29587-1:G:04/14/2000:EBO-HM/dc

To provide for the Incentives for Targeted Growth Act of 2000; to provide a comprehensive array of incentives to enhance economic growth in Alabama; to create a jobs tax credit program to encourage the employment by employing companies of new employees at certain base wage levels; to provide for the retention of a portion of employees' income tax withholding by businesses employing persons within less developed counties and enterprise zones; to provide for the creation of a small business investment tax credit for certain investors in qualifying small business ventures; to provide for a tax credit for certain high technology research and development expenses; to provide that the assessed value for ad valorem taxation for certain semiconductor fabrication facilities shall not exceed $20,000,000 for a 10-year period; to allow for certain semiconductor fabrication facilities to be depreciated for income tax purposes over a 3-year period; to provide that the capital credit tax incentive program shall not be available to new projects after December 31, 2002 unless a statement is filed under Section 40-18-191 on or prior to that date; to provide that the capital credit tax incentive program and the jobs tax credit program cannot both be claimed for the same project; to amend the description of industrial, warehousing, or research activity in the capital credit program for all applicants after the effective date of this Act; to provide that whether an employee is a new employee shall be determined for purposes of the capital credit program by examining all affiliated corporations; to provide for annual reports by the Department of Revenue to the Legislature on the effectiveness and utilization of the incentives herein; to allow for the adoption of regulations and for the auditing of those persons making use of certain incentives; to provide that an affidavit of compliance accompany each tax return claiming certain incentives under this Act; to provide that this Act shall be governed by the Taxpayer's Bill of Rights and the Uniform Revenue Procedures Act; to provide that Section 1(a) of Act 99-351 (relating to notification of the Alabama Development Office) shall apply to certain incentives provided in this Act; and to make conforming changes to Sections 40-18-21, 40-18-71, and 40-18-190.

BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:

Section 1. It is the intent of the Legislature to provide for incentives to attract certain businesses to this state. The Legislature finds that capital investment is increasingly no longer a useful standard to determine whether the state should provide an incentive to attract a business to this state. Therefore, it is the intent of the Legislature to create a jobs tax credit program which does not require minimum capital investments, to provide that the capital credit shall not be effective for new projects after December 31, 2002, and to provide that companies claiming the jobs tax credit cannot also claim the capital credit for the same project. Further, the Legislature finds that special efforts are necessary to create jobs in less developed counties and enterprise zones. Therefore, it is the intent of the Legislature to provide for the retention of a portion of employees' income tax withholding by businesses employing persons within such areas. The Legislature finds that the economy of the state is enhanced when investments are made in small businesses. Therefore, it is the intent of the Legislature to create a small business investment tax credit for certain investors in qualifying small business ventures. The Legislature further finds that the national economy is increasingly based on high technology businesses. Therefore, it is the intent of the Legislature to provide for a tax credit for high technology research and development, to provide that the assessed value for ad valorem taxation for certain semiconductor fabrication facilities shall not exceed $20,000,000 for a 10-year period, and to allow for certain semiconductor fabrication facilities to be depreciated for income tax purposes over a 3-year period. It is the intent of the Legislature that the Department of Revenue shall annually report on the effectiveness and utilization of the incentives provided in this Act, shall adopt regulations governing the provisions of this Act, shall audit those persons making use of certain incentives, and shall require an affidavit of compliance to accompany each tax return claiming certain incentives. It is the intent of the Legislature that the Taxpayer's Bill of Rights and the Uniform Revenue Procedures Act shall apply to this Act and that Section 1(a) of Act 99-351 (relating to notification of the Alabama Development Office) shall apply to certain incentives provided herein.

Section 2. A new Chapter 30 is added to Title 40 to read as follows:

Article 1.

§ 40-30-1. Short Title. This chapter shall be known and may be cited as the "Incentives for Targeted Growth Act of 2000."

§ 40-30-2. Definitions. For purposes of this chapter, the following terms shall have the respective meanings ascribed by this section:

(1) BASE WAGE REQUIREMENT. Either of the following, determined based on an average over each tax year of the employing company:

(a) For new employees whose principal place of employment is within a favored geographic area, an average hourly wage of not less than $8 per hour or an average total compensation of not less than $10 per hour including benefits; or

(b) For new employees whose principal place of employment is not within a favored geographic area, an average hourly wage of not less than $10 per hour or an average total compensation of not less than $12 per hour including benefits.

(2) BUSINESS ENTITY. An entity through which business can be conducted including, but not limited to, a corporation, general partnership, limited partnership, limited liability company, limited liability partnership, business trust, or joint venture.

(3) CONTROL. A person controls a business entity if such person owns, directly or indirectly, more than 10 percent of the voting equity securities of the business entity.

(4) DEPARTMENT. The Alabama Department of Revenue.

(5) EMPLOYER RETENTION AMOUNT. An amount permitted to be retained by an employing company from the gross wages of new employees pursuant to Section 40-30-32(b) in each of the 60 months commencing with the month following the month in which the qualifying employment begins.

(6) EMPLOYING COMPANY. Any business entity:

(a) At which the predominant trade or business activity conducted will constitute an industrial, warehousing, or research activity; or

(b) Which is a headquarters operation.

(7) EQUITY SECURITIES. Common or preferred stock, royalty rights, limited partnership interests, limited liability company interests, and any other securities or rights that evidence an ownership or profits interest in a business entity.

(8) FAVORED GEOGRAPHIC AREA. Either of the following:

(a) An Alabama Enterprise Zone governed by the provisions of Article 2 of Chapter 23 of Title 41; or

(b) Any Alabama county which is considered to be less developed. A county is considered to be less developed if it has been found to be less developed at any time within the immediately preceding 3-year period. The finding of whether a county is less developed shall be made by the Alabama Department of Industrial Relations using the most current data available from the United States Departments of Labor or Commerce, the United States Census Bureau, or any other federal or state agency, and shall be made immediately upon passage of this Act and not later than January 1 of each year thereafter. A county shall be found to be less developed if it is ranked as the forty-fifth through sixty-seventh county, inclusive, using the following factors: percent change in population over the most recent 5-year period; personal per capita income in the last calendar year for which data is available; and average percent employed over the last 12 months for which data is available. The factors used in ranking counties will be weighted in the following manner: percent change in population (25 percent); personal per capita income (25 percent); average percent employed (50 percent). In the case that 2 or more counties tie for the ranking of forty-fifth, all such counties shall be found to be less developed.

(9) HEADQUARTERS OPERATION. The maintaining of the national office for any business entity, provided that:

(a) Such business entity, for each tax year that it claims the jobs tax credit or employer retention amount, conducts at least 50 percent of its business operations outside the state; and

(b) Such headquarters serves as the principal office of the principal operating officer of such business entity, such principal operating officer to be the individual with chief responsibility for the daily business operations of the business entity.

(10) HIGH TECHNOLOGY COMPANY. An employing company engaging in qualifying employment at which the predominant trade or business activity will constitute one of the following:

(a) A research and development activity falling within NAICS Industry 541710 which has or may lead to manufacturing activities falling within NAICS Industry Group 3254; or

(b) An activity falling within NAICS Industry Group 3254 or Industries 454110, 511210, or 514191.

(11) INDUSTRIAL, WAREHOUSING, OR RESEARCH ACTIVITY. Any trade or business described in NAICS Sectors 31 (other than National Industry 311811), 32, 33, and 42; Subsector 511; Industry Groups 5142 and 5415; Industries 11234, 48691, 51331, 51332, 51333, 51334, 54138, 54171, and 54194 (testing laboratories only); and National Industries 115111, 454110, 514191, and 561422, or any process or treatment facility which recycles, reclaims, or converts materials, including solids, liquids, or gases, to a reusable product.

(12) JOBS TAX CREDIT. An annual amount equal to $5000 for each new employee, such total amount to be credited or allowed in accordance with Section 40-30-23 hereof in each of the 20 tax years commencing with the tax year during which the qualifying employment begins.

(13) NAICS. The 1997 North American Industry Classification System, promulgated by the Executive Office of the President of the United States, Office of Management and Budget.

(14) NEW EMPLOYEES. Those individuals who have not previously been employed with the employing company or a controlled entity in this state within the past 2 years; who will be employed full-time at the project by the employing company or a controlled entity; and who will be subject to the personal income tax imposed by Section 40-18-2, upon commencement of employment. If the employing company or a controlled entity closes an existing project in this state and, within 2 years before or after the closing, the employing company or a controlled entity places a new project in service, the number of new employees shall equal the excess of the number of employees who work at the new project over the number of employees who worked at the existing project. For purposes of this subdivision, "controlled entity" shall mean a business entity doing business in the state which, with the employing company, is part of an affiliated group of corporations as that term is defined in Section 1504 of Title 26 of the United States Code.

(15) PASS-THROUGH ENTITY. A person whose income tax attributes are not taxed to such person but are instead taxed to the owner of such person, generally including a general partnership, limited partnership, limited liability company, limited liability partnership, joint venture, or certain trusts; provided, however, that such person shall have committed capital under management less than $5,000,000 and shall not be a small business venture.

(16) PERSON. An individual, estate, trust (other than a business trust), or business entity.

(17) PROJECT. Any land, building, or other improvement, and all real and personal properties deemed necessary or useful in connection therewith, whether or not previously in existence, located or to be located in the state.

(18) QUALIFYING EMPLOYMENT. The employment of one or more new employees by one or more employing companies. Qualifying employment shall be deemed to begin when the project to which the qualifying employment relates is placed in service.

(19) SELLING AT RETAIL. The sale or lease of any product or service of any nature from a store, website, or other location open to the public generally.

(20) SERVICE-RELATED ACTIVITY. An activity, whether or not also involving the sale of a product, if the activity provides services to customers or clients and is not selling at retail.

(21) SMALL BUSINESS EMPLOYER. An employing company engaging in qualifying employment which, at any time during the four years prior to the filing of the statement required in Section 40-30-20, had 100 or fewer employees.

(22) SMALL BUSINESS INVESTMENT TAX CREDIT. The tax credit for an investment in a small business venture, as provided in Section 40-30-40.

(23) SMALL BUSINESS INVESTOR. A person which receives the small business investment tax credit.

(24) SMALL BUSINESS VENTURE. A business entity which qualifies as a small business venture pursuant to Section 40-30-42.

(25) TAX YEAR. The applicable taxable year provided in Section 40-18-1(11).

§ 40-30-3. Department to report annually. The department shall report annually to the Legislature and the public as to the utilization of the incentives available in this Act. The report shall be due on the fifth legislative day of each regular session and shall specify the effectiveness and utilization of the incentives provided in this Act.

§ 40-30-4. Department to adopt regulations and to audit companies. The department shall adopt regulations to carry out the provisions of this Act. The department may audit any taxpayer utilizing the incentives provided herein periodically to monitor compliance by them with the conditions precedent to the availability of the incentives for each year.

§ 40-30-5. Affidavit to be filed concurrently with tax return. At the time of filing any tax return with the department in which the incentives provided for in Articles 2 and 3 are claimed, the individual signing the tax return shall file with the department an affidavit stating that the taxpayer was, during the year to which the tax return relates, in compliance with the requirements set forth in such articles for the availability of the incentives herein authorized.

§ 40-30-6. Provisions to govern administration of Act. The administration of this Act by the department shall be governed by the provisions of the Taxpayers' Bill of Rights and the Uniform Revenue Procedures Act contained in Chapter 2A of this title.

§ 40-30-7. Notification of Alabama Development Office. The notification requirements provided in Section 1(a) of Act 99-351, H. 527 adopted at the 1999 Regular Session of the Legislature ("Act 99-351") shall apply to the tax credits provided for in Articles 2 and 3 of this chapter. The filings required by Sections 40-30-20 and 40-30-30 shall include the notification acknowledgment letter provided for in Act 99-351.

Article 2. Jobs tax credit.

§ 40-30-20. Filing with department written statement of intent to claim jobs tax credit. At any time prior to the date on which qualifying employment begins, an employing company shall file with the department a written statement of its intent to claim the jobs tax credit. Such filing by an employing company shall constitute a filing on behalf of the shareholders, partners, members, owners, or beneficiaries of the employing company entitled to the jobs tax credit in accordance with Section 40-30-23(b). Such statement shall contain a description of the business of the employing company; the estimated date on which the qualifying employment will begin; the number of new employees to be employed; whether the employing company qualifies as a headquarters operation, small business employer, or high technology company; whether the new employees will be employed within a favored geographic area; the name of each employing company and, if applicable, the name or names of its shareholders, partners, members, owners, or beneficiaries to become entitled to the jobs tax credit; and any other information required by the department.

§ 40-30-21. Effect of compliance with requirements. Each employing company shall, upon filing of the statement required by Section 40-30-20 and upon complying with Section 40-30-22, be entitled to the jobs tax credit, such credit to be allocated and available in accordance with Section 40-30-23(b). An employing company which files the statement required by Section 40-30-20 shall not be entitled to claim the capital credit provided by Article 7 of Chapter 18 of this Title 40 with respect to the same project.

§ 40-30-22. Minimum employment requirements; change of ownership or assignment of interest; requirements not satisfied; disallowance of excess credit; application of credit; ability to claim additional credits.

(a) It shall be a condition to the receipt of a jobs tax credit that one of the following occur beginning with the date which is not later than 1 year after the qualifying employment begins:

(1) Not less than 20 jobs for new employees are created by an employing company, and the average wages for all new employees for whom a jobs tax credit is claimed are not less than the base wage requirement;

(2) Not less than 15 jobs for new employees are created by a small business employer, and the average wages for all new employees for whom a jobs tax credit is claimed are not less than the base wage requirement; or

(3) Not less than 5 jobs for new employees are created either by a high technology company or by an employing company with the principal place of employment of the new employees within a favored geographic area, and the average wages for all new employees for whom a jobs tax credit is claimed are not less than the base wage requirement.

(b) An employing company shall be considered to have met the employment and base wage requirements for the portion of the year following the date upon which such requirements are first met and for each full year thereafter (such portion of a year and such full year thereafter during the 20-year credit period is hereafter referred to as a "compliance year") if the employment requirement is satisfied for at least 11/12 of each compliance year.

(c) Upon a change of ownership or assignment of interest in any employing company, or upon any other change of the employer of the new employees for whom a jobs tax credit is available, the purchaser, assignee, or successor of the initial employing company shall be entitled to the jobs tax credit upon the same conditions and only for the same period for which the jobs tax credit was originally granted.

(d) The failure of an employing company in any tax year to meet the requirements for claiming the jobs tax credit shall cause the employing company to lose the jobs tax credit for that year, shall not cause future credits to terminate, and shall not extend the initial 20-year period for which such credits were available. However, after the third tax year (whether or not consecutive) in which the employing company fails to meet the requirements for claiming the jobs tax credit, future credits shall terminate.

(e) The jobs tax credit allowed under this article for any tax year shall not exceed the aggregate tax liability of those persons described in Section 40-30-23(b) after the application of all other deductions, losses, or credits permitted by the taxes described in Section 40-30-23(c). In no event may any jobs tax credit be carried forward or back to any other tax year.

(f) An employing company which has previously filed the statement required by Section 40-30-20 may file another statement under Section 40-30-20 so long as the additional jobs tax credits sought would, standing alone, meet the requirements set forth in this article.

§ 40-30-23. Entities allowed jobs tax credit; taxes against which credit may be used.

(a) The Legislature recognizes that a substantial number of business entities are organized such that income tax attributes of such business entities are not taxed to such entities but are instead taxed to the owners of such entities. The Legislature determines that the jobs tax credit should be available on a pass-through basis in the manner provided in this section. Further, the Legislature recognizes that one or more business entities may enter into a joint venture in connection with qualifying employment.

(b) The department shall enter into written agreements with employing companies specifying the allocation of the jobs tax credit provided pursuant to this article. The entity employing any new employees need not be the same entity entitled to receive the jobs tax credit. The department shall enter into agreements allowing any of the following persons to make use of the jobs tax credit:

(1) The owner of an employing company which is disregarded for purposes of federal income tax or which is a qualified subchapter S subsidiary defined in Section 1361 of Title 26 of the United States Code, as amended;

(2) The shareholders of an employing company which is defined under Section 40-18-160;

(3) The partners, members, or owners of an employing company which is subject to taxation under Section 40-18-24, as amended;

(4) The beneficiaries of an employing company whose tax treatment is described by Section 40-18-25(d); and

(5) In all other cases, the employing company.

(c) The department shall enter into agreements allowing the jobs tax credit to be used as a credit against any one or more of the following taxes to which the persons described in subsection (b) may be subject:

(1) The individual income tax levied by Section 40-18-2;

(2) The corporate income tax levied by Section 40-18-31;

(3) The income tax levied by Section 40-18-25(c);

(4) The insurance premium tax levied by Section 27-4A-3(a); and

(5) The business privilege tax levied by Section 40-14A-22. However, to the extent that the persons described in subsection (b) may be subject to more than one of the taxes described in this subsection (c), such agreement shall provide that the jobs tax credit shall be applied first against the taxes listed in paragraphs (1) through (4), inclusive, with any remaining credit applied against the tax listed in paragraph (5).

Article 3. Employer retention amount.

§ 40-30-30. Filing with department written statement of intent to claim the employer retention amount. At any time prior to the date on which qualifying employment begins, an employing company shall file with the department a written statement of its intent to claim the employer retention amount. Such statement shall contain the name of each employing company; a description of the business of the employing company; the estimated date on which the qualifying employment will begin; the number of new employees to be employed; affirmation that the new employees will be employed within a favored geographic area; and any other information required by the department.

§ 40-30-31. Effect of compliance with requirements. Each employing company shall, upon filing of the statement required by Section 40-30-30 and upon employing new employees where the principal place of employment of the new employees is within a favored geographic area, be entitled to the employer retention amount in an amount equal to the amount determined under Section 40-30-32(b). Such employer retention amount shall be available for every new employee who begins employment within one year of the date that qualifying employment begins.

§ 40-30-32. Retention of the employer retention amount.

(a) An employing company which has complied with Section 40-30-31 may require, as a condition of employment, that each new employee for whom an employer retention amount is to be claimed shall agree to permit the employing company to deduct and withhold an employer retention amount.

(b) Upon securing the agreement required by subsection (a), an employing company may retain an employer retention amount equal to 70 percent of the amount required to be withheld from the wages paid to each new employee pursuant to Section 40-18-70.

(c) Upon a determination of the income tax liability of each new employee, if the employer retention amount (as determined in subsection (b) and allocable to a new employee) exceeds such new employee's liability for the tax levied by Section 40-18-2, the department shall notify the employing company that the employing company shall pay to the department such excess amount. A payment made pursuant to this subsection shall not affect the amount of the credits provided for in subsections (d) and (e).

(d) An employing company which retains the employer retention amount shall be permitted a credit against the withholding tax liability provided in Section 40-18-76 for the amount of the employer retention amount determined in subsection (b).

(e) Each new employee for whom an employer retention amount was retained shall be entitled to a credit against the new employee's state income taxes for the amount of the employer retention amount, and shall be entitled to a credit against the withholding tax liability calculated in Section 40-18-71 for the amount of the employer retention amount.

(f) An employing company which retains the employer retention amount shall make its payroll books and records available for inspection by the department or its designee at such reasonable times as the department may request.

(g) Upon a change of the employer of the new employees for whom an employer retention amount is available, the successor of the initial employing company shall be entitled to the employer retention amount upon the same conditions and only for the same period for which the employer retention amount was originally granted.

(h) The employer retention amount shall not be retained with respect to qualifying employment for any tax year in which the average base wage requirement for all new employees is not met. To the extent that the employing company has previously withheld the employer retention amount for a tax year in which the base wage requirement is not met, the employing company shall pay such employer retention amount to the department and the credits provided for in subsections (d) and (e) shall not be available. However, no interest or penalty shall be assessed against either the employing company or a new employee because the preceding sentence makes such credits unavailable.

(i) An employing company which has previously filed the statement required by Section 40-30-30 may file another statement under Section 40-30-30 so long as the additional employer retention amounts sought would, standing alone, meet the requirements set forth in this article.

Article 4. Small Business Investment Tax Credit.

§ 40-30-40. Small business investment tax credit allowed.

(a) Subject to Section 40-30-41, a small business investor (other than a pass-through entity) which purchases the equity securities of a qualified small business venture directly from that business is allowed a small business investment tax credit against the taxes imposed by Sections 40-18-2, 40-18-31, or 40-18-25(c) in an amount equal to 25 percent of the amount invested. Such credit shall not be available for the year in which the investment was made, but shall be available for the taxable year beginning during the calendar year following the calendar year in which the investment was made. The total amount of small business investment tax credit allowed such small business investor for one or more investments in a single tax year, whether directly or as owner of a pass-through entity, may not exceed $50,000.

(b) Subject to Section 40-30-41, a small business investor which is a pass-through entity which purchases the equity securities of a small business venture directly from that business is allowed a small business investment tax credit in an amount equal to 25 percent of the amount invested. Such credit shall not be available for the year in which the investment was made, but shall be available for the taxable year beginning during the calendar year following the calendar year in which the investment was made. The total amount of small business investment tax credit allowed a pass-through entity for one or more investments in a single tax year, whether directly or as owner of a pass-through entity, may not exceed $750,000. Each owner of a pass-through entity is allowed as a credit against the taxes imposed by Sections 40-18-2, 40-18-31, or 40-18-25(c) an amount equal to the owner's allocated share of the credits for which the pass-through entity is eligible under this subsection, subject to the limitation in subsection (a). If an owner's share of the pass-through entity's credit is limited due to the maximum allowable credit under this section for a taxable year, the pass-through entity and its owners may not reallocate the unused credit among the other owners.

(c) To be eligible for the tax credit provided in this section, the small business investor must file an application for the credit with the department on or before April 15 of the year following the calendar year in which the investment was made. The department may grant extensions of this deadline, as it deems appropriate, upon the request of the small business investor, except that the application may not be filed after September 15 of the year following the calendar year in which the investment was made. The application shall be on a form prescribed by the department and shall include any supporting documentation that the department may require. If an investment for which a credit is applied was paid for other than in money, the small business investor shall include with the application a certified appraisal of the value of the property used to pay for the investment. The application for a credit for an investment made by a pass-through entity shall be filed by the pass-through entity.

(d) To be eligible for the tax credit provided in this section, the small business venture shall qualify as such under Section 40-30-42 prior to the date on which the small business investor makes its investment with the small business venture.

(e) No small business investment tax credit is allowed for a purchase of equity securities if a broker's fee or commission or other similar remuneration is paid or given directly or indirectly for soliciting the purchase.

§ 40-30-41. Limitations.

(a) The credit allowed pursuant to Section 40-30-40 may not exceed the amount of income taxes imposed by Sections 40-18-2, 40-18-31, or 40-18-25(c) for the tax year, after the application of all other deductions, losses, or credits permitted by such taxes. The amount of unused credit may be carried forward for the next 5 succeeding tax years, and the $50,000 limitation in Section 40-30-40(a) shall not apply to such amounts carried forward. For purposes of this subsection, credits shall be treated as used on a first-in, first-out basis.

(b) The total amount of all small business investment tax credits allowed under Section 40-30-40 for investments made in a calendar year may not exceed $6,000,000. If the total amount of small business investment tax credits claimed for investments made in a calendar year exceeds $6,000,000, the department shall promptly notify small business investors whose applications required by Section 40-30-40(c) are filed after the application with which such limitation is reached that such credits are no longer available for the calendar year. A filing shall be deemed to occur at the moment it is marked as filed by the officer administering the program. The determination of the department shall be final, regardless of the actual use of credits for which applications were filed.

§ 40-30-42. Qualification of small business ventures.

(a) A small business venture shall qualify as such by filing with the department an application for qualification on a form prescribed by the department. Such form shall include any information which the department may require. Investors in a small business venture may receive the credits provided for in Section 40-30-40 only if the small business venture qualifies as such under this section prior to the date of the investment. A small business venture shall be considered to have qualified as such if all of the following are true as of the date the small business venture makes the filing required by this subsection:

(1) Either:

a. It was organized after January 1 of the calendar year in which its application for qualification is filed; or

b. It was organized prior to January 1 of the calendar year in which its application for qualification is filed and had gross revenues, as determined in accordance with generally accepted accounting principles, of $5,000,000 or less on a consolidated basis and it files a financial statement showing such;

(2) At least 75 percent of the activities of the small business venture (together with any business entity which, with the small business venture, is part of an affiliated group of corporations as that term is defined in Section 1504 of Title 26 of the United States Code) are an industrial, warehousing, or research activity, or a service-related activity; and

(3) It was not formed for the primary purpose of acquiring all or part of the stock or assets of one or more existing businesses.

(b) A small business venture which qualifies as such pursuant to subsection (a) shall be deemed to have qualified on the date the filing required by subsection (a) was made with the department.

(c) To remain qualified as a small business venture, such small business venture must renew its status annually by filing an application for renewal. Such application shall include the submission of the financial statement provided for in Section 40-30-42(a)(1)b. and certification that there has been no material change concerning the qualification requirements in subsection (a). Such application for renewal shall be filed no later than April 15 of the calendar year following the calendar year in which the application for qualification provided for in subsection (a) is filed, and each subsequent April 15. Failure of a small business venture to file an application for renewal shall result in revocation of its status as a qualified small business venture effective on the day after the renewal deadline, but shall not result in forfeiture of tax credits previously allowed to investors except as provided in Section 40-30-43. The department shall send the small business venture notice of revocation within 60 days after the renewal deadline. A small business venture may apply to have its qualification reinstated by the department by filing an application for reinstatement, accompanied by the reinstatement application fee and a late filing penalty of $1,000, within 30 days after receipt of the revocation notice from the department. No small business venture may seek qualified status at any time after such qualified status has been revoked except by filing a reinstatement application.

(d) If the gross revenues of a small business venture exceed $5,000,000 in a tax year, the business must notify the department in writing of this fact and file a financial statement showing the revenues of the business for that year. Such a small business venture may not renew its qualified status under subsection (b).

(e) If the department finds that any of the information contained in an application by a small business venture is false, it shall revoke the qualified status of the small business venture.

(f) The qualified status of a small business venture may not be sold or otherwise transferred, except that if a small business venture enters into a merger, consolidation, or other similar transaction with another business and the surviving corporation would otherwise meet the criteria for qualifying as a small business venture, the surviving company shall retain the qualified status of the small business venture without further application to the department. In such a case, the small business venture shall provide the department with written notice of the merger, consolidation, or similar transaction and the name, address, and jurisdiction of incorporation of the surviving company.

(g) The department shall issue regulations prohibiting a small business venture from qualifying under this section if the small business venture is created with the predominant purpose of allowing a previously existing business to participate in the small business investment tax credit program.

§ 40-30-43. Forfeiture of small business investment tax credits.

(a) A small business investor (other than a pass-through entity) forfeits the small business investment tax credit if, within 3 years after the investment was made, such investor participates in the operation of the small business venture. Such investor is deemed to participate in the operation of a small business venture if the individual, the individual's spouse, parent, sibling, or child, a 25 percent or greater beneficiary of the trust, or an employee of the investor or of a business controlled by the investor, provides services of any nature to the small business venture for compensation, whether as an employee, a contractor, or otherwise. However, a person who provides services to a small business venture as an officer, a member of the board of directors, or otherwise does not participate in its operation if the person receives as compensation only reasonable reimbursement of expenses incurred in providing the services or participates in a stock option and/or stock bonus plan.

(b) A small business investor which has received a small business investment tax credit forfeits the credit if the qualified status of the small business venture is revoked because information in the application was false at the time the application was filed with the department.

(c) A small business investor which has received a small business investment tax credit forfeits the credit if either of the following:

(1) Within one year after the investment was made, the small business investor transfers any of the securities received in the investment that qualified for the small business investment tax credit to another person or entity, other than in a transfer resulting from one of the following:

a. The death of the individual;

b. A final distribution in liquidation to the owners of the pass-through entity or small business venture;

c. A distribution of the assets of the trust to the beneficiaries of the trust; or

d. A merger, consolidation, or similar transaction requiring approval by the owners of the small business venture, to the extent the small business investor does not receive cash or tangible property in the merger, consolidation, or other similar transaction; or

(2) Within 5 years after the investment was made, the small business venture makes a redemption with respect to the securities received in the investment.

(d) If a small business investor transfers fewer than all the securities in a manner that would result in a forfeiture under subsection (c), the amount of the small business investment tax credit that is forfeited is the product obtained by multiplying the aggregate small business investment tax credit attributable to the investment by a fraction whose numerator equals the number of securities transferred and whose denominator equals the number of securities received on account of the investment to which the small business investment tax credit was attributable. In addition, if the redemption amount is less than the amount invested by the small business investor in the securities to which the redemption is attributable, the amount of the small business investment tax credit that is forfeited is further reduced by multiplying it by a fraction whose numerator equals the redemption amount and whose denominator equals the aggregate amount invested in the securities involved in the redemption. The term "redemption amount" means all amounts paid that are treated as a distribution in part or full payment in exchange for securities under Section 302(a) of Title 26 of the United States Code, as amended.

(e) A small business investor who forfeits the small business investment tax credit under this section is liable for all past taxes avoided as a result of the credit plus interest. The past taxes and interest are due 30 days after the date the credit is forfeited, and a small business investor who fails to pay the past taxes and interest by the due date is subject to all applicable penalties for the failure to timely pay the taxes against which such credit was used.

§ 40-30-44. Reduction in basis. A small business investor's basis in its investment in a small business venture shall be reduced by the amount of small business investment tax credit utilized by the small business venture or its owners or beneficiaries.

Section 3. A new Article 9 is added to Chapter 18 of Title 40 to read as follows:

Article 9. High Technology Research and Development Tax Credit.

§ 40-18-230. Definitions. The terms used in this article shall have the meanings provided in Section 41 of Title 26 of the United States Code, as amended, as it existed and was applied on January 1, 2000, with the following exceptions:

(1) BASIC RESEARCH PAYMENTS. Basic research payments, as defined in Section 41(e) of the Code, which are paid for research to be performed in Alabama.

(2) CODE. Title 26 of the United States Code, as amended, as it existed on January 1, 2000.

(3) NAICS. The 1997 North American Industry Classification System, promulgated by the Executive Office of the President of the United States, Office of Management and Budget.

(4) QUALIFIED RESEARCH. Qualified research, as defined in Section 41(d) of the Code, but only if it is conducted in Alabama and is one of the following:

(a) An activity falling within NAICS Industry 541710 which has or may lead to manufacturing activities falling within NAICS Industry Group 3254; or

(b) In furtherance of an activity falling within NAICS Industry Group 3254 or Industries 454110, 511210, or 514191.

§ 40-18-231. Credit for increasing research activities of high technology companies.

(a) For the tax years beginning on and after January 1, 2000, a taxpayer may elect to utilize the tax credit provided for in subsection (b) against the taxpayer's income tax liability determined under this chapter. Such credit shall be applied after all other income tax credits, whether within this Act or not. To the extent that the tax credit is utilized (whether by the taxpayer or by a transfer by the taxpayer), no deduction for the related expenses shall be allowed. Credits which are not utilized by the taxpayer or by a taxpayer who purchases such credits pursuant to Section 40-18-232 shall be carried forward to the succeeding taxable year and added to any credit available under this subsection for such taxable year. No credit may be carried forward under this subsection to any taxable year following the fifteenth taxable year after the taxable year in which the credit arose. For purposes of this subsection, credits shall be treated as used on a first-in, first-out basis.

(b) A tax credit determined under this section for the taxable year shall be an amount equal to the sum of:

(1) 80 percent of the excess (if any) of:

(A) the qualified research expenses for the taxable year, over

(B) the base amount; and

(2) 80 percent of the basic research payments.

(c) In making the calculations required by subsection (b), a taxpayer shall only include those expenditures for research conducted in this state and shall apportion its gross receipts as provided in this chapter.

(d) It is the intent of the legislature that this section be applied consistently with Section 41 of the United States Code, as amended, as it existed on January 1, 2000, except for the following:

(1) Where the legislature has clearly indicated a different intent;

(2) The alternative incremental credit provided by Section 41(c)(4) of the Code shall not apply; and

(3) The termination provision in Section 41(h) of the Code shall not apply.

§ 40-18-232. Ability to transfer tax credits.

(a) For a taxpayer who is eligible to receive the tax credit provided for in Section 40-18-231(b) or, for a taxpayer who is primarily engaged in activities falling within paragraphs (a) or (b) of subsection 40-18-230(4) and is eligible to receive the tax credit provided for in Section 40-30-21, the taxpayer may sell such unused credits to other taxpayers, who shall use such credits against the taxes provided in subsection (g), but only if such taxpayers comply with the provisions of this section.

(b) A sale of the tax credits referred to in subsection (a) shall be made by written, notarized contract, which shall provide that such sale shall occur at the time of payment of taxes to which such credits relate.

(c) A taxpayer who sells the tax credits referred to in subsection (a) and a taxpayer who purchases such credits shall evidence the sale by submitting with their returns a certificate as prescribed by the Department of Revenue, and containing such information as the Department shall deem necessary.

(d) A taxpayer who sells the tax credits referred to in subsection (a) who is later determined not to have received such tax credits shall be liable for the underpayment of tax as well as all penalties and interest charges. The taxpayer who purchases such credits shall not be liable for the underpayment of tax or for penalties and interest charges unless the purchase of such credits was made in a fraudulent manner.

(e) A taxpayer who sells the tax credits referred to in subsection (a) shall not use the proceeds from the sale to pay a dividend, as such term is defined in Section 316(a) of Title 26 of the United States Code.

(f) The tax credits referred to in subsection (a) shall not be considered securities under Section 8-6-2(10).

(g) A taxpayer who purchases the credits referred to in subsection (a) may use such credits against any of the following taxes to which the purchaser may be subject:

(1) The individual income tax levied by Section 40-18-2;

(2) The corporate income tax levied by Section 40-18-31;

(3) The income tax levied by Section 40-18-25(c);

(4) The financial institution excise tax levied by Section 40-16-4(a); and

(5) The insurance premium tax levied by Section 27-4A-3(a).

§ 40-18-233. Adoption of regulations. The Department of Revenue shall adopt regulations to carry out the provisions of this article.

Section 4. A new Section 40-9-32 is added to Chapter 9 of Title 40 to read as follows:

§ 40-9-32. Semiconductor fabrication facilities. In the case of a facility which is located in Alabama, engages in activities falling within Industry Group 3344, 1997 North American Industry Classification System (promulgated by the Executive Office of the President of the United States, Office of Management and Budget), employs over 1,500 persons, and has an amount invested in Alabama in excess of $1,000,000,000, the assessed value of such facility shall be equal to the lesser of the actual assessed value or $20,000,000. The provisions of this section shall be available to a facility only for the 10 ad valorem tax years immediately following the year in which the requirements in the preceding sentence are met.

§40-18-35.

(a) In computing the taxable income of corporations subject to the tax imposed by Section 40-18-31, there shall be allowed as deductions the items described in the following numbered subdivisions of this section. The proper apportionment and allocation of deductions of corporations with respect to the income from sources within and outside the State of Alabama shall be determined under the rules and regulations prescribed by the Department of Revenue pursuant to Chapter 27. For corporations doing business partly within and partly outside of Alabama where income and deductions are apportioned and allocated to Alabama as provided in Chapter 27, the deductions allowed by subdivision (13) of this section shall not be subject to any apportionment or allocation and shall be allowed in full. Subject to the above limitations, there shall be allowed as deductions in computing the taxable income of corporations:

(1) All ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business as determined in accordance with 26 U.S.C. § 162;

(2) All interest paid or accrued within the taxable year on its indebtedness as determined in accordance with 26 U.S.C. §§ 163, 264, and 265. In the case of a corporation not commercially domiciled in Alabama, the amount of interest otherwise deductible under this subdivision shall be reduced by the amount that bears the same ratio to the total interest expense as the average value of the corporation's assets producing nonbusiness income bears to the average value of the corporation's total assets; provided that (1) in lieu of the reduction in interest expense required by the formula contained in the first clause of this sentence, the taxpayer may elect to reduce the interest expense deduction by the method used by the taxpayer under this section prior to its amendment by Act 98-502, and (2) the amount of the reduction in interest expense under this subdivision shall not exceed the amount of nonbusiness income. In the case of a corporation commercially domiciled in Alabama, the rules prescribed by Chapter 27 of this title and the regulations promulgated thereunder by the Department of Revenue shall govern;

(3) Taxes paid or accrued within the taxable year imposed from time to time (i) by the authority of the United States; (ii) by authority of any of its possessions; or (iii) by the authority of any state or territory, or any county, school district, municipality, or other taxing subdivision of any state or territory not including income tax and not including those assessed for local benefits of a kind tending to increase the value of the property assessed but excluding the income taxes levied and imposed under this title; provided, however, that any tax not specified in one of the numbered paragraphs of 26 U.S.C. § 164(a) which is paid or accrued in connection with the acquisition or disposition of property shall be treated as part of the cost of the acquired property or, in the case of a disposition, as a reduction in the amount realized on the disposition. The amount of federal income tax which shall be deductible by such corporation shall be determined by the ratio that the taxable income, as computed without any deduction for any applicable federal, state, or local taxes on net income or any federal or state or local taxes measured by net income, of the corporation on business done within Alabama bears to its taxable income, as computed without any deduction for any applicable federal, state, or local taxes on net income or any federal or state, or local taxes measured by net income, from business done both within and without the State of Alabama;

(4) Losses as determined in accordance with 26 U.S.C. § 165;

(5) Losses from debts which become wholly or partially worthless during the taxable year determined in accordance with 26 U.S.C. § 166;

(6) (i) Except as provided in (ii), a A reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence, to the extent provided by 26 U.S.C. §§ 167 and 168, and an allowance for the amortization of intangibles determined in accordance with 26 U.S.C. § 197;.

(ii) In the case of a facility which engages in activities falling within Industry Group 3344, 1997 North American Industry Classification System (promulgated by the Executive Office of the President of the United States, Office of Management and Budget), employs over 1,500 persons, is placed in service after January 1, 2001, and has a fair market value in excess of $1,000,000,000, the allowance for the exhaustion of the facility shall be calculated under 26 U.S.C. § 168 using an applicable recovery period of 3 years; provided, however, that the 3-year recovery period shall only be available for a facility for which the taxpayer filed notification with the Department of Revenue of its intent to make use of this provision at least 6 months prior to such facility being placed in service;

(7) In the case of mines, oil and gas wells, other natural deposits, and timber, a reasonable allowance for depletion and for depreciation of improvements, according to the peculiar conditions in each case, based upon the cost, including cost of development not otherwise deducted, such reasonable allowance in all cases to be made under rules and regulations to be prescribed by the Department of Revenue; in the case of leases the deductions allowed by this subsection shall be equitably apportioned between the lessor and the lessee;

(8) In the case of marine insurance companies, there shall be allowed amounts repaid to policyholders on account of premiums previously paid by them and interest paid on such amounts between the ascertainment and the payment thereof;

(9) In the case of mutual insurance companies, other than mutual life or mutual marine insurance companies requiring their members to make premium deposits to provide for losses and expenses, there shall be allowed the amount of premium deposits returned to their policyholders and the amount of premium deposits retained for the payment of losses, expenses and reinsurance reserves;

(10) Charitable contributions determined in accordance with 26 U.S.C. § 170;

(11) The deduction allowed for federal income tax purposes by 26 U.S.C. § 404;

(12) A deduction for any expense not exceeding $35,000 actually incurred during the taxable year in removing from any facility or structure in operation in the State of Alabama any architectural or transportation barriers to handicapped persons with nonambulatory or semiambulatory disabilities; provided, however, that any improvements resulting from such expense shall not be eligible to be capitalized for depreciation;

(13) All amounts invested during the taxable year in all devices, facilities or structures and all identifiable components thereof or materials for use therein, used or placed in operation in the State of Alabama, or to be used or placed in operation in the State of Alabama, acquired or constructed primarily for the control, reduction, or elimination of air or water pollution; provided, that in lieu of deducting such amounts, the corporation may elect to amortize all such amounts over such period, not exceeding the useful life of devices, facilities, or structures for which such amounts were expended, as it specifies in its tax return respecting the taxable year during which such amounts were expended, in which case it shall be entitled to appropriate deductions for the taxable years so specified; and provided further, that the taking of any deduction authorized by this subdivision shall be optional with the corporation; and that if any such deduction is taken with respect to such devices, facilities, or structures, such corporation shall not be permitted any allowance for depreciation or obsolescence thereof otherwise allowable under this section;

(14) The amounts received as dividends, including liquidating dividends, whether received in cash or property or both, from a corporation or any subsidiary corporation which is either taxable under this chapter upon its net income or exempt from taxation under this chapter by virtue of being an insurance company upon which the statutes of Alabama impose a tax upon, measured by, or with respect to its premium income, if at the time of the receipt of the dividends the corporation receiving the dividends is the owner of stock in the corporation distributing the dividends:

a. Possessing at least 50 percent of the total combined voting power of all classes of stock entitled to vote; and

b. Constituting at least 50 percent of the total number of shares of all classes of stock other than classes of stock which are limited and preferred as to dividends.

Neither the dividends deductible by reason of this subdivision nor the value of the assets of the corporation paying the dividends shall be taken into account in determining the amount of interest or other expenses attributed to nonbusiness income pursuant to the second sentence of subdivision (2) of this subsection.

(15) The amounts received in taxable years beginning after July 31, 1995, by corporate taxpayers commercially domiciled outside of Alabama on each day of their taxable year, as dividends, including liquidating dividends, whether received in cash or property or both, or as deemed dividends, including amounts included in gross income under 26 U.S.C. §§ 78 and 951, from a corporation or any subsidiary corporation, if at the time of the receipt or deemed receipt of the dividends the corporation receiving the dividends is the owner of stock in the corporation distributing such dividends:

a. Possessing at least 20 percent of the total combined voting power of all classes of stock entitled to vote; and

b. Constituting at least 20 percent of the total number of shares of all classes of stock other than classes of stock which are limited and preferred as to dividends.

Neither the dividends deductible by reason of this subdivision nor the value of the assets of the corporation paying the dividends shall be taken into account in determining the amount of interest or other expenses attributed to nonbusiness income pursuant to the second sentence of subdivision (2) of this subsection.

(16) Organizational expenses ratably over a period of not less than 60 months determined in accordance with 26 U.S.C. § 248;

(17) The deduction allowed by 26 U.S.C. § 179 (relating to expensing certain depreciable property); provided that no deduction shall be allowed by subdivision (6) for any amount allowed as a deduction under this subdivision;

(18) Notwithstanding subdivision (1), the deduction for expenses of travel, entertainment and meals shall be determined in accordance with 26 U.S.C. § 274; and

(19) In the case of a personal service corporation that is subject to the minimum distribution requirements of 26 U.S.C. § 280H, the deductions otherwise allowed by this section shall be limited in accordance with 26 U.S.C. § 280H.

(b) Notwithstanding any provision of subsection (a), no deduction shall be allowed for any losses, expenses, or interest deferred or disallowed pursuant to 26 U.S.C. § 267 (with respect to transactions between related taxpayers), or any cost required to be capitalized in accordance with 26 U.S.C. §§ 263 or 263A.

§40-18-34.

The following items shall be added to federal taxable income for purposes of computing taxable income under this chapter:

(a) State and local income taxes that are deductible in computing federal taxable income.

(b) Interest on obligations of state or local governments other than Alabama that is excludable from gross income for federal income tax purposes.

(c) Refunds of federal income taxes deducted.

(d) Dividends received from a corporation in which the taxpayer owns less than 20% of the stock (by vote and value).

(e) In the case of a facility which engages in activities falling within Industry Group 3344, 1997 North American Industry Classification System (promulgated by the Executive Office of the President of the United States, Office of Management and Budget), employs over 1,500 persons, is placed in service after January 1, 2001, and has a fair market value in excess of $1,000,000,000, the allowance for the exhaustion of the facility calculated under 26 U.S.C. § 168; provided, however, that such addition shall only be made for a facility for which the taxpayer filed notification with the Department of Revenue of its intent to make use of this provision at least 6 months prior to such facility being placed in service.

§40-18-35.

The following items shall be deducted from federal taxable income under this chapter:

(1) Refunds of state and local income taxes.

(2) Federal income tax paid or accrued during the taxpayer's taxable year.

(3) Interest income earned on obligations of the United States.

(4) Interest income earned on obligations of the State of Alabama or its subdivisions or instrumentalities thereof to the extent included in gross income for the purposes of federal income taxation. or such obligations are issued to pay the cost of assets to which subsections (c) through (e) of Section 40-9B-7 apply.

(5) The amount of any aid or assistance, whether in the form of property, services or monies, provided to the State Industrial Development Authority pursuant to Section 41-10-44.8(d) in order to induce an approved company to undertake a major project within the state.

(6) Expenses otherwise deductible that were not deducted on the federal income tax return as a result of an election to claim a credit for those expenses.

(7) Dividend income, including amounts described in 26 U.S.C. § 78 and 26 U.S.C. § 951, with respect to which the taxpayer elected to claim a foreign tax credit rather than a deduction in determining federal taxable income; dividend income received from foreign sales corporations as defined in 26 U.S.C. § 922; and dividend income from foreign (non-U.S.) corporations to the same extent such dividend income would be deductible under 26 U.S.C. § 243 if received from U.S. corporations, except for dividends received from a corporation in which the taxpayer owns less than 20% of the stock (by vote and value). The Department shall promulgate a regulation regarding the allowable amount of interest expense related to the production of nonbusiness income, which shall be based upon a formula using the average value of the corporation's assets producing nonbusiness income as compared to the average value of the corporation's total assets.

(8) The interest portion of rent paid under lease agreements entered into prior to December 31, 1994, relating to obligations issued by the State of Alabama or subdivisions or instrumentalities thereof, to the extent that such obligations are issued to pay the cost of assets to which subsections (c) through (e) of Section 40-9B-7 apply.

(9) In the case of a facility which engages in activities falling within Industry Group 3344, 1997 North American Industry Classification System (promulgated by the Executive Office of the President of the United States, Office of Management and Budget), employs over 1,500 persons, is placed in service after January 1, 2001, and has a fair market value in excess of $1,000,000,000, the allowance for the exhaustion of the facility calculated under 26 U.S.C. § 168 using an applicable recovery period of 3 years; provided, however, that the 3-year recovery period shall only be available for a facility for which the taxpayer filed notification with the Department of Revenue of its intent to make use of this provision at least 6 months prior to such facility being placed in service.

(b) The following credits shall be allowed against the tax levied by Section 40-18-31:

(1) the amount provided to an approved company pursuant to Section 41-10-44.8(a)(1), subject however, to the limitations contained in Section 41-10-44.8(c); and

(2) the amount provided in Section 41-10-44.9 to an approved company for a payment by such company into a tax increment fund.

§40-18-21.

(a) (1) For the purpose of ascertaining the income tax due under the provisions of this chapter by individual residents of Alabama whose gross income, as defined herein, is derived from sources both within and without the State of Alabama, there shall be allowed a credit against the amount of tax found to be due by such resident, on account of income derived from without the State of Alabama, the amount of income tax actually paid by such resident to any state or territory on account of business transacted or property held without the State of Alabama.

(2) In case the amount of tax actually paid by an individual resident of Alabama to another state or territory is in excess of the amount that would be due on the same income computed on the income tax rate in Alabama, then only such amount as would be due in this state on such taxable income shall be allowed as a credit

(3) If the amount of income tax actually paid by an individual resident of this state to any other state or territory on account of business transacted or property held is less than the amount of tax that would be due, as computed on Alabama income tax rates, then the income tax levied herein shall be computed on the entire taxable income from sources from both within and without the state as defined herein, and the tax shall be paid less the credit allowed in this section for tax paid on income derived from without the state.

(4) Before a resident of Alabama may claim the credit allowed under this subsection (a), he or she shall file with his or her tax return a certificate showing amount of gross and net income derived from sources without this state together with the amount of tax paid or to be paid on such income.

(b) Any taxpayer described in Section 40-18-2(1) or Section 40-18-2(6), who, during any year, has been assessed a job development fee as described in Section 41-10-44.8(b) or an employer retention amount as described in Section 40-30-32, shall be allowed a credit against the amount of income tax due under the provisions of this chapter in such year in an amount equal to the job development fee or an employer retention amount withheld from the taxpayer's wages during the year.

§40-18-71.

(a) Every employer, as defined under the laws of the United States in effect July 1, 1982, or as subsequently may be defined, with respect to income tax collected at source, making payment of wages as defined under such laws to employees, shall deduct and withhold upon such wages, reduced by the optional standard deduction provided in subsection (b) of Section 40-18-15 and the federal income tax withheld, a tax equal to two percent of the first $500 or less, four percent of the next $2,500 or less, five percent of the excess over $3,000, by which the amount of such wages paid or to be paid in the calendar year by such employer to such employee, exceeds the amount of the exemptions granted to such employee under Section 40-18-19 as claimed on a certificate to be filed with the employer in such form and containing such information and detail as may be prescribed by the commissioner, pursuant to the provisions of Section 40-18-73; provided, however, that in determining the amount to be deducted and withheld under this subsection (a), an employer shall allow as a credit against such amount the job development fee described in Section 41-10-44.7(b) or the employer retention amount described in Section 40-30-32.

(b) At the election of the employer with respect to such employee, the employer may deduct and withhold upon the wages paid to such employee a tax determined on the basis of tables to be prepared and furnished by the commissioner, which tax shall be substantially equivalent to the tax provided in subsection (a) of this section and which shall be in lieu of the tax required in such subsection.

(c) In determining the amount to be deducted and withheld under this section, the wages may, at the election of the employer, be computed to the nearest dollar.

(d) The department may, by regulations, authorize employers:

(1) To estimate the wages which will be paid to any employee in any quarter of the calendar year;

(2) To determine the amount to be deducted and withheld upon each payment of wages to such employee during such quarter as if the appropriate average of the wages so estimated constituted the actual wages paid; and

(3) To deduct and withhold upon any payment of wages to such employee during such quarter such amount as may be necessary to adjust the amount actually deducted and withheld upon the wages of such employee during such quarter to the amount that would be required to be deducted and withheld during such quarter if the payroll period of the employee was quarterly.

(e) The department is authorized to provide by regulation, under such conditions and to such extent as it deems proper, for withholding in addition to that otherwise required under this section and in cases in which the employer and the employee agree to such additional withholding. Such additional withholding shall, for all purposes, be considered the tax required to be deducted and withheld under this chapter.

§40-18-190.

The following terms shall have the following meanings, respectively, when used in this article unless the context clearly requires otherwise:

(1) BASE WAGE REQUIREMENT. Either an average hourly wage of not less than eight dollars ($8) per hour or an average total compensation of not less than ten dollars ($10) per hour, including benefits. Notwithstanding the foregoing, wages of direct processors of agriculture food products shall be subject to the local labor market. In the event that reliable local labor market statistics are not available, the department shall, by regulation or ruling, establish a source of wage information that best represents the average hourly wage rate in Alabama for direct processors of agriculture food products.

(2) CAPITAL COSTS. All costs and expenses incurred by one or more investing companies in connection with the acquisition, construction, installation and equipping of a qualifying project during the period commencing with the date on which such acquisition, construction, installation and equipping commences and ending on the date on which the qualifying project is placed in service, including, without limitation all of the following:

a. The costs of acquiring, constructing, installing, equipping and financing a qualifying project, including all obligations incurred for labor and to contractors, subcontractors, builders, and materialmen.

b. The costs of acquiring land or rights in land and any cost incidental thereto, including recording fees.

c. The costs of contract bonds and of insurance of all kinds that may be required or necessary during the acquisition, construction or installation of a qualifying project.

d. The costs of architectural and engineering services, including test borings, surveys, estimates, plans and specifications, preliminary investigations, environmental mitigation and supervision of construction, as well as for the performance of all the duties required by or consequent upon the acquisition, construction and installation of a qualifying project.

e. The costs associated with installation of fixtures and equipment; surveys, including archaeological and environmental surveys; site tests and inspections; subsurface site work; excavation; removal of structures, roadways, cemeteries, and other surface obstructions; filling, grading, paving and provisions for drainage, storm water retention, installation of utilities, including water, sewer, sewage treatment, gas, electricity, communications, and similar facilities; off-site construction of utility extensions to the boundaries of the property.

f. All other costs of a nature comparable to those described, including, without limitation, all project costs which are required to be capitalized for federal income tax purposes pursuant to 26 U.S.C. §263A.

g. Costs otherwise defined as capital costs that are incurred by the investing company where the investing company is the lessee under a lease that: (1) has a term of not less than five years, and (2) is characterized as a capital lease for federal income tax purposes; provided, that if the project is a headquarters facility, the lease may be characterized as an operating lease for federal income tax purposes in which event capital costs shall include the net present value of the payments made by the investing company under the lease computed using the applicable federal rate for the month in which the qualifying project is placed in service and for the term most closely approximating the term of the lease. Capital costs shall not include property owned or leased by the investing company or a related party before the commencement of the acquisition, construction, installation or equipping of the qualifying project unless such property was physically located outside the state for a period of at least one year prior to the date on which the qualifying project was placed in service.

h. Costs either paid or incurred by (i) a public industrial development board or authority, city, or county, or other public corporation or political subdivision (a "public entity") for the benefit of a qualifying project where such costs are treated as costs paid by an investing company with respect to the qualifying project for federal income tax purposes (such costs shall not include amounts contributed by a public entity to a qualifying project as a capital contribution or gift except to the extent that an investing company has cost basis in the contribution or gift for federal income tax purposes); or (ii) a related party to an investing company to the extent such costs are included in or taken into account in determining the investing company's federal income tax basis in the qualifying project, whether or not incurred by an investing company.

(3) CAPITAL CREDIT. An annual amount equal to five percent of the capital costs of the qualifying project, such amount to be credited or allowed in accordance with Section 40-18-194 hereof and other provisions of law, against the state income tax liability generated by or arising out of the qualifying project in each of the 20 years commencing with the year during which the qualifying project is placed in service and continuing for 19 consecutive years thereafter.

(4) DEPARTMENT. The Alabama Department of Revenue.

(5) HEADQUARTERS FACILITIES. A facility which will serve as the national, regional or state headquarters for an investing company that conducts significant business operations outside the state and will serve as the principal office of the principal operating officer of the qualifying project. For purposes of this Article 7, the term "principal operating officer" is defined as the person with chief responsibility for the daily business operations of the qualifying project.

(6) INDUSTRIAL, WAREHOUSING, OR RESEARCH ACTIVITY. Any trade or business described in 1987 Standard Industrial Classification Major Groups 20 to 39, inclusive, 50 and 51, Industrial Group Number 737, and Industry Numbers 8731, 8733 and 8734, as set forth in the Standard Industrial Classification Manual published by the United States Government Office of Management and Budget 1997 North American Industry Classification System, promulgated by the Executive Office of the President of the United States, Office of Management and Budget Sectors 31 (other than National Industry 311811), 32, 33, and 42; Subsector 511; Industry Groups 5142 and 5415; Industries 11234, 48691, 51331, 51332, 51333, 51334, 54138, 54171, and 54194 (testing laboratories only); and National Industries 115111, 454110, 514191, and 561422, and includes such trades and businesses as may be hereafter reclassified in any subsequent publication of the Standard Industrial Classification Manual or other industry classification system developed in conjunction with the United States Department of Commerce, or any process or treatment facility which recycles, reclaims, or converts materials, which include solids, liquids, or gases, to a reusable product.

(7) INVESTING COMPANY. Any corporation, partnership, limited liability company, proprietorship, trust or other business entity, regardless of form, making a qualified investment.

(8) NEW EMPLOYEES. Those persons who have not been previously employed at the site on which the qualifying project is or will be located or by an investing company or companies in the state or any controlled entity of an investing company or companies; will be employed full-time at the qualifying project by an investing company or companies or any controlled entity of an investing company or companies; and will be subject to the personal income tax imposed by Section 40-18-2, upon commencement of employment at the qualifying project. For purposes of this subdivision, "controlled entity" shall mean a company doing business in the state which, with the investing company or companies, is part of an affiliated group of corporations as that term is defined in Section 1504 of Title 26 of the United States Code.

(9) PROJECT. Any land, building or other improvement, and all real and personal properties deemed necessary or useful in connection therewith, whether or not previously in existence, located or to be located in the state.

(10) QUALIFYING INVESTMENT. The undertaking by one or more investing companies of a qualifying project.

(11) QUALIFYING PROJECT. A project to be sponsored or undertaken by one or more investing companies meeting any one of the following requirements:

(a) A project the capital costs of which are not less than $2,000,000, and at which the predominant trade or business activity conducted will constitute industrial, warehousing or research activity.

(b) A small business addition the capital costs of which are not less than $1,000,000, and at which the predominant trade or business activity conducted will constitute industrial, warehousing or research activity.

(c) A headquarters facility the capital costs of which are not less than $2,000,000.

(12) RELATED PARTY. A person or entity that bears a relationship to an investing company described in Section 267(b), (c), or (e) of the Internal Revenue Code of 1986, as amended.

(13) SMALL BUSINESS ADDITION. Any land, building or other improvement, and all real and personal properties deemed necessary or useful in connection therewith, whether or not previously in existence, to be used as a part of any existing facility of a business located in the state that, prior to the date on which the addition is placed in service, had 100 or fewer full-time employees.

(14) TAX YEAR. The applicable taxable year as the term is defined in Section 40-18-1(11).

(15) 1993 ACT. Act No. 93-851, H. 27 and Act No. 93-852, H. 83 adopted at the 1993 First Special Session of the Legislature of Alabama, as amended by Act No. 94-370, S. 559 adopted at the 1994 Regular Session of the Legislature of Alabama.

§40-18-192.

Subject to compliance with Section 40-18-193, each investing company shall, upon filing of the statement required by Section 40-18-191 and upon the making of qualified investments and upon compliance with subsection (a) of Section 40-18-193, be entitled to the capital credit, such credit to be allocated and available in accordance with subsection (b) of Section 40-18-194. However, an investing company which files the statement required by Section 40-18-191 shall not be entitled to claim the jobs tax credit provided by Article 2 of Chapter 30 of this Title 40 with respect to the same project. The department shall enter into written agreements with an investing company or companies specifying the method by which income generated by or arising out of the project will be determined, and with respect to qualifying projects undertaken by partnerships, limited liability companies, or other joint ventures, the allocation and treatment of the capital credit provided pursuant to this article.

§40-18-202.

Capital credits authorized by this article shall not be available for new qualifying projects after December 31, 1998 2002., unless the Legislature, by joint resolution, votes to continue or reinstate the capital credit for new projects after that date. No action or inaction on the part of the Legislature shall reduce or suspend any capital credit in any past or future calendar year with respect to any investing company which files a statement of intent pursuant to Section 40-18-191 on or prior to December 31, 1998, it being the sole intention of tThis section that failure of the Legislature to adopt a joint resolution continuing the capital credit for periods after December 31, 1998, shall affect only the availability of the capital credit to for new qualifying projects after that date, and shall not affect qualifying projects which have established their eligibility to receive capital credits under Section 40-18-191 on or prior to December 31, 1998 2002.

Section 13. If a court of competent jurisdiction adjudges invalid or unconstitutional any clause, sentence, paragraph, section, or part of this Act, such judgment or decree shall not affect, impair, invalidate, or nullify the remainder of this Act, but the effect of the decision shall be confined to the clause, sentence, paragraph, section, or part of this Act adjudged to be invalid or unconstitutional.

Section 14. This Act shall become effective immediately upon its passage and approval by the Governor, or upon its otherwise becoming a law. The amendments provided for in Sections 10 and 11 of this Act shall not apply to any capital credits for which a statement is filed before the effective date of this Act.

Taxation

Tax Credits

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Jobs Tax Credit

Economic Development

Revenue Department

Legislature

Ad Valorem Tax

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