On March 11, 2014, Governor of Alabama Robert Bentley signed into law House Bill 384 (Act No. 2014-147, the “Act”). The Act establishes an Alabama state income tax credit, available for tax years commencing Jan. 1, 2015, for individuals and businesses that make contributions to the Alabama Department of Postsecondary Education (ADPE) for qualifying educational expenses directly associated with Alabama’s Career-Technical Dual Enrollment Program (Program). This article highlights the key objectives of the Act and important features of the credit.
Proponents of the Act believe that the income tax credit will allow more high-school students to enroll in dual-degree technical programs by making available additional funds for scholarships. Dual-degree technical programs allow high school students to receive credits toward their high school degree and, at the same time, for technical degree programs that prepare students for higher-demand, higher-wage jobs (e.g., electrician, welder or mechanic). While the Alabama Community College System (ACCS) offers duel credit programs to high school students, it is believed that many students are unable to take advantage of them due to cost. According to Terry Waters, a senior executive director at the ADPE, funding for ADPE awarded career-tech dual enrollment scholarships was limited to only 2,100 high school students last year. Waters indicated that the Act might lead to funding sufficient for the ADPE to award more than 10,000 of such scholarships each year.
QUALIFICATION AND AVAILABILITY
The Act makes the credit available to individuals, limited liability companies, corporations and other lawfully organized and created business entities that file an Alabama state income tax return. Subject to certain other limitations, the tax credit available to each taxpayer is 50% of the total qualifying contribution made by the taxpayer during the tax year. (The Act defines “contribution” as a donation of cash.) The Act provides that the taxpayer may direct up to 80% of the donation to a particular training program.
Pursuant to § 2(a)(2) of the Act, the credit any tax year may not exceed the lesser of 1) 50% of the taxpayer’s total Alabama income tax liability or 2) $500,000. A taxpayer may carry forward any unused credit for a period of three years. The cumulative amount of credits issued under the Act is subject to an annual cap of $5,000,000 (the Cap).
IMPLEMENTING PROCEDURES AND RULES
The Alabama Department of Revenue (ADOR), in conjunction with the ADPE, will set methods for issuing the credits, as well as procedures to ensure that issued credits do not exceed the Cap and to notify taxpayers upon reaching the Cap. Ultimately, the ADPE will be responsible for administering the Program and for allocating/disbursing the funds made available by the Act for qualifying educational expenses. Qualifying expenses include tuition, books and supplies required by the ACCS or for participation in the Program. (The ADPE may use up to $200,000 of the funds received under the Act for administrative costs associated with implementing the Act.) As of the date of this article, neither the ADOR nor the ADEP have released any procedures or rules implementing the Act.