Important Business Tax Legislation to Watch in the 2024 Alabama Regular Session

As we strive to do annually, here is a summary of the major items of business tax legislation that have been introduced or we expect to be introduced during the 2024 regular session, which began February 6. From a tax and economic development perspective, addressing Alabama’s challenging labor force participation rate appears to be at the forefront of the Governor’s and the Lieutenant Governor’s mind, and many business and economic development associations as well.

Alabama has a notoriously low labor force participation rate. At the end of 2023, the labor force participation rate was estimated to be a mere 57.4%, making it the third lowest rate in the U.S., tied with New Mexico. The Governor’s Office and many business and economic development associations, including the Business Council of Alabama (BCA), Manufacture Alabama, and the state’s largest chamber of commerce, the Birmingham Business Alliance (BBA), have made providing affordable and quality child care a top priority to stimulate workforce participation across the state.

Child Care Tax Credit

According to the BCA’s 2024 Tax and Fiscal Policy Agenda, the BCA “supports tax incentives for childcare providers and businesses to increase the availability and affordability of quality childcare. Workforce participation is a significant challenge for the Alabama economy and expanding quality childcare is essential to increasing participation.”

Lt. Governor Will Ainsworth has also stated that childcare is a “potential solution for the state’s low labor force participation rate, highlighting the importance of investing in quality, affordable, and accessible child care.”

Manufacture Alabama partnered with the Women’s Foundation of Alabama to craft the Child Care Tax Credit legislation, a three-prong approach designed to improve and make more available quality childcare in Alabama. The proposed legislation includes refundable tax credits for employers and for-profit providers, and incentives for donating to nonprofit providers, tentatively for the 2025-2029 calendar tax years.

The current version of the proposed Employer Tax Credit [still in draft form] is a dollar-for-dollar reduction of an employer’s state tax liability for payments of certain employee childcare expenses directly to licensed facilities, among other qualified expenses, and is capped at $1 million per employer annually. The Provider Tax Credit would be available to owners of licensed childcare facilities based on the amount of qualified children they serve and the quality rating of the facility. So far, this credit is capped at $25,000 per provider annually. The proposed Non-Profit Provider Tax Credit is designed to enable raising funds for greater capacity and quality of childcare and is capped at $500,000 per provider.

Jon Barganier, the President and CEO of Manufacture Alabama, commented on the proposed legislation:

The cost of childcare across our nation and the state of Alabama has truly become a barrier for many working parents – both dual-income households and single-working parents.  The labor force participation rate in Alabama is among the lowest anywhere in the country and we must make strides to remove barriers for those who would like to enter the workforce and fill the much-needed jobs that are available in manufacturing as well as other sectors. 

The Child Care Tax Credit legislation that Manufacture Alabama and many other groups are supporting is a comprehensive and proven model that many states have adopted, which will incentivize businesses to offer their employees childcare benefits.  Through the enactment of this legislation, we will no doubt see positive results that will increase our labor force participation rate and provide businesses with the employees they desperately need.

Streamlining Business Licensing Processes

Obtaining a business license or permit in Alabama can be complicated, requiring interactions with various government offices and numerous steps, especially if the business has several locations or delivers goods or services into multiple municipalities. Both the BCA and BBA support reforming our municipal and county business licenses statutes to simplify and streamline the process of applying and receiving an annual business license.

The BCA also supports streamlining the sales and use tax system to level the playing field for in-state and out-of-state vendors. Simplifying the sales and use tax system would increase compliance by out-of-state and internet vendors. The BBA expands its parallel goal to include clarifying the zoning and permitting process, in addition to business licensing, to “make them more business-friendly,” which would include online permitting options.

Unified Audit Process

Being audited by various taxing authorities already takes a toll on businesses, and in Alabama, businesses can be audited by private auditing firms, cities, counties, and the Alabama Department of Revenue — for the same taxes and the same or similar tax periods. The BCA and BBA both support implementing a “unified audit process that is recognized by all levels of government and private auditing firms” to prevent Alabama businesses from undergoing unnecessary sales/use/rental tax audits for the same tax periods.

Research and Innovation

As in prior years, research and development (R&D) is also a priority for both the BBA and BCA. Both associations support legislation to incentivize R&D in the state. The BCA advocates for a tax credit parallel to the federal R&D tax credit and supports additional incentives if the research is performed by a qualified research institution in the state. The BBA also lists investing in innovation districts in Alabama as a priority and “supports legislation that will give cities and counties the authority” to establish such districts and allow tax incentives to research and innovation-focused companies.

Other Birmingham Business Alliance Goals

The BBA also announced it will support legislation that creates funding for the SEED Act, which addresses the scarcity of industry-ready sites within Alabama by allowing the State Industrial Development Authority to accelerate the development of those sites.

Investing in low-income communities is a long-term priority of the BBA, which advocates for reauthorizing or making permanent the state New Markets Tax Credit program that applies to investments in qualifying low-income communities. Additionally, the BBA encourages Alabama to fully utilize the 34 designated qualified Opportunity Zones. The program was established by the Tax Cuts and Jobs Act of 2017 to “foster private-sector investments in low-income rural and urban areas.”

*Anna Robinson, who assisted in authoring this alert, is not an attorney. She is a second-year law student at the University of Alabama and is also earning her LL.M. in Taxation from UA Law. She worked as a summer associate for Bradley in 2023 and is assisting the SALT Practice Group on research and writing projects this semester.