Alabama Legislature Caps Data Center Tax Abatements at 20 Years

On April 9, 2026, the final day of the 2026 Regular Session, the Alabama Legislature gave final passage to House Bill 399, sponsored by Rep. Leigh Hulsey (R-Helena), capping tax abatements for data processing centers at 20 years unless operators commit to defined community investments. The Senate passed the amended bill unanimously, 32-0, and the House concurred 102-0 the same day. Gov. Kay Ivey, who publicly backed the package, signed the measure on April 16, 2026, enacting it as Act 2026-573. The act takes effect June 1, 2026, and its new limits apply to abatements granted on or after January 1, 2027. The change makes Alabama one of the most prominent states to pull back a data center incentive rather than expand it, recasting a 2012 recruiting tool as a ratepayer-protection measure.

HB 399 scales back one of the most generous data center incentive frameworks in the country. Under the Alabama Data Processing Center Economic Incentive Enhancement Act of 2012 (Act 2012-210), a project that invests more than $400 million within 20 years and creates 20 jobs paying at least $40,000 annually can qualify for sales and use tax incentives alongside property tax abatements for up to 30 years, a combination only five states offer. With more than 20 data centers operating or in development statewide and AI-driven electricity demand feeding utility-cost concerns, lawmakers framed the rollback as an affordability measure. Gov. Ivey cast the package as protecting energy affordability for Alabamians while keeping the state competitive for economic development. The Data Center Coalition opposed the bill.

Key Provisions

The default abatement ceiling drops from 30 years to 20 years. HB 399 amends Ala. Code §§ 40-9B-3, 40-9B-4, and 40-9B-4.1 to set a 20-year maximum exemption period for data processing center abatements granted on or after January 1, 2027. Abatements granted before that date keep their existing terms.

Operators can earn back the full 30 years by funding local investments. A private user may extend the maximum exemption period by 10 years, to a total of 30 years, by satisfying the capital investment thresholds in Section 40-9B-4 and entering a binding written agreement, approved by the Alabama Department of Revenue, the Department of Commerce, and the affected local governing body, committing to qualified local investments in four categories:

• Infrastructure improvements, including roads, bridges, or other public facilities that support local development
• Broadband improvements in an "unserved area" as defined in Ala. Code § 41-23-212
• Water or wastewater system upgrades
• Local education support, including capital improvements, equipment, or programmatic support for public K-12 schools, public charter schools, career technical centers, or community college programs

The extension carries a hard clawback. If the operator fails to satisfy any material obligation in the agreement, the additional 10-year abatement is revoked, the abatement reverts to the 20-year cap, and the operator must repay all state taxes abated during the extended period, with interest.

Facilities drawing 100 MW or more lose state tax abatements on construction-related purchases once the facility is placed in service. For abatements granted on or after January 1, 2027 to a data processing center with a total peak demand of 100 megawatts or greater, abatements of state noneducational ad valorem taxes and state construction-related transaction (sales and use) taxes end on the date the property is placed in service. The state will collect sales and use tax on designated purchases (building materials, building fixtures, structural components, real property improvements, power infrastructure for the transformation, distribution, or management of electricity, backup power generation systems, and battery systems), with revenue directed to the state General Fund under amended Ala. Code § 40-23-35. Core IT assets (computers, servers, licensed software, and equipment supporting computing, networking, or data storage) remain abatable for the full exemption period, as do cooling systems. Centers of 100 MW or more located in a "targeted county" under Ala. Code § 40-18-376.1 are excepted and may still receive full-period abatements.

The program's application sunset moves from July 31, 2028 to July 31, 2032. No Act 2012-210 incentive is available to a company applying after that date, but projects granted incentives before the deadline keep them under their project agreements regardless of reauthorization.

Sources: HB 399 (enrolled), Act 2026-573; Alabama Department of Revenue, Chapter 9B Abatements. Figures reverified July 2026.

Companion Measures

SB 155 channels federal coal royalties into coal-country economic development. The Renewing Coal-Impacted Communities Act, sponsored by Sen. Matt Woods (R-Jasper) with Rep. Bryan Brinyark (R-Samantha) as House sponsor, cleared both chambers unanimously (Senate 32-0, House 103-0) and was signed into law this spring. It creates the Coal-Impacted Communities Economic and Workforce Development Grant Program, directed by an advisory committee of representatives from coal-impacted areas, to finance workforce development, infrastructure, and economic diversification in counties such as Fayette, Walker, Jefferson, and Tuscaloosa, with a portion of federal coal lease revenue continuing to support the General Fund and the Port of Mobile.

SB 270 makes large data centers pay for the power they add. Sponsored by Sen. Lance Bell (R-Pell City), with Rep. Neil Rafferty (D-Birmingham) carrying the House companion (HB 403), the bill authorizes the Public Service Commission to account for the additional electricity costs large data centers create so those costs are not shifted onto other ratepayers. It passed the House 100-1 on April 9, with the Senate concurring 33-0.