State Enterprise Zone Incentives
(Code of Alabama, 1975, Sections 41-23-20 through 41-23-32)The Alabama Enterprise Zone Program is another marketing tool to help attract new business to Alabama. The Alabama Enterprise Zone Act was passed by the Alabama Legislature in 1987. The act authorized state tax and nontax incentives which are some of the best in the country. Twenty-seven Enterprise Zones across the state encourage economic growth in areas considered to have depressed economies. Each area offers innovative packages of local tax and nontax incentives to encourage business to locate in their Enterprise Zones.
State Tax Incentives Under Section 5 of the Act
Employers' maximum tax credit for operations in the zone shall not exceed $2,500 per new permanent employee hired pursuant to the act. This tax credit may be applied in all Alabama Enterprise Zones to any Alabama income tax liability or any Alabama corporate franchise tax.
If an employer can certify that at least 30% of new permanent employees hired pursuant to the act were formerly unemployed for at least 90 days prior to this employment, then the employer qualifies for the following Alabama income or franchise tax credit on taxes due from the zone operation:
Tax Credit: 80% - 1st year; 60% - 2nd year; 40% - 3rd year; 20% - 4th and 5th year
Employers may receive the following Alabama income or franchise tax credit for new investments in the zone or improvements to existing facilities in the zone provided at least five new permanent employees are hired.
Tax Credit: 10% on first $10,000 invested; 5% on next $90,000 invested; 2% on remaining investment
Employers may receive a maximum Alabama income or franchise tax credit of $1,000 per new permanent employee for expenses of training those employees in new skills.
State Tax Incentives Under Section 11 of the Act
- Employers may receive an exemption from Alabama sales and use tax on the purchases of the materials used in the construction of a building, or any addition or improvement thereon for housing any legitimate zone businesses and on machinery and equipment used in the zone.
Employers may receive certain exemptions of Alabama income and corporate franchise taxes for a period of five years
Requirements for Business Participation
For Section 5 Incentives, A Business:
Must be located in or locating within the boundaries of an Enterprise Zone.
Must generally fall into Standard Industrial Classification (SIC) Codes 20-42, 44-49 or consist of major warehousing, distribution centers, or such other activities having a prospect of significant economic impact without threatening the well-being of existing industries located within the county hosting the Enterprise Aone.
Must expand its labor force, make new capital investment or prevent loss of employment.
May not have closed or reduced employment elsewhere in Alabama in order to expand into the Enterprise Zone.
Must obtain an endorsement resolution approved by the appropriate local governing body.
For Section 11 Incentives, A Business Must Meet Requirements A-E, Plus:
Must certify annually that at least 35% of its employees are residents of the hosting rural Enterprise Zone or are residents of the hosting Enterprise Zone county, and were receiving public assistance prior to employment, or were considered unemployable or lacking in basic skills, or any combination of the above.
Must give preference and priority to Alabama manufacturers, suppliers, contractors, and labor, except when not reasonably possible to do so without added expense, substantial inconvenience, or sacrifice in operational efficiency.
Source: Alabama Development Office