Section 214 of the state constitution limits the state millage rate on both real and personal property to 6.5 mills (3 mills for education, 1 mill for relief and 2.5 mills for general uses). This rate is equivalent to a tax of $6.50 for every $1,000 of assessed value.
However, both cities and counties may levy millage rates in addition to the state's 6.5 mills. These local rates vary, but the average rate statewide is 42 mills, including the state's 6.5 mills. For real and personal business property with a fair market value of $1 million, the average property tax would be only $8,400.
Property Tax Abatements
The Tax Incentive Reform Act of 1992 (TIRA) allows qualified industries to receive abatements of non-educational property taxes for new businesses locating to Alabama, and for expansions of existing facilities in Alabama, and for expansions of existing facilities in Alabama.
Sales and Use Tax Rate Differentials
The state sales and use tax general rate in Alabama is 4 percent.
The state sales and use tax rate for manufacturing and farm machinery is 1.5 percent.
In addition to state taxes, most cities and counties levy their own sales and use taxes, which provide similar rate differentials.
Sales and Use Tax Abatements
The Tax Incentive Reform Act of 1992 (Chapter 9B, Title 40) allows qualifying industries to receive abatements of state and non-educational county and city construction-related sales and use taxes.
Sales and Use Tax Exemptions
Pollution control equipment or materials purchased primarily for the control, reduction or elimination of air or water pollution are exempt from sales and use tax under Alabama law (Sections 40-23-4(a)(16) and 40-23-62-(18)).
Raw materials and tangible personal property used by manufacturers or compounders as an ingredient or component part of their manufacturing or compounded product are specifically exempt from sales and use tax under Alabama law (Sections 40-23-1(a)(9)b and 40-23-60(4)b).
Utility gross receipts tax is excluded under Alabama law (Sections 40-21-83 and 40-21-103), which allows exclusions from the receipts tax and the use tax if electricity or natural gas is used in an electrolytic or electro-thermal manufacturing or compounding process.
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 percent 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.
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.
The business privilege tax is an annual tax paid by corporations and limited liability entities (including disregarded entities) for the privilege of conducting business in Alabama. The tax base is the taxpayer's net worth apportioned to Alabama. For business entities new to Alabama, the tax accrues as of the date of organization, qualification or beginning to do business, and is due 30 days thereafter. The tax for existing entities accrues as of Jan. 1 of every taxable year, and is due March 15.
Business Privilege Tax Rate
The tax rate for business privilege tax is graduated, based on the entity's federal taxable income apportioned to Alabama. The rates range from 25 cents to $1.75 for each $1,000 of net worth in Alabama. The minimum tax is $100.
Business Privilege Tax Cap
The maximum business privilege tax for most business entities is $15,000. The exceptions are for financial institutions, financial institution groups and insurance companies that have a maximum business privilege tax of $3 million.