State Tax Credits in Alabama and Mississippi: New and Expanded Investment Opportunities
Contributor: Robert Roeder, CMI, Senior Manager, State Tax Credits & Incentives Advisory
Alabama and Mississippi are two of the latest states to create new state tax credits and extend existing state tax credits. These state tax credits were implemented to reward taxpayers who invest and contribute funds toward economic development initiatives in these states.
Alabama Extends and Expands Incentives Programs, and Enacts Tax Credit Opportunities
The Alabama Jobs Act (AJA) provides a 1.5% investment tax credit and a 3% wage rebate for up to 10 years for qualifying businesses expanding in the state. HB 241 extends the sunset date for the AJA from July 31, 2023, to July 31, 2028, and increases the annual funding cap by $25 million each year from $375 million in 2023 to $475 million in 2027. Additionally, HB 241 adds renewable energy generation to the list of qualifying projects and lengthens the investment tax credit transfer time from the first three years to the first five years for at least 85% of the credit value.
HB 241 also has favorable impacts on the Growing Alabama Act (GAA) by extending the sunset date for the GAA to July 31, 2028. The GAA provides a tax credit for cash contributions made to an approved economic development organization. The annual funding cap increases from $20 million in 2023 to $35 million in 2028. Lastly, HB 241 enacted the Sweet Home Alabama Tourism Investment Act for certified tourism destination projects to receive up to $5 million of tax rebates over a 10-year period.
The second law passed in Alabama, HB 247, creates the Innovating Alabama tax credit program by offering $25 million in tax credits to businesses that make cash contributions to an approved economic development organization for investments in certain technology companies. The credit may offset up to 50% of tax liability and excess credit may be carried forward five years.
Mississippi Amends Contribution State Tax Credits and Creates New Tax Credits
Mississippi legislation amends its existing Pregnancy Resource Act ad valorem credit, effective January 1, 2023. A credit is allowed against ad valorem taxes on real property for voluntary cash contributions made to an eligible charitable organization. HB 1671 increases the maximum credit for all taxpayers from $3.5 million to $10 million and limits the contributions to a single eligible organization to 25%. HB 1671 increases the contribution tax credit amounts starting in 2023: $1,200 for an individual or a head of household, or $2,400 for a married couple filing a joint return. Starting in 2023, the ad valorem credit can offset up to 50% of tax liability, and excess credit may be carried forward five years.
In addition, HB 1671 provides new credits for voluntary cash contributions to transitional home organizations and low-income healthcare organizations. Tax credits are only available to taxpayers engaged in commercial, industrial or professional activities and operating as corporations, limited liability companies, partnerships or sole proprietorships. The tax credits can offset up to 50% of tax liability and excess credits may be carried forward five years.
Lastly, HB 1671 provides a credit for taxpayers that claimed a federal income tax credit under IRC Section 21 for child and dependent care expense necessary for employment. The credit is equal to 25% of the federal credit, not to exceed the total tax liability of the taxpayer.
Identifying and Taking Advantage of These Opportunities
Cherry Bekaert’s State Credits & Incentives team is here to work with your organization to determine if you are currently engaging in activities that qualify for these state credits or how you could qualify. Subscribe to future communications to ensure you are up-to-date on all new state credit and incentives legislation.