Research, Tech Tax Incentives Proposed in Alabama

May 12, 2000

Technology-based businesses and investors in Alabama may be eligible for several new tax credits if legislation recently introduced passes the state legislature. The Incentives for Targeted Growth Act of 2000, Senate Bill 571, was introduced April 19 to encourage the growth and expansion of Alabama’s technology community. The bill was developed after the Alabama Commerce Commission, while developing a new economic development strategy for Alabama, found the state’s current capital investment tax credit program was not particularly attractive for research firms, start-ups, and technology-based businesses.

If passed, S.B. 571 would:

  • Create a jobs tax credit equal to $5,000 for each new employee hired. Credits can be used annually for up to 20 years. Minimum job creation figures and base wage requirements would apply. The program is similar to the state’s existing capital credit program but not tied to minimum capital investment requirements. The capital credit would not be available to new projects after December 31, 2002, and would provide that persons claiming the jobs tax credit could not also claim the capital credit for the same project. 
  • Provide for the retention of 70 percent of employees' income tax withholding by businesses employing persons within less developed counties and enterprise zones. 
  • Establish a small business investment tax credit for certain investors in qualifying small business ventures. The credit may be equal to 25 percent of the amount invested, not to exceed an annual total of $50,000 per investor or $750,000 for investors which are pass-through entities. The state’s total exposure in any one year is limited to $6 million. Three-fourths of the activities of the small business ventures must be industrial, warehousing, research or service related.
  • Enact an income tax credit for increasing high technology research and development. Credits are transferable and can be carried forward 15 years.
  • For semiconductor fabrication facilities that have made at least a $1 billion investment in Alabama, provide that the assessed value for ad valorem taxation of that investment shall not exceed $20,000,000 for a 10-year period, and allow for certain semiconductor fabrication facilities to be depreciated for income tax purposes over a 3-year period.

The bill requires the Department of Revenue to report annually on the effectiveness and utilization of the incentives created under the Act.

Traditionally in Alabama, few bills introduced in the last half of the legislature’s regular legislative session pass due to time constraints. To address this problem, an identical companion bill, H.B. 944, was simultaneously introduced in the Alabama House of Representatives. According to local newspapers, Governor Seigelman is supportive of the bills as introduced.

The regular legislative session ends May 15; the Governor may call a special session to deal with these and several other priority bills.

S.B. 571 can be viewed at: http://www.legislature.state.al.us/SearchableInstruments/2000RS/Bills/SB571.htm

Alabama