Act 2011-155 (HB 61) – Small Business Health Care Deduction: effectively increases the state income tax deductions for both qualifying employees’ and employers’ (i.e., those with less than 25 employees) payment of health insurance premiums to 200 percent of the health insurance premiums. A qualifying employee must be employed by a qualifying employer, earn no more than $50,000 in annual wages, and report no more than $75,000 in adjusted gross income ($150,000 if married filing jointly) during the applicable tax year.
Act 2011-551 (HB 230) – The Full Employment Act of 2011: This bill, promised by Governor Bentley in his State of the State speech, is designed to help small businesses (i.e., no more than than 50 employees as of January 1, 2011) create new jobs by offering a one-time income or financial institution excise tax credit of $1,000 for each new job created. To be eligible for the credit, wages for the new employee must exceed $10 per hour. The credit is available in the tax year in which the new hire completes 12 months of consecutive employment, provided that the employer has a net increase in the total number of full-time employees in Alabama on the last day of such tax year. The credit may be claimed for any qualifying employee that is hired after June 9, 2011. The credit is not refundable or transferrable, but it is available to owners of pass-through entities on a pro rata basis. The credit may also be combined with the deduction available for hiring unemployed workers under the Reemployment Act of 2010, which also applies to tax year 2012.
Act 2011-648 (SB 477) – The Tariff Credit Act of 2011: is designed to encourage manufacturers to locate in Alabama by providing an income tax credit to companies investing in qualifying projects that meet certain minimum requirements. The minimum capital investment in order to qualify is $100 million, and the activities that qualify are similar to the industrial, warehousing, and research activities that qualify under the Capital Credit Act. In addition, the project must create at least 100 new jobs with a base wage of not less than the state’s individual median income, and maintain the minimum employment level for at least eight years. Any project seeking the credit must go through a recommendation process involving the Alabama Development Office (“ADO”), the Alabama Department of Revenue (“ADOR”), and the Governor’s office.
Approved investing companies would be eligible to receive a one-time transferrable income tax credit for a portion of their federal tariff costs during the term of the qualifying project, but the amount of the credit shall not exceed the lesser of $20 million or 20 percent of the total amount of the company’s capital investment in the project. The total tariff credit allowed to any taxpayer (either the project owner or the transferee) is limited to $50 million, and the credit can be carried forward for up to three years. The credit is also available to owners of pass-through entities, trusts, and estates that invest in qualifying projects. The Act is scheduled to sunset on December 31, 2015, unless the Legislature votes to continue the credit.
Act 2011-616 (HB 434) – Double-Weighted Sales Factor and Market Sourcing: amends Article IV of Alabama Code § 40-27-1 (i.e., Alabama’s version of the Multistate Tax Compact) to double-weight the sales factor in the currently equally-weighted three-factor formula used to apportion business income to Alabama. By reducing the weight given to Alabama property and payroll, businesses with a physical presence in Alabama and sales in other states should be able reduce their Alabama apportionment factor, thereby reducing their Alabama income tax liability. In addition, the bill would amend Alabama’s apportionment methodology by converting Alabama from a “cost of performance” state to a “market source” state for certain receipts from intangibles or services. This bill provides that sales of services and other intangible property would be sourced to Alabama if the taxpayer’s market for the sales is in Alabama (e.g., the customer receives the benefit of the service in Alabama, regardless of where the service is performed). Thus, sales to customers outside of Alabama would not be sourced to Alabama, thereby reducing a taxpayer’s Alabama taxable income. According to officials from the ADOR, the market sourcing rule in this bill closely tracks the Multistate Tax Commission’s model provision, including the “throwout” feature.
Act 2011-216 (SB 77): provides that if the State of Alabama makes a commitment to a company to provide economic development funds as an incentive to build or expand in Alabama, the State and the company must enter into a mutually acceptable written agreement within five years after the date of the commitment in order for the commitment to be valid.
SB 493: Tornado Recovery Tax Incentive Protection Act of 2011: provides that any sales, use, or property tax abatements that may be otherwise granted pursuant to the Tax Incentives Reform Act of 1992 (“TIRA”) shall not be subject to disqualification solely because the underlying property or transaction relates to repairs or replacement of property damaged during this Spring’s devastating tornado outbreaks, as opposed to new construction. This expansion of TIRA is effective for any property acquired or transactions entered into before December 31, 2012. The Act also provides that the wage and employment requirements for Alabama’s capital credit are tolled for two years for otherwise qualifying projects that were damaged by the tornadoes.
SB 255: makes several technical corrections to the film incentives portion of the Entertainment Industry Incentive Act of 2009, including clarifying the qualified expenditures applicable to a television series or commercial, and providing that the income tax credits are available in the year in which the production activity concludes. This bill also clarifies that the sales, use, and lodgings tax exemption only applies to the state portion of these taxes, and provides maximum expended amounts beyond which rebates and exemptions are not allowed.