Cost of Doing Business

coins2.jpgTax and Incentives

Alabama Industrial Development Training (AIDT) 
Recognizing that your company’s workforce is also your greatest asset, the State of Alabama introduced the Alabama Industrial Development Training (AIDT)  program in 1971 to assist new and expanding industries locating to our state. 

Job-specific pre-employment and on-the-job training programs are provided through AIDT. The program provides a full range of customized technical training programs that are free to employers and trainees. Management and supervisory training programs, including Total Quality Management (TQM) and ISO 9000 are also available. In addition to training, AIDT offers services including trainee recruitment and screening. Training is conducted by AIDT staff or contracted instructors and delivered through 38 Mobile Training Units (MTUs) customized to meet specific company needs. MTUs go directly to the employer site to provide classroom and hands-on training.

For more information: www.aidt.edu.

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Alabama Department of Environmental Management (ADEM)
Alabama offers "one-stop" permitting through the Alabama Department of Environmental Management (ADEM).  This state agency has authority to issue the permits required by all the major federal environmental laws.

For more information on ADEM visit:  www.adem.state.al.us.

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Taxes
The overall tax burden in Alabama is one of the lowest in the United States.  In addition to having a competitive income tax, Alabama is one of only two states that allow a full deduction of Federal taxes apportioned and paid on income apportioned and allocated to Alabama. 

The Alabama Department of Revenue administers a variety of taxes that affect companies based inside and outside of Alabama.  Before transacting business in Alabama, a foreign corporation (corporation incorporated OUTSIDE of Alabama) must qualify with the Alabama Secretary of State.  “Foreign Corporations” must file an application for certificate of authority (form CD-2) with the Alabama Secretary of State along with a certified copy of the articles of incorporation and must pay a $175 qualification fee.

In order to form a domestic corporation (a corporation incorporated INSIDE of Alabama), the corporate name must first be reserved with the Alabama Secretary of State.  Then, articles of incorporation must be filed with the probate judge of the county in which the corporation has its initial registered office.  The fees for filing articles of incorporation are $50 for the Alabama Secretary of State and $35 for the probate judge.

Income Tax
The current rate of taxation in the State of Alabama for corporations is 6.5%.   Alabama allows the deduction of federal income taxes apportioned and paid to Alabama from the gross apportioned and allocated income, creating a lower net effective income tax rate.

Property Tax
All non-exempt property in Alabama is classified and assessed at 20% of fair and reasonable market value for manufacturers.  The state rate of tax per $1,000 of assessed value is $6.50 (which includes $3.00 for education).  Local tax rates will also apply.

Sales Tax
Alabama sales tax is a privilege tax imposed on the retail sale (sale made to the end user) of all tangible personal property sold in Alabama by businesses located in Alabama.  The use tax is complementary to the sales tax.  Businesses or individuals that purchase tangible personal property outside of Alabama upon which no tax is paid to the seller and bring the property back to Alabama for storage, use  or consumption should remit consumer’s use tax on the purchase, provided that the property purchased is not for resale.  There are four state rate differentials, which include:

  • 1.5% rate for manufacturing and farm machinery;
  • 2% rate for automotive vehicles;
  • 3% rate for food sold through vending machines; and
  • 4% general rate for all other items.

Local governments may also impose a sales and/or use tax. 

Alabama Business Privilege Tax
The Business Privilege Tax applies to all corporations and limited liability entities, including disregarded entities, which do business in Alabama or are organized under the laws of Alabama.  The tax base is the taxpayer’s net worth apportioned to Alabama.  The minimum privilege tax is $100; the maximum privilege tax is $15,000, except for financial institutions.  An electing family limited liability entity is capped at $500.
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Tax Incentives
Income Tax Capital Credit
The capital credit is a credit of five percent (5%) of the capital costs of a qualifying project, to be applied to the Alabama income tax liability generated by the project income, each year for 20 years. This credit cannot be carried forward or back (you use it or lose it), and cannot be used to generate a refund to the taxpayer. The capital credit is used only after all other deductions, losses or credits permitted under Titles 40 and 41 of the Code of Alabama 1975. The credit will follow the income generated by the project and, therefore, will be allowed to "pass-through" entities such as: S corporations, partnerships, limited liability companies, etc.  The purpose of this law is to create jobs and stimulate business and economic growth in the state by providing an income tax capital credit for approved projects.

For more information regarding the capital credit: www.revenue.alabama.gov/Taxincentives/capcrsummary.htm.

Tax Abatements
The Tax Incentive Reform Act of 1992 (Chapter 9B, Title 40, Code of Alabama 1975) gives cities, counties and public industrial authorities the ability to abate the following:

  • State sales and use taxes;
  • Non-educational county and city sales and use taxes;
  • Non-educational state, county and city property taxes; and
  • Mortgage and recording taxes.

To receive an abatement for any or all of these taxes, a business must meet certain qualifications and follow certain procedures, as determined by law and regulation.  The Alabama Department of Revenue publishes the "Abatement Booklet", an informative guide to assist with the application and filing procedures for an abatement. The booklet contains the procedures, forms and instructions to apply for an abatement of the taxes mentioned above.

Inventory Tax Exemption
Alabama exempts property tax on inventory of goods, wares, and merchandise that is offered for sale.  Materials that are to be compounded or manufactured and are stocked at plants or furnaces for manufacturing purposes are also exempt.

The raw materials exemption is provided in Section 40-9-1(13), Code of Alabama 1975. The finished goods exemption is provided in Section 40-1(14), Code of Alabama 1975. The inventory exemption is provided in Section 40-9-1(23), Code of Alabama 1975, and in Amendment 373 to the Alabama Constitution of 1901.

For more information on additional tax incentives:  www.ador.state.al.us .


 Office of Economic Development for the Alabama Department of Revenue
Practitioner tax.jpg Administration of tax incentives for the Alabama Department of Revenue is centralized in the Office of Economic Development, which is within the Revenue Commissioner's Office. This provides "one-stop shopping" for the taxpayer and ensures equitable treatment to all industries.  Contact the economic development staff at:

Office of the Commissioner
Alabama Department of Revenue
P.O. Box 327001
Montgomery, AL 36132-7001
(334) 242-1175 voice
(334) 242-0550 fax

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