In the final hour of its 2019 legislative session, the Alabama Legislature passed a bill that should be a catalyst for the state’s efforts to recruit tech companies and to attract projects to rural communities. The bill, known as the Alabama Incentives Modernization Act (Act 2019-392), also provides tax benefits and state support for investments in Opportunity Zone projects. Finally, the bill enhances the Growing Alabama tax credit to provide an additional funding mechanism for improvement of research or industrial parks, worker and student retention programs, large agricultural centers, business accelerators, and inland ports.
Enhanced Alabama Jobs Act Incentives:
The bill amends the definition of a “targeted” Alabama county under the Alabama Jobs Act (the Jobs Act) to include those counties with populations of 50,000 or less, an increase from the current definition which requires populations of 25,000 or less. The bill also creates a new class of “jumpstart” counties, which includes counties that have experienced a negative population growth over the past five years and which have less than three opportunity zones. The job creation requirement is lowered for projects locating in “targeted” or “jumpstart” counties from the current requirement of 25 new jobs to 10, but projects are now required to spend at least $2 million. Projects in these counties are eligible for a job credits of up to 4% of annual wages and an investment credit for up to 15 years (rather than the baseline 3% jobs credit and 10 year investment credit).
The bill reflects the state’s ongoing efforts to attract technology companies. Jobs Act incentives will be available to certain technology-focused companies if the company agrees that Alabama will become the company’s headquarters, the place of residence of its top three executives, and the place of residence of at least 75% of its employees. For such companies, Jobs Act incentives will be available if the project creates at least five new employees The jobs credit available for these projects will be an additional 2% of wages (for up to a total of 5% of wages per year, or 6% in a targeted or jumpstart county). The incentives are also available to startup “accelerator” companies that mentor early-stage companies for a fixed term.
Certain tax benefits on the sale of ownership interests in certain technology companies by employees or “qualified investment funds” are now available. If certain criteria are met, the sale will not result in taxable gain to the employee or investment fund (for income or FIET taxes). Specifically, Alabama must not be the headquarters of the company prior to the new law, nor the residence of the top three executives or at least 75% of its employees. At the time the ownership interest is sold, the company must have at least 100 employees. For the period beginning three years before the sale and lasting until five years after the sale, Alabama must be the company’s headquarters, the residence of its top three executives, and the residence of at least 75% of its employees.
Transfer of Investment Credits to Banks or Insurers
The bill removes a current restriction on the sale of investment credits. Currently, the credits may only be transferred to another entity that is subject to the same type of tax as the transferor (i.e., both transferee and transferor must be subject to either income, financial institution excise tax, or insurance premium taxes).
Opportunity Zone Investment Incentives:
Conformity with Federal Tax Benefits
For “approved” Opportunity Zone (OZ) projects, the bill conforms the Alabama income tax laws to provide investors with state tax benefits in the same manner as the federal tax benefits allowed for OZ investments -- but only for projects in Alabama. The bill also extends OZ tax benefits to investors that are subject to the financial institution excise tax.
State Support of OZ Investment
Recognizing that the state will compete to attract OZ projects and investment, the bill provides Alabama with an innovative path to attract such projects. The Alabama Department of Economic and Community Affairs will be allowed to enter into project agreements with “approved” opportunity funds, and under these agreements state funds will be invested in OZ projects. In addition to providing capital, the agreements may provide the funds’ investors with tax credits against state income taxes or financial institution excise taxes if the investment does not meet an agreed-upon rate of return. The total tax credits allocated to “approved” OZ funds cannot exceed $50 million and will not be available for projects if an approved fund has committed to invest in the project prior to the effective date of the new law. The state investments will be available until December 31, 2024.
Enhanced Growing Alabama Tax Credits:
Funding under the Growing Alabama Act is enhanced and expanded to allow not only local economic development organizations (city and county) to participate but also state economic development organizations. The types of properties eligible for funding are expanded to include sites located in research or industrial parks that need additional infrastructure development, as well as improvements related to inland ports. Economic development organizations may also seek funding to create workforce marketing campaigns to attract STEM workers, create technology accelerators, or develop certain agricultural centers. Qualifying agricultural centers would also be eligible for jobs and investment tax credits under the Jobs Act.