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House Passes Small Business Tax Credit

Brandon Moseley

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By Brandon Moseley
Alabama Political Reporter

On Tuesday, April 6, the House passed House Bill 224 sponsored by State Representative Danny Garrett (R-Trussville).

Garrett said that the purpose of creating the new tax credit is to expand and grow jobs. To become a qualified fund manager to use the tax credit, applicants must apply to the Alabama Department of Commerce and undergo a rigorous program to qualify. The Alabama Small Business Investment funds would be operated by Alabama banks and insurance companies. The fund managers must have some equity in the fund that they manage and they must have experience in Alabama.

Rep. Garrett said that this tax credit is designed to grow small businesses. We have several tax credits and incentive programs to lure large businesses but few for small businesses. Garrett said that this is a program that will help develop small businesses and give them access to credit.

State Representative Phil Williams (R-Huntsville) asked, “Why are we hiring an intermediary?” “Why not allow anyone who invests in a start up to get the credits, instead of these insurance companies and banks?”

Rep. Garrett said, “These people are experts at pulling down capital. It is what they do.” Garrett said that he worked with University of Alabama economics professor Dr. Samuel Addy on the legislation. I have worked with him for years. He will not put his name on a program that does not work.

Rep. Phil Williams said, “We can do better than this …I know a lot of people in here are getting a lot of pressure from lobbyists to pass this, but we need to have a long discussion on what we stand for …Right now a lot of people believe that we stand for connecting our buddies with capital. It appears to certain people that we stand for the wrong things.”

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State Representative John Knight (D-Montgomery) said, “I applaud your bill. I do have a problem with the lack of accountability. We have a responsibility to require reports. I have requested information from this entity (the Alabama Commerce Department) and have not gotten them. We need to make sure that we get the reports and information in a timely fashion.”

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State Representative Mary Moore (D-Birmingham) said, “We have done so many tax credits that it has had an impact on the education and general fund budgets.”

State Representative John Rogers (D-Birmingham) asked how many employees would these companies have that get the tax credits.

Rep. Garrett said that the version of HB224 on the floor limited investments to companies with 250 or less, but that he accepting a friendly amendment dropping it to 150 or less. The companies getting the tax credits will actually be funds that invest in small businesses. The fund can come in and provide financing it could be debt and it could be for equity in the company. To establish the fund the fund manager has to make an application to the Alabama Department of Commerce. This is a very difficult and rigorous process.

Garrett said that 80 percent of the employees have to be in Alabama. The growth has to be in Alabama. There is also a claw back provision on the money if the investment fails to create or retain jobs as promised. The commerce department has to receive a report from the fund detailing the investments that they have made. If the investments don’t deliver the State can get that money back.

State Representative Tim Wadsworth (R-Arley) asked if all of the money comes out of the education trust fund?

Garrett said, yes.

Wadsworth asked if the credits were for investments in businesses that will create or retain jobs in Alabama.

Garrtt said, yes.

Wadsworth said that using the tax credit to invest in a business to retain jobs would not create jobs under that scenario.

Rep. Garrett said that the fund would get zero dollars the first year that they invested in an Alabama business. They would get zero dollars the first year. The third year they could claim a credit of up to 20 percent of their qualified investment and could take that 20 percent credit each year for the next four years. The tax credit would be capped at $100 million.

According to the bill the businesses the firm could invest in include, “Is primarily engaged in manufacturing, processing, or assembling products, conducting research and development, or providing services. d. Is not engaged in insurance, banking or lending, or the provision of professional services provided by accountants, attorneys, or physicians.”

HB224 passed the Alabama House by a vote of 91 to 9. It now goes to the Senate.

 

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