
    • Project Notification with the Alabama Department of Commerce. You may contact the local Economic Development Agency for issuance of notification or please visit http://notification.madeinalabama.com/ to register your project online.

Once the completed abatement package is received by the Department of Revenue, and if the abatement is for sales and use taxes, 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. [This should link to the page that talks about the contractors]

Claiming the Sales and Use Tax Abatement

For projects that have been granted sales and use tax abatement, the state sales and use taxes and the local portion of the sales and use tax not earmarked for education are abated for qualifying tangible personal property that is incorporated into the qualifying project. To utilize the sales and use tax abatement, all qualified purchases for the project must be purchased using a Sales and Use Tax Exemption Certificate for an Industrial or Research Enterprise Project. 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 certificate holder will not have to file and remit any state sales and use tax returns with respect to the project unless the certificate is used to make a tax-exempt purchase of property which does not qualify for the abatement.

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.

What is not included in the Sales and Use Tax Abatement for 9B abatements

What is NOT allowed for new projects

  • Purchases of replacement/spare parts
  • Purchases of consumables
  • Expensed items not subject to capitalization

What is NOT allowed for major addition projects

  • Same as above plus:
    • Purchases for renovations to facilities (under the existing roof)
    • Purchases for replacement equipment
    • Purchases for modifications to existing equipment already owned by the private user

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.

Governing Body for Abatement of 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 9B Tax Abatements for Sales and Use Tax, Property Tax for Years 1-10, and Mortgage and Recording Taxes

  • A county may grant abatements (for certain state, county, and city taxes) to qualifying projects located within the county, but not within the city limits or police jurisdiction unless consented to by resolution of the governing body of the municipality.
  • A city may grant abatements (for certain state, county, and city taxes) to qualifying projects located within the city limits and police jurisdiction.
    • If a city government abates county taxes, the city must notify the county by sending a copy of the abatement resolution to the county commission, by certified mail.
    • If a city is the jurisdictional authority but does not abate the city’s corresponding taxes, the city must have consent from the governing body of the county by resolution to abate the county’s taxes. Property taxes are not levied in police jurisdictions; therefore, for projects located in the police jurisdiction, the city government must have the county’s consent to abate the county’s property taxes.
  • A public industrial authority may grant abatements (for certain state, county, and city taxes) to qualifying projects located within the authority’s jurisdiction.
    • If a municipal public authority abates county taxes, the municipal public authority must notify the county by sending a copy of the abatement resolution to the county commission, by certified mail.
    • If a municipal public authority is the jurisdictional authority but does not abate the city’s corresponding taxes, the municipal public authority must have consent from the governing body of the county by resolution to abate the county’s taxes. Property taxes are not levied in police jurisdictions; therefore, for projects located in the police jurisdiction, the municipal public industrial authority must have the county’s consent to abate the county’s property taxes.

Tax abatements granted to data processing centers will fall under these granting authority provisions.

Governing Body for Chapter 9B Property Tax Abatements Granted for any or all Years 11-20

Property tax abatement can be granted for up to 20 years; however, each taxing jurisdiction must grant its own non-educational property taxes for abatements granted for any or all years 11-20.

  • A county may grant property tax abatements for any or all years 11-20 to qualifying projects located in the county but only as to the county non-educational property taxes.
  • A city may grant property tax abatements for any or all years 11-20 to qualifying projects located within the limits of the city but only as to the city non-educational property taxes.
  • The Governor may grant property tax abatements for any or all years 11-20 to qualifying projects located in the state but only as to the state non-educational property taxes.
  • The governing body of a county and a city may separately authorize one or more public industrial authorities to provide by resolution for such consent on their behalf.

Responsibilities of the Governing Body

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

  • The private user(s) who is granted the abatement.
  • 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 project is for an addition to an existing industrial development property (Chapter 9B), the agreement should reflect that the addition is at least the lessor of 30% of the original cost of the industrial development property or $2,000,000.

 

Limitations of Tax Abatements

 

An abatement applies to all allowable 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 (with the exception of data processing centers.)  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. If any purchases made with the exemption certificate do not qualify, the state and local sales or use tax will be required to be remitted.
  • 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

  • For property tax, if bonds are issued the abatement starts on the date the bonds are issued to finance the cost of the private use property; else, the abatement starts on the date the project is placed in service or such date as specified in the abatement agreement.
  • An abatement for non-educational property taxes must not exceed 20 years from the date the abatement period begins (with the exception of data processing centers.)
  • 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 maximum exemption period as defined by §40-9B-3 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 of an industrial or research enterprise or the approved activity for six consecutive months.

 

Still have questions about abatements? Visit our FAQ page or contact the Office of Economic Development.