New Markets Tax Credit

Alabama Department of Revenue

Program Type:

Tax Incentive

Eligible Geography:

Alabama

Summary:

A tax credit for state income tax, financial institution excise, and insurance premium tax for investors in community development entities which provide funding to businesses that are located in qualified low-income or impoverished communities, especially central business districts. It serves as an alternative to conventional capital sources. It is designed to bring increased economic growth in new areas that have not been previously developed successfully. The maximum tax credit for any particular project is $10,000,000 and covers 50 percent of the taxpayer's equity investment. Qualified investment into a community development entity (CDE) can be an equity investment or a long-term debt security instrument (and in the case of a long-term debt security QI, a qualified community development entity may not make cash interest payments on a long-term debt security that is a qualified investment in excess of the entity's operating income for 6 years following the issuance of the security). An insurance company that is subject to the insurance premium tax must apply the tax credit against the insurance premium tax. The Alabama statute indicates that the Qualified Investment (QEI) is deemed to be state financial assistance and therefore the CDE is subject to auditing, testing and reporting of compliance and internal controls. The amount of the tax credit claimed may not exceed the amount of the taxpayer's state tax liability for the tax year for which the tax credit is claimed; however, the excess tax credits available can be carried forward to any of the taxpayer's subsequent taxable years. Tax credits claimed under this act are not for sale or transferable. Tax credits earned by a "pass-through" entity may be allocated to the partners, members, or shareholders of that entity. Any business that derives or expects to derive 15 percent or more of its annual revenue from the rental or sale of real estate is not considered a Qualified Active Low-Income Community Business (QALICB). The program cap is set at $20,000,000 annually.

Eligible Recipients:

Financial Institution; For-Profit Business

Eligible Recipients Detail:

Community Development Entity (CDE) certified Community Development Financial Institutions (CDFI)

Investors in community development entities which provide funding to businesses that are located in qualified low-income or impoverished communities, especially central business districts.

The applying entity needs to be a community development entity for federal purposes and needs to be authorized to serve businesses in Alabama. The community development entity shall submit an application to the Department of Commerce to certify a proposed investment as a qualified investment. The qualified community development entity must issue the qualified investment in exchange for cash within 180 days after it receives certification approving an investment as a qualified investment (this includes a 90-day cure period), otherwise the certification is void.

Eligible Purpose:

Building Connectivity; Last Mile Connectivity; Broadband Enabled Device (General); Anchor Institution Connectivity

Eligible Purpose Detail:

Investments can be used to finance equipment, operations or real estate costs for qualifying businesses. Real estate financing can purchase or rehabilitate retail, manufacturing, agriculture, community facilities (e.g., health services, museums, or charter schools), rental or for-sale housing, or combinations of these. Investments and loans are qualified by business type and location, and not necessarily activity.

Other Eligibility Criteria:

Any investment in a for-profit or non-profit corporation is eligible if: At least 50 percent of the total gross income of that business is derived from the active conduct of its business within any Qualified Low Income Community. A substantial portion (defined as at least 40 percent) of the use of the tangible property of that business (whether owned or leased) is within any Qualified Low-Income Community Investment (QLIC). Substantial portion (defined as at least 40 percent) of the services performed by that business' employees are performed in any QLIC; the business is not primarily holding collectible If 2) or 3) are 50 percent or more, than 1) has been met.

Low-Income Communities, which are Census Tracts, where:

-The poverty rate is at least 20%
-The median family income does not exceed 80% of the area median family income, or 85% in high migration rural counties
-The Census tract has a population less than 2,000 and is within a Federally Designated Empowerment Zone and is contiguoius to at least one other LIC.

Loans can also be provided for Targeted Low-Income Populations outside of LICs.

Funding Match/Terms:

The maximum tax credit for any particular project is $10,000,000 and covers 50 percent of the taxpayer's equity investment. The program cap is set at $20,000,000 annually.