If you own a business in Alabama, you might be able to significantly lower your income tax liability. How? By claiming one or more of the state tax incentives Alabama offers.
Keep reading to see the full list of business tax incentives, from credits for hiring veterans to abatements for investing in expansion projects.
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Alabama tax incentives for businesses
2017 Alabama Historic Rehabilitation Tax Credit
Open through 2017, the 2017 Alabama Historic Rehabilitation Tax Credit gives businesses an income tax credit for rehabilitating, preserving, or developing a historic structure within Alabama. If your business qualifies, you can get a credit equal to 25% of the cost of qualified rehabilitation expenditures.
Before you can claim the credit, you need to get your completed project approved by the Alabama Historical Commission, and then get pre-certified from the Alabama Department of Revenue. Get more details on the credit here.
Railroad Modernization Act Credit
Under Alabama’s Railroad Modernization Act, rail carrier companies in Alabama can get a tax credit for investing in rehabilitating or developing a railroad between 2019 and 2027. The credit is equal to the lesser of 50% of the cost of qualified railroad rehabilitation expenditures, or $4,100 multiplied by the number of railroad track miles owned or leased by the company.
Learn how to claim the credit.
Investment Credit
Alabama’s Investment Credit rewards qualified businesses for investing in projects that help create new jobs in the state. If your business is eligible, you can get an annual tax credit equal to up to 1.5% of your qualified capital investment in a qualified project—for a period of up to 10 years.
You can apply the tax credit to your income taxes, financial institution excise tax, insurance premiums tax, or utility taxes. You can find more details on the investment credit here.
Curious how Alabama business taxes work? Check out Gusto’s guide to small Business Taxes in Alabama.
Growing Alabama Credit
If your business makes a cash donation to an Alabama Economic Development Organization (EDO), you might qualify for the Growing Alabama tax credit. EDOs undertake a number of projects designed to stimulate economic growth in Alabama, including creating technology accelerators, developing marketing campaigns to attract STEM employees, and building out agricultural centers.
If you donate, you can get an income tax credit equal to your contribution amount. Just make sure you reserve the credit first in your ALDOR portal; from there, you’ll have 21 days to actually make the donation. Learn more about how the credit works here.
Apprenticeship Credit
The Alabama Apprenticeship Credit was created to incentivize Alabama employers in specific industries to hire apprentices. The credit—which is available through December 31, 2024—gives companies up to $1,250 per qualified apprentice hired, up to 10 apprentices total.
To qualify for the credit, you need to create and register your Apprenticeship Agreement with the Office of Apprenticeship of the Employment and Training Administration of the US Department of Labor. Get more details on the credit here.
Innovating Alabama Tax Credit
Similar to the Growing Alabama Credit, the Innovating Alabama Tax Credit rewards companies for making cash contributions to EDOs that create or support programs related to technology accelerators and underrepresented entrepreneurs.
The credit is equal to 100% of your contribution amount and can help offset up to 50% of your state tax liability. Learn how to reserve your credit here.
Coal Credit
Alabama’s Coal Credit applies to eligible coal production companies within the state. The credit amounts to $1 per ton of increased coal production over the previous year’s output. Learn more about the credit here.
Port Credit
Alabama offers a Port Credit to businesses that take advantage of the state’s port facilities for their operations. If you qualify, you can apply the credit toward your income tax liability. The credit amount depends on the volume of cargo being moved during your Port Credit Incentive Period (which is one year).
Learn more about the credit, including who qualifies and what constitutes a port, here.
Alabama Enterprise Zone Program Credits
Under Alabama’s Enterprise Zone Program, businesses that locate to or expand within the state’s designated Enterprise Zones can claim certain tax incentives. There are a few different incentives available:
- Five-year incentive: You can get a credit of up to $2,500 per new permanent employee hired in a designated Enterprise Zone.
- Capital investment: You can get a credit equal to 10% of the first $10,000 you invest in a designated Enterprise Zone, 5% of the next $90,000, and 2% of the remaining investment.
- Training: You can get a credit of up to $1,000 for training new permanent employees in new skills.
You can also qualify for sales and use tax exemptions on equipment and construction materials purchases, as well as income tax and Business Privilege Tax. You can find more information on the Enterprise Zone program here.
Alabama Film Rebate
Like many other states, Alabama has a film tax incentive for qualified production companies that produce certain projects in the state. The Alabama Film Office awards up to $20 million each year to production companies involved in motion pictures, documentaries, TV programming, sound recordings, videos, music videos, video games, and commercials.
There are two incentives production companies can apply for:
- The Income Tax Rebate helps offset 25% of certain production expenditures production companies incur in Alabama, plus 35% of payroll costs for production employees who are also Alabama residents.
- The State Sales, Use, and Lodging Tax Exemption gives production companies a pass on paying certain sales, use, and lodging taxes on project expenditures.
Before you apply for a film tax incentive, you need to obtain a Certificate of Compliance from the Alabama Department of Revenue. You can learn more about Alabama’s film rebates here.
Basic Skills Education Credit
The Basic Skills Education Credit was created to motivate employers to support employees in acquiring GEDs and other education equivalents. If you sponsor an educational program that improves your employee’s foundational skills—including learning English as a second language—you can apply for an income tax credit equal to 20% of the cost of the program.
For more details, check here.
Supporting your employees’ personal and professional development is key to raising employee retention rates. Here are 10 other effective strategies.
Full Employment Act of 2011
Under the Full Employment Act of 2011, Alabama small business owners can get a one-time credit of $1,000 for each new job they create in Alabama. To qualify for the credit, your business needs to:
- Be located in Alabama
- Employ 50 or fewer employees to be considered a small business
- Must have been in existence by June 9, 2011
- Must have hired the new employee after June 9, 2011
- Must pay the new job more than $10 an hour
Find out how to claim the credit here.
Veterans Employment Act Employer Credit
Alabama’s Veterans Employment Act rewards qualified businesses for hiring unemployed or combat veterans in full-time positions paying at least $14 an hour. Businesses can get a $2,000 tax credit to apply against their individual or corporate income taxes or the state portion of the financial institution excise tax.
Get more information on the credit here.
Plus, here’s everything you need to know about hiring employees in Alabama—from new hire reporting requirements to employer laws.
Qualified Irrigation System/Reservoir System Tax Credit
Under this credit, agricultural businesses can get a credit for purchasing or installing irrigation systems, or for developing irrigation reservoirs and water wells. The credit is equal to 20% of the cost of qualified irritation-related expenses up to $10,000, or 10% of the cost of irrigation-related expenses, up to $50,000.
See more details on the credit here.
Career-Technical Dual Enrollment Credit
Alabama’s Career-Technical Dual Enrollment Program allows high school students to enroll in college-level career and technical education courses at Alabama community colleges. If your business donates to the Career-Technical Dual Enrollment Program to help fund student scholarships, you can get an income tax credit equal to 50% of your contribution amount, up to $500,000.
Find out more about the program here.
Alabama Accountability Act – Scholarship Granting Organization (SGO) Credit
Under the Alabama Accountability Act, certified Scholarship Granting Organizations (SGO) give education scholarships to low-income students. Your business can qualify for a credit equal to 100% of the cash contribution you make to a qualified SGO. You can use the credit to offset up to 50% of your income tax liability.
Learn how to reserve the credit here.
Alabama tax abatements
A tax abatement reduces the amount of tax you owe—and Alabama has a slew of sales, use, and property tax abatements available to businesses. Here are some to know about:
- Chapter 9B abatements give new or existing companies tax abatements for starting a business in Alabama, expanding operations to a new location, or upgrading their current facilities.
- Chapter 9C abatements give businesses a tax reduction for investing in a Brownfield cleanup project or building a major business addition in a designated Brownfield site.
- Chapter 9G abatements give businesses an abatement for expanding, renovating, or improving a facility.
See the full list of Alabama tax abatements here.
Alabama city and county tax credits
Some cities and counties in Alabama have their own business tax incentive programs. To find out if yours does, check here for your county’s website.
Financing resources for small businesses in Alabama
If you need more financial support than tax incentives can provide, it might be time to consider financing. In addition to federal loan and grant programs, Arizona has a variety of state-specific loans and grants available to businesses like yours. Explore Gusto’s guide to small business financing in Arizona for a full list.
