Current through Register Vol. 42, No. 11, August 30, 2024
(1) This chapter sets forth the rules to be
used by the Alabama Department of Revenue in the administration of Sections
40-18-190 through
40-18-203,
Code of Ala. 1975, as amended. These rules are
promulgated to implement and clarify the procedures to be used by an Investing
Company or Companies in order:
(a) to provide
definitions of terms used in regulations and procedures related to Reporting
Company designation and responsibilities, Reg. 810-2-7-.01,
(b) to notify the Department of Revenue of
the intent to establish a Project which will qualify for the Capital Credit,
Reg.
810-2-7-.02,
(c) to clarify the minimum criteria for a
Project to qualify for the Capital Credit and continuing availability
requirements, Reg.
810-2-7-.03,
(d) to establish the available annual Capital
Credit, Reg.
810-2-7-.04,
(e) to establish the methods used to
determine the income generated by or arising out of a Qualifying Project, Reg.
810-2-7-.05,
(f) to establish the methods used to allocate
the Project's Alabama taxable apportionable income and the Capital Credit among
business entities engaged in Joint Ventures, Reg.
810-2-7-.06,
(g) to provide that the Department of Revenue
is furnished the information necessary to meet the reporting requirements of
Section
40-18-198,
Code of Ala. 1975, as amended, Reg.
810-2-7-.07,
and
(2) Definitions. The
following terms have the meaning ascribed to them for purposes of the
regulations to implement Sections
40-18-190 through
40-18-203,
Code of Ala. 1975, as amended, unless the context
clearly indicates otherwise.
(a) Affidavit. A
sworn statement signed in the presence of a notary public.
(b) Base Wage Requirement. Employees which
are not employed by direct processors of agricultural food products shall be
paid either an average hourly wage of not less than eight dollar($8) per hour
or an average Total Compensation of not less than ten dollars ($10) per hour,
including benefits. Wages of employees employed by direct processors of
agricultural food products shall be determined by the local labor market. If
reliable local labor statistics are not available, the base wage requirement
for employees employed by direct processors of agricultural food products shall
be determined by the Department based on a source of wage information that best
represents the average local hourly wage rate in Alabama.
(c) Capital Cost. All costs and expenses
incurred by one or more Investing Companies in connection with acquisition,
construction, installation and equipping of a Qualifying Project as defined in
Section
40-18-190(11),
Code of Ala. 1975, as amended. The Capital Cost shall
begin with the date on which such acquisition, construction, installation and
equipping commences an end on the date on which the Qualifying Project is
Placed in Service.
1. If the Qualifying
Project is a Headquarters Facility and utilizes an operating lease the Capital
Costs may include the net present value of the minimum mandatory payments
required to be made by the Investing Company pursuant to the lease. The net
present value shall be computed by 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.
(i) The applicable federal rates (AFRs) shall
be the annual compounding rates as computed by the Internal Revenue Service for
the term most closely approximating the term of the lease as provided in I.R.C.
Section 1274(d), which is published monthly by the Internal Revenue
Service.
2. Capitalized
repairs, rebuilds, maintenance and replacement equipment will not be recognized
as "Capital Costs" and will not qualify for the Capital Credit.
(i) Replacement equipment is equipment that
performs the same function as the equipment it replaces. Replacement equipment
is considered upgraded equipment when it performs the same functions with an
improvement of at least fifty percent (50%) in capacity (output) and/or fifty
percent (50%) reduction in production time. Replacement equipment does not
include upgraded equipment that performs one or more additional functions in
addition to performing the same function as the equipment it
replaced.
3. Capital
Costs shall not include any costs or expenses for or associated with property
(real or personal) that was owned or leased by the Investing Company or any
related business or party before the commencement of the acquisition,
construction, installation or equipping of the qualifying project, whether in
whole or in part unless the costs and expenses are for or associated with
personal property that has been physically located outside the state
continuously for the one year period next preceding the earlier of the date on
which the personal property was physically located within this state for use
with a Qualifying Project or the date on which the Qualifying Project was
Placed in Service.
(i) The Capital Cost of
such property shall be equivalent to the book value of the property at the time
such property was located at the Project site.
4. Only cost of equipment whose costs are
incurred as of the date the project is placed in service shall be included in
capital costs when equipment is acquired through a capital lease
provision.
(d) Capital
Credit. An annual amount equal to five percent of the Capital Costs of the
Qualifying Project against the Alabama income tax liability generated by or
arising out of the Qualifying Project's Alabama income. The capital Credit
period shall begin with the year during which the Qualifying Project is Placed
in Service and continue for 19 consecutive years thereafter, assuming all
Capital Costs, New Employee, and Base Wage Requirements are met.
(e) Department. The Alabama Department of
Revenue.
(f) Headquarters Facility.
A facility which will serve as either the national, regional, or state
headquarters for an Investing Company that conducts significant business
operations outside the state of Alabama and will serve as the principal office
of the principal operating officer of the Qualifying Project. The principle
operating officer shall be defined as the person with chief responsibility for
the daily operations of the Qualifying Project.
(g) Industrial, Warehousing or Research
Activity. Any trade or business described in the 1987 Standard Industrial
Classification Major Groups 20 to 39, inclusive, 50 and 51, Industrial Group
Number 737, and Industry Numbers 8731, 8733, 9734, as set forth in the Standard
Industrial Classification Manual published by the United States Government
Office of Management and Budget or any process or treatment facility which
recycles, reclaims, or converts materials, which include solids, liquids, or
gases, to a reusable product.
(h)
Investing Company. Any corporation, partnership, limited liability company,
proprietorship, trust or other business entity, regardless of form, making an
investment in a Qualifying Project.
(i) Joint Venture. Any form of business
entity entered into by one or more Investing Companies in connection with a
Qualifying Project. A project entity shall be created by the Investing
Companies in a Joint Venture to simplify the reporting for income tax
purposes.
(j) Joint Venture
Agreement. All agreements among the Investing Companies, or between one or more
Investing Companies and the Joint Venture, concerning affairs of the Joint
Venture and responsibilities of Investing Companies, whether oral or written,
and whether or not embodied in a document referred to by the Investing
Companies as the Joint Venture agreement. All arrangements among Investing
Companies, or between one or more Investing Companies and the Joint Venture
relating to the Joint Venture, direct and indirect, including puts, options,
and other buy-sell agreements, and any other "stop loss" arrangements, are
considered to be part of the Joint Venture agreement. In addition, the Joint
Venture agreement includes provisions of Federal, State, or local law that
govern the affairs of the affairs of the Joint Venture or are considered under
such law to be a part of the Joint Venture agreement. An agreement with a
Investing Company or a Joint Venture shall include an agreement with a Person
related, within the meaning of I.R.C. section 267(b) (without modification by
I.R.C. section 267(e)(1)), to such Investing Company or Joint Venture. For
purposes of the preceding sentence, I.R.C. section 267(b) shall be applied by
(1) substituting "80 percent or more" for "more than 50 percent" each place it
appears in such sections, (2) excluding brothers and sisters from the members
of a Person's Family, and (3) disregarding I.R.C. section
267(f)(1)(A).
(k) New Employees.
Those Persons who have not been previously employed at the site on which the
Qualifying Project is or will be Placed in Service or have not been employed by
the Investing Company or Companies in this state and will be employed full-time
as a direct result of the Qualifying Project being placed in service and will
be subject to the personal income tax imposed by Section
40-18-2 of the Code of Ala. 1975, as amended, upon
commencement of employed at the Qualifying Project.
(l) Notice. Any communication, including, but
not limited to, a letter, an information bulletin, a tax assessment, a notice,
a summons, etc. mailed or delivered by the Department.
(m) Person. Any individual, association,
estate, trust, partnership, corporation, or other entity of any kind.
(n) Predominant Trade or Business Activity.
More than 50% of the trade or business conducted at the Qualifying Project must
constitute an Industrial enterprise, Warehousing enterprise, Research
enterprise, or be a process or treatment facility which recycles, reclaims, or
converts materials, which include solids, liquids, or gases, to a reusable
product.
(o) 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, to be used as part of a facility of a business located in the
state.
(p) Small Business Addition.
An addition which includes Capital Costs of 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
part of an 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.
(q) Tax Year. The
applicable taxable year as the term is defined in Section
40-18-1(11) of the Code of Ala. 1975, as amended.
(r) Total Compensation. Includes base wages
and benefits, but excludes bonuses and overtime.
(s) United State Person. Any Person who is
1. a citizen or full-time resident of the
United States that is subject to the jurisdiction of the courts of the State of
Alabama.
2. a partnership,
corporation, or limited liability company created or organized in the
geographical United States or under the law of the United States or of any
State including the District of Columbia.
3. any estate or trust (other than a foreign
estate or foreign trust, within the meaning of Internal Revenue Code Section
7701 (a)(31), as amended from time to time).
(t) Placed in Service. For purposes of the
credit allowed by Sections
40-18-190 through
40-18-203,
Code of Ala. 1975, as amended,
1. a Qualifying Project shall be considered
Placed in Service on the earlier of the following days neither of which shall
be deemed to have occurred prior to the first day on which the Qualifying
Project's total Capital Costs have been incurred:
(i) the day on which, under the taxpayer's
depreciation practice, the period for depreciation with respect to such
Qualifying Project begins; or
(ii)
the day on which the Qualifying Project begins a specifically designed function
for the production of revenues.
Thus, if Qualifying Project meets the conditions of subdivision
(ii) of this subparagraph on a particular day, it shall be considered Placed in
Service on such day notwithstanding that the period for depreciation with
respect to such Qualifying Project begins on a succeeding day because, for
example, under the taxpayer's depreciation practice such Qualifying Project is
accounted for in a multiple asset account and depreciation is computed under an
"averaging convention", or depreciation with respect to such Qualifying Project
is computed under the completed contract method, the unit of production method,
or the retirement method.
2. Notwithstanding subparagraph 1 of this
paragraph, a Qualifying Project with respect to which the principal Capital
Costs are incurred under a lease as permitted in Section
40-18-190(2) g, Code of Ala. 1975, as amended, shall be considered
Placed in Service on the day on which possession is transferred to such
lessee.
3. Project property owned
or leased before the commencement of the acquisition, construction,
installation or equipping of the Qualifying Project:
(i) The credit allowed by Section
40-18-194,
Code of Ala. 1975, as amended, with respect to any
Qualifying Project's property shall begin in the first taxable year in which
such Qualifying Project's property is Placed in Service in Alabama. The
determination of whether a Qualifying Project is a Qualifying Project in the
hands of the taxpayer shall be made with respect to such first taxable year.
Thus, if a taxpayer places property owned or leased before the commencement of
the acquisition, construction, installation or equipping of the Project in
service in Alabama on a day and such Qualifying Project does not qualify as a
Qualifying Project (or only a portion of such Qualifying Project qualifies as a
Qualifying Project) in such year, no credit (or a credit only as to the portion
which qualifies in such year) shall be allowed to the taxpayer with respect to
such Qualifying Project notwithstanding that such Qualifying Project (or a
greater portion of such Qualifying Project) qualifies as a Qualifying Project
in a subsequent day.
(I) EXAMPLE: If a
taxpayer places property, eventually used in a Qualifying Project, in service
in Alabama during 1993 and uses the property entirely for purposes other than a
Qualifying Project in such year, but in 1994 begins using the property in a
Qualifying Project in a trade or business, no credit is allowable to the
taxpayer under Section
40-18-190(2),
Code of Ala. 1975, as amended, with respect to such
Qualifying Project's property.
(ii) Notwithstanding subdivision (a) of this
subparagraph, if, for the first taxable year in which a Qualifying Project is
Placed in Service by the taxpayer, the Qualifying Project qualifies as a
Qualifying Project but the basis of the Qualifying Project does not reflect its
full cost for the reason that the total amount to be paid or incurred by the
taxpayer for the Qualifying Project is indeterminate, a credit shall be allowed
to the taxpayer for such first taxable year with respect to so much of the cost
as is reflected in the basis of the Qualifying Project ending on the date on
which the Qualifying Project is Placed in Service, and an additional cost paid
or incurred during such year and reflected in the basis of the Qualifying
Project as of the close of such year.
(I)
EXAMPLE: Assume that in 1995 X Corporation, a manufacturing company which makes
its return on the basis of a calendar year, enters into an agreement with Y
Corporation, a builder, to construct a certain facility built by Y. Assume
further that part of the funds for the construction of X's facility is advanced
by Y under a contract providing that X will repay the advances over a 10-year
period in accordance with an agreed formula, after which no further amounts
will be repayable by X even though the full amount advanced by Y has not been
paid. Assuming that the facility is Placed in Service in 1995 and qualifies as
a Qualifying Project, X is allowed a credit for 1995 with respect to its basis
in the facilities at the close of 1995. For each succeeding taxable year X is
not allowed an additional credit with respect to the increase in the basis of
the facility resulting from the repayments to Y during such year.
4. For instances in
which an Investing Company is planning multiple stages of investment (i.e.,
pleases), the Capital Credit may begin when the last stage of investment is
Placed in Service. All investment stages must be identified in the Project
description on the statement of intent (FORM INT) filed with the Department.
The statement of intent must be filed with the Department before any stages of
investment are Placed in Service.
(i) The
Capital Costs associated with stages of investment Placed in Service in a prior
year may be included in computing the Capital Credit for a Qualifying Project.
However, the Capital Credit cannot be utilized until all of the stages of
investment become a Qualified Project and the last stage of investment is
Placed in Service.
(ii) All stages
of investment (i.e. phases) reported on the statement of intent (FORM INT) must
be planned for a single geographical location. This requirement shall only
apply to a Project with stages of investment (i.e., phases).
(u) Qualifying Project.
A Project sponsored or undertaken by one or more Investing Companies meeting
the requirements for the type of trade or business activity conducted, the
minimum capital costs incurred, the minimum number of jobs for New Employees,
and the Base Wage Requirement for New Employees.
(v) Reporting Company. The corporation,
partnership, limited liability company, proprietorship, trust or other business
entity participating in a Joint Venture in connection with a Qualifying
Project, designated in writing, with the signed consent of participating
entities having a majority interest in the Joint Venture, as the business
entity that will act on behalf of all the Investing Companies in the Joint
Venture, to report to the Department the intent to undertake and sponsor a
Qualifying Project and to receive from the Department any notice, directly or
indirectly, related to the undertaken Qualifying Project. The Joint Venture
shall be recognized by the establishment of a project entity created by the
Investing Companies.
1. Reporting Company
absent a proper written designation. If there is no Investing Company who has
been so designated, the Investing Company having the largest profits interest
in the Joint Venture at the close of the taxable year involved (or, where there
is more than 1 such Investing Company, the 1 of such Investing Companies whose
name would appear first in an alphabetical listing). If there is no Investing
Company designated in writing and the Department determines that it is
impracticable to apply the preceding sentence, the business entity selected by
the Department shall be treated as the Reporting Company.
2. Limitation on designation of Reporting
Company who is not a United States Person. If any United States Person would be
eligible under paragraph (2)(i) of this regulation to be designated as the
Reporting Company of a Joint Venture for a taxable year, no Person who is not a
United States Person may be designated as the Reporting Company of the Joint
Venture for that year without first obtaining the Department's
consent.
(w) Benefits.
Includes cash and noncash remunerations given by the employer over and above
base wages. These remunerations must be received by the employee for services
performed for the employers. Following are items that should be included as
remunerations for purposes of this regulation, however, this list is not meant
to be all-inclusive: housing, transportation, meals, health insurance, and life
insurance. Following are items that should not be included as remunerations for
purposes of this regulation, however, this list is not meant to be
all-inclusive: unemployment compensation, FICA taxes, and workmen's
compensation.
(3)
Procedures.
(a) Designation of Reporting
Company By Investing Companies With Majority Interest. The Joint Venture may
designate a Reporting Company for a Joint Venture taxable year at any time by
filing a statement with the Department. The statement shall--
1. Identify the Joint Venture and the
designated Reprint Company by name, address, and taxpayer federal
identification number.
(i) Specify the Joint
Venture taxable year to which the designation, relates,
2. Declare that it is a designation of a
Reporting Company for the taxable year specified and may indicate that the
designation is effective until changed, and
3. Be signed by Persons who are, at the time
of signing the designation, Investing Companies holding more 50 percent of the
aggregate interest in Joint Venture profits held by all Investing Companies.
For purposes of this paragraph (3)(a), all limited joint venture interests held
by investing companies shall be included in determining the aggregate interest
in Joint Venture profits held by such Investing Companies.
(b) Department notices sent to Reporting
Company. In general, for purposes of Title 40,
Code of Ala.
1975, as amended from time to time, a notice is treated as mailed
to the Reporting Company on the earlier of --
1. The date on which the notice is mailed to
"THE REPORTING COMPANY" at the address of the Joint Venture as provided to the
Department, or
2. The date on which
the notice is mailed to the Person who is the Reporting Company at the address
of that Person as provided to the Department.
3. EXAMPLE: The provisions of this section
may be illustrated by the following example: Joint Venture P designates B as
its Reporting Company in accordance with paragraph (3)(a). On December 1 a
notice of the beginning of an administrative proceeding is mailed to "THE
REPORTING COMPANY" at the address of P. On January 10, a copy of the notice is
mailed to B at B's address. December 1 is treated as the date that the notice
was mailed to the Reporting Company.
(c) Responsibilities Of Reporting Company. In
general, notice to the Reporting Company shall be notice to the Investing
Companies specified in paragraph (3)(d) of this section concerning information
provided by the Department with respect to the following:
1. Closing conference with the examining
agent,
2. Proposed adjustments,
rights of appeal, and requirements for filing of a protest,
3. Time and place of any appeals or
hearings,
4. Acceptance by the
Department of any settlement offer,
5. Consent to the extension of the period of
limitations with respect to all Investing Companies,
6. Filing of a request for administrative
adjustment on behalf of the Joint Venture,
7. Filing by the Reporting Company or any
other Investing Company of any petition for review, and
8. Filing of any appeal with respect to any
final assessment or determination.
(d) Investing Companies to be notified. The
Reporting Company shall be deemed to have provided information with respect to
any action or other matter specified in paragraph (3)(c) of this section to all
Investing Companies with an interest in the Joint Venture except Investing
Companies.
1. Who are indirect Investing
Companies and who are not identified to the Reporting Company at least 30 days
before the Reporting Company is required to provide the information,
or
2. Who have already received
information with respect to the action or other matter described in paragraph
(3)(d) of this section within 10 days of taking the action or receiving
information with respect to that matter.
Author: Jeff Taylor