HB358INTRODUCED
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HB358
ZL84WRW-1
By Representatives Daniels, Stadthagen, Drummond, Moore (M),
Clarke, Hulsey, Moore (P), Boyd, Rafferty, Standridge, Lee,
Blackshear, Chestnut, England, Travis, Jones, Warren, Hendrix,
Hall, Ensler, Gray, Hassell, Lomax, Rigsby, Underwood,
Wadsworth, Brinyark, Faulkner, Shaver, Wilcox, Almond,
Collins, Wood (D), Morris, DuBose, Baker, Sells, Lovvorn,
Hollis, McCampbell, Sellers, Bracy
RFD: Ways and Means Education
First Read: 21-Mar-24
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First Read: 21-Mar-24
SYNOPSIS:
This bill creates the employer tax credit,
childcare facility tax credit, and nonprofit childcare
provider tax credit to incentivize employers to fund
childcare for their employees and to enable childcare
providers to offer more readily available, affordable,
high-quality childcare.
A BILL
TO BE ENTITLED
AN ACT
Relating to childcare and workforce development; to
establish the employer tax credit, childcare provider tax
credit, and nonprofit childcare provider tax credit; and to
make legislative findings.
BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:
Section 1. The Legislature hereby makes the following
findings of fact and declares its intent to be as follows:
Alabama is currently attracting and creating jobs and business
investments at a record-setting pace. Despite historically low
unemployment rates, Alabama's workforce participation rate
ranked among the lowest in the country. One possible barrier
to entering the workforce for some Alabamians is a lack of
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to entering the workforce for some Alabamians is a lack of
available, affordable, high-quality childcare. It is the
intent of the Legislature, by the passage of this legislation,
to encourage more Alabamians to enter the workforce and gain
employment by improving the quality and availability of
childcare options for working parents. Accordingly, future
efforts to extend or reauthorize this act should be preceded
by consideration of the effectiveness of this legislation in
achieving these policy goals. To this end, once this
legislation has had a sufficient opportunity to be implemented
and its effects measured, but before extending or
reauthorizing this act, the Legislature should request and
examine reports from: (1) the Alabama Department of Revenue,
to determine the usage of the tax credits; and (2) from the
Alabama Department of Labor and the Alabama Department of
Commerce, to determine the impact of the tax credits on
workforce participation.
Section 2. For the purposes of this article, the
following terms have the following meanings:
(1) APPLICABLE TAXES. An employer's, taxpayer's, or
childcare provider's, or in the case of a pass-through entity
that is an employer, taxpayer, or childcare provider, such
employer's, taxpayer's, or childcare provider's owners', taxes
as follows:
a. Taxes levied in Chapter 18 of Title 40, Code of
Alabama 1975.
b. The state portion of taxes levied in Chapter 16 of
Title 40, Code of Alabama 1975.
c. Taxes levied in Section 27-4A-3(a), Code of Alabama
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c. Taxes levied in Section 27-4A-3(a), Code of Alabama
1975.
d. Taxes levied in Article 2 of Chapter 21 of Title 40,
Code of Alabama 1975.
(2) CHILD or CHILDREN. Individuals who are five years
of age or less.
(3) CHILDCARE FACILITY. A facility meeting the
definition found in Section 38-7-2(7), Code of Alabama 1975,
that is licensed by the Department of Human Resources and is
participating in the quality rating and improvement system.
(4) CHILDCARE PROVIDER. A taxpayer that owns a
childcare facility.
(5) ELIGIBLE CHILD or ELIGIBLE CHILDREN. Children who
participate in the Child Care Subsidy Program administered by
the Department of Human Resources and who attend a childcare
facility operated by a childcare provider.
(6) ELIGIBLE EXPENSES. Expenses incurred by an employer
for:
a. The construction, renovation, expansion, or repair
of a childcare facility, or for the purchase of equipment for
such facility, or for the maintenance and operation thereof.
b. Payments made to childcare facilities or employees
for the provision of childcare at childcare facilities for
children of employees.
c. Payments made to childcare facilities to reserve
services for children of employees.
(7) EMPLOYEE. A resident of this state who works on a
full-time or part-time basis for an employer. An employee
shall include independent contractors engaged by an employer
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shall include independent contractors engaged by an employer
and the owners of an employer that also work for such employer
on a full-time or part-time basis.
(8) EMPLOYER. A business lawfully operating in this
state.
(9) EMPLOYER TAX CREDIT. A refundable tax credit to be
applied against applicable taxes for the year in which the
eligible expenses are incurred by an employer, equal to the
total eligible expenses incurred by the employer, up to one
million dollars ($1,000,000) per year for each employer.
(10) FACILITY TAX CREDIT. A refundable tax credit to be
applied against applicable taxes, calculated in accordance
with Section 4(a), but not exceeding twenty-five thousand
dollars ($25,000) per year for each child care facility.
(11) NONPROFIT CHILDCARE PROVIDER. An entity that
operates a childcare facility or childcare facilities that are
not operated for profit, including, but not limited to, church
ministry and other religious operators of childcare
facilities.
(12) NONPROFIT CHILDCARE PROVIDER TAX CREDIT. A
nonrefundable tax credit to be applied against applicable
taxes.
(13) OWNER. A shareholder, partner, or member of a
pass-through entity.
(14) PASS-THROUGH ENTITY. An Alabama S corporation or a
subchapter K entity.
(15) QUALITY RATING. The rating applicable to a child
care facility under the quality rating and improvement system.
(16) QUALITY RATING AND IMPROVEMENT SYSTEM. A system of
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(16) QUALITY RATING AND IMPROVEMENT SYSTEM. A system of
the Department of Human Resources known as the Alabama Quality
STARS program that measures the quality of child care
facilities on a scale of one to five stars, with five stars
denoting the highest level of quality.
(17) RURAL AREA. Any area within this state not
included within the boundaries of any incorporated city or
town having a population in excess of 25,000 inhabitants,
according to the last federal decennial census.
(18) STATE. The State of Alabama.
Section 3. (a) Effective for tax years beginning on or
after January 1, 2025, and ending December 31, 2029, unless
extended by an act of the Legislature, an employer may apply
to the Department of Revenue for an employer tax credit to be
applied against applicable taxes.
(b) For the calendar year ending December 31, 2025, the
employer tax credit is limited to an aggregate amount for all
employers of fifteen million dollars ($15,000,000), which
amount shall increase to twenty million dollars ($20,000,000)
for the calendar year ending December 31, 2026, twenty-five
million dollars ($25,000,000) for the calendar year ending
December 31, 2027, thirty million dollars ($30,000,000) for
the calendar year ending December 31, 2028, and thirty-five
million dollars ($35,000,000) for the calendar year ending
December 31, 2029.
(c) The Department of Revenue shall:
(1) Provide a standardized format for, and require
completion of, a certificate to be signed by the employer
applying for the employer tax credit, certifying that the
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applying for the employer tax credit, certifying that the
expenses incurred by the employer were eligible expenses
incurred to support the provision of child care at child care
facilities for the children of employees.
(2) Require the employer to provide documentation to
substantiate to the satisfaction of the Department of Revenue
the amount of the employer tax credit applied for pursuant to
this section and that the expenses incurred by the employer
were eligible expenses incurred to support the provision of
child care at child care facilities for the children of
employees.
(3) If the employer is a pass-through entity, require
that the employer identify the identity and pro rata
percentage ownership of its owners.
(d) The Department of Revenue shall award the tax
credit to the employer after the employer provides the
documentation required in subdivision (c). Failure to provide
the documentation required in subdivision (c) shall result in
the automatic denial of the employer tax credit.
Section 4. (a) Effective for tax years beginning on or
after on January 1, 2025, and ending December 31, 2029, unless
extended by an act of the Legislature, a child care provider
may apply to the Department of Revenue for a facility tax
credit to be applied against applicable taxes, in an amount
equal to the average monthly number of eligible children,
multiplied by a dollar amount which shall be based upon the
quality rating of the child care facility as follows:
(1) Five star quality rating - two thousand dollars
($2,000) per eligible child.
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($2,000) per eligible child.
(2) Four star quality rating - one thousand seven
hundred fifty dollars ($1,750) per eligible child.
(3) Three star quality rating - one thousand five
hundred dollars ($1,500) per eligible child.
(4) Two star quality rating - one thousand two hundred
fifty dollars ($1,250) per eligible child.
(5) One star quality rating - one thousand dollars
($1,000) per eligible child.
(b) The facility tax credit is limited to an aggregate
amount for all child care providers of five million dollars
($5,000,000) in a calendar year.
(c) The Department of Revenue shall:
(1) Provide a standardized format for, and require
completion of, a certificate to be completed and signed by the
child care provider applying for the facility tax credit,
certifying each child care provider's ownership of applicable
child care facilities, the quality rating of each facility,
and the average number of eligible children attending each
facility monthly.
(2) Require the child care provider to provide
documentation to substantiate to the satisfaction of the
Department of Revenue the amount of the facility tax credit
applied for pursuant to this section, the quality rating of
each applicable child care facility, and the average number of
eligible children attending each facility monthly.
(3) If the child care provider is a pass-through
entity, require that the child care provider identify the
identity and pro rata percentage ownership of its owners.
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identity and pro rata percentage ownership of its owners.
(d) The Department of Revenue shall award the facility
tax credit to a child care provider after the child care
provider provides the documentation required in subdivision
(b). Failure to provide the documentation required in
subdivision (b) shall result in the automatic denial of the
child care facility tax credit.
Section 5. (a) Effective for tax years beginning on or
after on January 1, 2025, and ending December 31, 2029, unless
extended by an act of the Legislature, a nonprofit child care
provider may apply to the Department of Human Resources for
nonprofit child care provider tax credits to fund the
construction, expansion, improvement, repair, or operation of
its child care facility or childcare facilities, so long as
such expenses are made in furtherance of the child care
services offered at such child care facility and result in
increased quality of care and increased capacity for children
at such child care facility.
(b) The application provided in subdivision (a) shall
include proof that the nonprofit child care provider has in
full force and effect a conflict of interest policy consistent
with that found in the instructions to Form 1023 issued by the
Internal Revenue Service.
(c) The application provided in subdivision (a) shall
include a notarized affirmation by an officer of the nonprofit
child care provider that the submission of the application did
not violate the conflict of interest policy referred to in
subdivision (b).
(d) The Department of Human Resources shall consider
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(d) The Department of Human Resources shall consider
the application provided in subdivision (a) and may approve
the application if the applicant and proposed expenses are
deemed eligible. The approval of the application by the
Department of Human Resources shall specify the amount of
money which the nonprofit child care provider is allowed to
receive under this section and the Department of Human
Resources shall certify such amount to the Department of
Revenue.
(e) Following approval by the Department of Human
Resources, the Department of Human Resources shall enter into
an agreement with the nonprofit child care provider which
shall do all of the following:
(1) Require the nonprofit child care provider to use
the funding received as a result of this section only for the
purposes approved by the Department of Human Resources.
(2) Require the nonprofit child care provider to make
periodic reports, not more often than annually, to the
Department of Human Resources, on the disposition of the
funds. The report shall also include an impact report that
will include such metrics as are established by the Department
of Human Resources from time to time to measure the impact of
the nonprofit child care provider tax credits.
(3) Require the nonprofit child care provider to
provide a review of its financial accounts as may be directed
by the Department of Human Resources.
(f) A taxpayer is allowed a nonprofit child care
provider tax credit to offset applicable taxes equal to the
cash contribution made by such taxpayer to a nonprofit child
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cash contribution made by such taxpayer to a nonprofit child
care provider which has received an award from the Department
of Human Resources, subject to the requirements of this
section. In no event shall the nonprofit child care provider
tax credit cause a taxpayer's tax liability to be reduced by
more than 50 percent. Unused credits may not be transferred
but may be carried forward for no more than five years. No
nonprofit child care provider shall be eligible to receive
more than fifty thousand dollars ($50,000) under this section
during a single calendar year.
(g) Nonprofit child care provider tax credits shall be
granted to taxpayers using an online system administered by
the Department of Revenue. The online system shall allow
taxpayers to agree to make a cash contribution, up to an
amount certified by the Department of Human Resources to the
Department of Revenue, to a nonprofit child care provider
which has received an award from the Department of Human
Resources. The online system shall ensure that credits are not
granted for cash contributions to a nonprofit child care
provider in excess of the amounts certified by the Department
of Human Resources.
(h) The aggregate amount of funding approved pursuant
to this section shall not exceed five million dollars
($5,000,000) in a calendar year.
(i) To the extent that a nonprofit child care provider
tax credit is used by a taxpayer, the taxpayer shall not be
allowed any deduction that would have otherwise been allowed
for the taxpayer's contribution. Nonprofit child care provider
tax credits may only be claimed by the donating taxpayer and
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tax credits may only be claimed by the donating taxpayer and
may not be assigned or transferred to any other taxpayer. For
purposes of this section, a donating taxpayer includes a
taxpayer who is a pass-through entity that made a cash
contribution to a nonprofit child care provider which was
approved by the Department of Human Resources.
Section 6. (a) The Department of Human Resources shall
adopt rules on or before January 1, 2025, for the
implementation and administration of Sections 3, 4, 5, and 6.
Such rules shall ensure: (i)that at least 25 percent of the
amounts specified in Section 3(b) are reserved for awards to
small businesses or employers that are headquartered in rural
areas and at least 25 percent of the amounts specified in
Section 4(b) are reserved for awards to child care providers
operating child care facilities exclusively in rural areas;
(ii) that in the event the Department of Human Resources does
not receive applications for and, thereby does not allocate,
the reserved tax credits by the close of the second quarter of
the calendar year, the funds may revert for allocations to
other applications; (iii) that employer tax credits and
facility tax credits shall be awarded based on the order in
which they are requested by employers and child care
providers, respectively; and (iv) that the employer tax
credits shall not be awarded to employers who cannot
demonstrate that they prioritize the payment of eligible
expenses for the benefit of employees that are eligible for
earned income tax credit under the Internal Revenue Code of
1986 as amended, if any.
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(b) Employer tax credits and facility tax credits may
only be claimed by an employer or child care provider, or a
taxpayer who is an owner of a pass-through entity that is an
employer or child care provider, but may not be otherwise
assigned or transferred to any other taxpayer. A taxpayer who
is an owner of a pass-through entity that is an employer or
child care provider may only claim the pro rata share of the
employer tax credit or facility tax credit, respectively,
equal to their percentage ownership of the employer or child
care provider.
(c) Where the applicable taxes owed by the employer or
child care provider are less than the employer tax credit or
facility tax credit received by such entities, the employer or
child care provider shall be entitled to claim a refund for
the difference but may not carry the employer tax credit or
facility tax credit forward for additional tax years. In the
case of owners of pass-through entities where the taxes owed
by such persons are less than their pro rata share of the
employer tax credit or facility tax credit received, such
persons shall be entitled to claim a refund for only the pro
rata share of the employer tax credit or facility tax credit
such persons receive in the tax year for which the employer
tax credits or facility tax credits are awarded.
(d) The Department of Revenue shall also prescribe the
various methods by which employer tax credits or facility tax
credits are to be issued to employers and child care
providers. Refunds under Section 6(c) of employer tax credits
and facility tax credits that are awarded against the taxes
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and facility tax credits that are awarded against the taxes
referenced in Section 2(a)(1) of this article shall be paid
out of sales tax collections made to the Education Trust Fund
and set aside by the Comptroller in the Child Care Tax Credit
Account created in subsection (e), in the same manner as
refunds of such taxes otherwise provided by law, and there is
hereby appropriated therefrom, for such purpose, so much as
may be necessary to annually pay for such tax credits as
provided by this article.
(e) There is created within the Education Trust Fund a
separate account named the Child Care Tax Credit Account for
the payment of any refunds under Section 6(c) of employer tax
credits or facility tax credits awarded against the taxes
referenced in Section 2(a)(1) of this article. The
Commissioner of Revenue shall certify to the Comptroller the
amount of such tax credit refunds due to employers and child
care providers under this section and the Comptroller shall
transfer into the Child Care Tax Credit Account only the
amount from sales tax revenues within the Education Trust Fund
that is sufficient for the Department of Revenue to use to
cover the refunds for the applicable tax year. The
Commissioner of Revenue shall distribute the funds in the
Child Care Tax Credit Account to employers and child care
providers pursuant to this article.
(f) The Alabama Department of Finance shall adopt rules
to ensure that the employer tax credit, facility tax credit,
and nonprofit child care provider tax credit would not, in any
case, reduce the distribution for the Alabama Special Mental
Health Trust Fund by using any unencumbered funds to ensure
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Health Trust Fund by using any unencumbered funds to ensure
that the employer tax credit, facility tax credit, and
nonprofit child care provider tax credit shall not be limited,
prevented, or reduced.
Section 7. (a) All filings and applications made with
the Department of Human Resources in relation to the employer
tax credit, the facility tax credit, or the nonprofit child
care provider tax credit shall be made using forms adopted by
the Department of Human Resources. Such applications and
filings shall be treated as tax returns, subject to penalties
imposed by the Department of Human Resources.
(b) Nothing in this article shall be construed to
constitute a guarantee or assumption by the state of any debt
of any company nor to authorize the credit of the state to be
given, pledged, or loaned to any company.
(c) Nothing in this article shall be construed to make
available to any taxpayer any right to the benefits conferred
by this article absent strict compliance with this article.
Section 8. This act shall become effective on January
1, 2025.
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