A three-year tax exemption on energy costs is coming to Alabama agriculture—but most business owners don't know it exists or how to qualify.
Most Alabama manufacturers in agriculture don't realize that starting September 1, 2026, they may stop paying utility taxes on the energy that powers their operations. Senate Bill 159 carves out a significant exemption from two utility taxes for specific agricultural producers—and the savings could be material.
The bill excludes natural gas and electricity used as fuel or energy in four categories of agricultural operations from both the utility gross receipts tax and the utility service use tax:
This matters because these taxes are typically paid by utilities but passed through to customers on their bills. By exempting the energy itself—not just the equipment—the law reduces the total cost of operation for qualifying businesses.
If your operation falls into one of those four categories and uses natural gas or electricity as a direct input to production (not just for office lighting or general facility use), you're potentially eligible. The exemption applies to energy consumed as fuel or operational power—the distinction is important and may require documentation when claiming the exemption.
Poultry producers using ventilation and climate control systems, greenhouse operators running heating and grow lights, and farmers operating center-pivot irrigation systems are the primary beneficiaries. Aquaculture operations using aeration pumps also qualify.
The exemption becomes effective September 1, 2026. However, this is not permanent. The amendatory language expires August 31, 2029—meaning the exemption is currently set for a three-year window. Businesses should plan accordingly and monitor for any legislative action before the sunset date.
The exemption doesn't apply automatically. You'll need to work with your utility provider and potentially your tax advisor to ensure your operation qualifies and that the exemption is properly applied to your account. The relevant statutory sections are §40-21-83(9)a and §40-21-103(11)a, which your utility or accountant can reference.
Start now by reviewing whether your energy use fits the definition of fuel or energy for production in one of the four categories. If it does, contact your utility to ask about the exemption process and any documentation they'll require when the law takes effect.
This is a genuine cost reduction for qualifying operations—but only if you know it exists and take steps to claim it.
For a detailed breakdown of how SB159 applies to your specific operation type, consult your utility provider or tax professional.