The Alabama Reinvestment and Abatements Act, HB59, Act No. 2015-24 (the “Act”), makes several changes to Alabama abatement law and expands the list of industries and types of projects that are eligible for those abatements.

Overview

  • First, the Act extends the maximum property tax abatement period from 10 to 20 years for all eligible projects. Any abatement that extends beyond 10 years must be approved by the governing body, or its designee, of each jurisdiction wherein taxes will be abated.
  • Second, the Act expands existing Alabama abatement law to cover significant refurbishments, overhauls, refreshes, and similar projects (“Refurbishment Projects”). It provides that Refurbishment Projects making capital investments of at least $2 million are eligible for sales and use tax abatements, property tax abatements, and AIDT training at the discretion of the Governor and upon the recommendation of the Department of Commerce.
  • Third, the Act creates a unique benefit for Refurbishment Projects by creating an exemption from taxes on increased utility services.
  • Finally, the Act expands the list of industries that qualify for abatements for traditional projects and Refurbishment Projects.

For projects other than Refurbishment Projects, the process will generally be the same as under existing Alabama abatement law. Projects could, and can apply to a municipality, county, or public industrial authority for an abatement of all the noneducational taxes for the first 10 years. However, an extension of the property tax abatement beyond 10 years requires each governing body to approve the additional 10-year abatement for their respective taxes.

For Refurbishment Projects, the Department of Commerce must make several findings: First, that the project is a qualifying project. Second, that the company proposing the qualifying project has not defaulted on a project agreement or any economic incentive agreement within the last 10 years. Third, that the Refurbishment Project will promote the continued and sustained operation of the company’s business operations in Alabama. If the Department of Commerce makes those findings then it will forward that information on to the Governor who will make the final determination of whether a project qualifies. Once the Governor has made a determination that the project is eligible, then the project will follow the normal process for receiving abatements.

Requirements

Qualifying Industries

The Act adds a new definition of “approved activity” for Refurbishment Projects which includes several new industries. New industries that can qualify for abatements include: aircraft support, flight training, rail transportation, motion picture and video production, record production, wireless and satellite telecommunications, internet publishing and broadcasting, financial transaction processing, and logistic consulting services. Note that this is the same list as in recently enacted HB58 . The Act also removed the requirement that warehousing and storage facilities provide logistics services and create at least 50 jobs. The Act also provides that abatements can be granted to one or more users of a co-location data processing center.

Refurbishment Projects

The Act adds a new definition of “qualifying project” for Refurbishment Projects. A Refurbishment Project will be a qualifying project if the: (a) capital investment equals or exceeds $2 million for the “addition, expansion, improvement, renovation, re-opening, or rehabilitation of a facility, or replacement of any existing equipment or tangible personal property,” (b) predominant activity is an approved activity, as outlined above, and (c) project entity has not entered into a project agreement with the Governor for other incentives.

Mechanics

The Act provides that the abatements of property taxes for Refurbishment Projects will be limited to the marginal increase. This means that the taxes are abated only to the extent they exceed the property taxes of the year immediately prior to the Refurbishment Project. For example, if a business pays $100,000 in noneducational property taxes in 2014 then undertakes a Refurbishment Project which causes the noneducational property taxes to rise to $150,000 in 2015 then the additional $50,000 in noneducational property taxes will be abated but the business will still pay the remaining $100,000.

For the first time, and only for Refurbishment Projects, utility taxes are refundable for up to a 10-year period. The refund is equal to the utility taxes paid in each year of the project, minus the utility taxes paid on average during the three tax years immediately prior to placing the Refurbishment Projects in service.

Conclusion

Companies can now utilize the abatements to grow, expand, and relocate their operations and also to retool and refresh their existing operations. This makes abatements an even more powerful tool for Alabama businesses.