Ala. Admin. Code r. 810-2-7-.01
Current through Register Vol. 43, No. 1, October 31, 2024
Section 810-2-7-.01 - Scope Of The Rules And Definitions(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, and3. 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, or2. 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, and8. 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, or2. 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
Ala. Admin. Code r. 810-2-7-.01
New Rule: Filed June 17, 1996; effective July 22, 1996. Amended: Filed January 26, 1998; effective March 2, 1998.Statutory Authority:Code of Ala. 1975, §§ 40-2A-7(A)(5), 40-18-197.