(a) If provided for in the project agreement, the incentivized company is allowed an investment credit in an annual amount equal to 1.5 percent of the capital investment incurred as of the beginning of the incentive period, to be used as follows:
(1) To offset the income taxes found in this chapter, or as an estimated tax payment of income taxes;
(2) To offset the financial institution excise tax found in Chapter 16;
(3) To offset the insurance premium tax levied by Section 27-4A-3(a), or as an estimated payment of insurance premium tax;
(4) To offset utility taxes; or
(5) To offset some combination of the foregoing, so long as the same credit is used only once.
The incentive period shall begin no earlier than the placed-in-service date. The incentive period shall be 10 years. Should only some portion of a tax year be included in the incentive period, the amount of the investment credit shall be prorated on a daily basis.
(b) A project agreement may specify any one or more of the following methods by which the investment credit shall be realized by the incentivized company, so long as a credit is not utilized more than once:
(1)a. The investment credit may be claimed as a credit against the taxes in subsection (a) that are actually paid. In any one year, if the credit exceeds the amount of taxes that are allowed to be offset by the project agreement and that are owed by the incentivized company, the incentivized company may carry the credit forward, to the extent allowed in the project agreement. No carryforward shall be allowed for more than five years. Rules similar to those used for Section 40-18-15.2 shall be applied.
b. Prior to claiming the investment credit as provided in this subdivision, the incentivized company shall submit to the Department of Commerce a certification as to its capital investment as of the dates specified in the project agreement. Following such examination as it deems necessary, the Department of Commerce may certify the information and deliver the same to the Department of Revenue. Thereafter, the Department of Revenue shall allow the investment credit.
(2) The project agreement may authorize an incentivized company that is taxed as a flow-through entity to allocate the credit among some or all of the owners in any manner specified, regardless of whether the allocation follows rules similar to 26 U.S.C. § 704(b) and the regulations thereunder. The owners may then use their allocated share of the investment credit to offset any of the taxes listed in subsection (a), as provided in subdivision (1). This subdivision shall be liberally construed to apply to multiple levels of companies, to allow the investment credits to be used by those persons bearing the tax burdens of the qualifying project, and such companies shall include but shall in no way be limited to flow-through entities, employee stock ownership plans, mutual funds, real estate investment trusts, and it shall also apply to offset the income tax liability of employee/owners of a flow-through entity owned by an employee stock ownership plan trust.
(3) All or part of the first three years of the investment credit may be transferred by the incentivized company and applied by another person or company as follows:
a. A transfer of the credit shall be made by written, notarized contract.
b. No such transfer shall occur before the contract is approved by the Secretary of Commerce. In determining whether to approve any transfer, the Secretary shall make all of the following findings:
(i) That any year’s investment credit will not be purchased by more than three transferees, unless such limitation is found by the Secretary of Commerce unnecessarily to limit the class of potential transferees;
(ii) That the proposed transfer will enhance the economic benefits of the qualifying project; and
(iii) That the transfer is at a value of at least 85 percent of the present value of the credits.
Upon making affirmative findings on the criteria set forth above, the Secretary of Commerce shall recommend to the Governor that the transfer should be approved. Information about the proposed transfer shall be forwarded to the Governor, and the Governor may include provisions about the transfer in the project agreement, or in an amendment thereto executed by the Governor and the incentivized company.
c. If a transfer is approved, the incentivized company shall submit to the Department of Commerce the following:
(i) Certifications as to its capital investment as of the dates specified in the project agreement. Following such examination as it deems necessary, the Department of Commerce may certify the information and deliver the same to the Department of Revenue.
(ii) Certified information about the transfers, including identifying information about the transferees and the amount of credit each transferee should claim. Following such examination as it deems necessary, the Department of Commerce may certify the information and deliver the same to the Department of Revenue.
d. Upon receipt of the certifications from the Department of Commerce as required by paragraph c., the Department of Revenue shall thereafter allow the appropriate amount of the investment credit to offset the tax liability of the transferee for any of the taxes listed in subsection (a). A transferee may not make a subsequent transfer of the credit.
e. If a credit is transferred, an incentivized company that is later determined by the Secretary of Commerce to have defaulted under the project agreement shall be liable for the underpayment of tax attributable to the credit and for penalties and interest thereon. Unless the purchase of the credits is determined to have been made in a fraudulent manner, or is a transfer in anticipation of bankruptcy, insolvency, or closure, a transferee shall not be liable for the unpaid tax attributable to the credit, or for penalties or interest thereon.
(c) The realization methods in subsection (b) shall not create debts of the state within the meaning of Section 213 of the Official Recompilation of the Constitution of Alabama of 1901, as amended.
(d)(1) To the extent the investment credit is used to offset a financial institution excise tax liability, in making the report required by Section 40-16-6(d), the financial institution receiving the investment credit shall not take into account the qualifying project, and the Department of Finance shall adopt rules to ensure that the credit in no case would reduce the distribution for municipalities and counties.
(2) To the extent the investment credit is used to offset an insurance premium tax liability, the Department of Finance shall adopt rules to ensure that the credit would reduce the distribution for the Education Trust Fund, but in no case would the investment credit reduce the distributions for the State General Fund or the Alabama Special Mental Health Trust Fund.
(3) To the extent the investment credit is used to offset liability for the tax imposed by Section 40-21-82, the Department of Finance shall adopt rules to ensure that the credit in no case would reduce the distribution for the Alabama Special Mental Health Trust Fund.
Last modified: May 3, 2021