ADOR > Alabama Tax
Incentives > Income Tax Incentives
Alabma Income
Tax law is found in Chapter 18, Title 40, Code
of Alabama 1975. Corporations and other business entities pay
Alabama income tax based on the net taxable income derived from business
conducted within the state. The amount of net income apportioned
to Alabama is determined by applying an equally weighted three-factor formula
of property, payroll, and sales to total net income. Alabama law
offers several income tax incentives for new, existing, or expanding businesses
in Alabama.
Constitutional Income Tax Limits and Federal Income Tax
Deductions
There are constitutional restrictions in the Alabama Constitution of 1901
that add to the stability of Alabama's business income tax environment:
-
Amendment 25 limits the individual rate of income taxation to
no more than 5%.
- Amendment
225 allows the individual taxpayer to deduct federal income
tax paid from his individual gross income.
- Amendment
662 limits the corporate rate of income taxation to no
more than 6.5%.
-
Amendment 662 allows the corporate taxpayer to deduct ,
from its gross apportioned and allocated Alabama income, the full apportioned
Alabama amount of federal income taxes paid.
Income Tax Capital Credit
- If a business
entity invests in a qualifying project that meets certain requirements
and is approved by the Alabama Department of Revenue, the company may
receive an annual credit against its income tax liability generated from
the qualifying project.
- The capital
credit is equivalent to 5% of the capital costs of the qualifying project,
and can be utilized for a period of 20 years beginning during the year
the project is placed in service.
- The credit
is available to all types of business entities, including: S corporations,
C corporations, limited liability companies (LLCs), partnerships, trust,
and sole proprietorships.
- The capital
credit is available under Sections 40-18-190 through 40-18-203, Code
of Alabama 1975.
- More Income Tax Capital Credit information.
Income Tax Net Operating Loss Carryforward
Corporate
income tax law provides for a 15 year carryforward of net operating losses. In
computing net income, a corporation is allowed a deduction for the sum
of the net operating losses which are carried forward. Each net operating
loss may be carried forward and deducted only during the 15 consecutive
year period immediately following the year in which it arose. See Section 40-18-35.1, Code of Alabama 1975.
Income Tax Enterprise Zone Credit or Exemption
The corporate
income tax enterprise zone credit or exemption is offered to help encourage
economic growth to areas in Alabama that are considered economically depressed.
To qualify for either the credit or the exemption, a business must meet
detailed requirements concerning site location and employee qualifications.
The enterprise zone tax incentive is available under the Alabama Enterprise
Zone Act, Sections 41-23-20 through 41-23-32, Code
of Alabama 1975.
For information please contact:
Alabama
Department of Economic and Community Affairs
Enterprise
Zone Coordinator
401 Adams Avenue
P.O. Box 5690
Montgomery,
AL 36103-5690
334-242-5477
Income Tax Education Credit
An employer could qualify to receive an income tax credit of 20 percent
of the actual cost of an employer sponsored educational program that
enhances basic skills of employees up to and including the twelfth grade
functional level. This concept would include programs which teach
English as a second language. This credit is available under Sections
40-18-135 through 40-18-139, Code
of Alabama 1975.
For
information please contact:
Alabama Department of Education
Adult and Community Education
Program
Gordon Persons Building, Room
5343
50 North Ripley Street
Montgomery, AL 36130
800-392-8086 or 334-242-8181
