The Tax Management Transfer Pricing Report ™ provides news and analysis on U.S. and international governments’ tax policies regarding intercompany transfer pricing.
Legislation approved by Congress Jan. 1 that would stave off hundreds of billions of dollars in automatic tax increases and budget cuts includes an extension of the wind production tax credit and several other energy-related tax incentives for alternative power, biofuels, and energy efficiency.
The American Taxpayer Relief Act (H.R. 8) includes more than $18.1 billion to extend existing energy tax incentives over a 10-year period. The largest item, estimated to cost $12.2 billion, would be an extension of a production tax credit for wind and other forms of renewable energy, according to Joint Committee on Taxation estimates.
The bill would extend the production tax credit, which totals 2.2 cents per kilowatt-hour for wind power, for a year. However, a legislative tweak to the credit allowing qualification of projects under construction by the end of 2013, rather than projects placed in service, effectively extends the credit well beyond its Dec. 31 expiration date.
The legislation to avoid the fiscal cliff was approved Jan. 1 by the House and Senate, and President Obama is expected to sign it.
The modification to the wind production tax credit, which was included in a tax extenders bill (S. 3521) approved by the Senate Finance Committee in August (149 DTR G-12, 8/3/12), establishes a “de facto extension” lasting two-and-a-half years or more, according to a research note published Jan. 2 by ClearView Energy Partners, a consulting firm.
However, ClearView said “the generous expansion of the PTC could represent a 'sunset' ” for the tax credit as Congress considers future tax reform, despite a proposal by the wind energy industry to phase the credit out over a six-year period.
The American Wind Energy Association, the industry's main trade group, hailed the extension of the PTC, saying in a Jan. 1 statement it would save as many as 37,000 jobs in the wind industry and revive business at nearly 500 manufacturing facilities across the country.
Still, even with the extension, the industry is expected to install only about four gigawatts of wind power in 2013, far less than the estimated 13 gigawatts of wind power installed in 2012, according to Navigant Consulting.
In addition to the 2.2 cent-per-kilowatt-hour PTC for wind, the legislation extends a production tax credit for other alternative sources, including hydropower, marine and hydrokinetic power, biomass, geothermal, solar, and municipal solid waste, that ranges from 1.1 cents to 2.2 cents per kilowatt-hour, depending on the energy source.
The bill also reinstates an American Recovery and Reinvestment Act provision that allows qualified sources to take the PTC as a 30 percent investment tax credit (ITC) instead.
Such an option is useful for the country's offshore wind industry, whose developers would have to take a significant discount when monetizing the production tax credit because of a lack of operating history, said Jim Lanard, president of the Offshore Wind Development Coalition.
“This discount would reduce the value of PTCs to a level below what would work for offshore wind developers,” Lanard said in an email to BNA. “Accordingly, ITCs provide a better value for our industry since they are just based on the capital expenditures of a wind farm.”
Several of the tax credits extended by legislation would benefit the alternative fuels industry, such as a one-year extension of the $1.01-per-gallon cellulosic biofuels credit, which was expanded to include algae-based fuel, and a one-year extension of the $1-per-gallon tax credit for biodiesel, which was extended retroactively through 2012.
The legislation also extends the Accelerated Depreciation Allowance for Cellulosic Biofuel Plant Property, which allows a 50 percent depreciation allowance for biofuel plants placed in service by the end of 2013. It also extended for one year through 2013 and made retroactive to 2012 an alternative fuel infrastructure tax credit that the ethanol industry said would accelerate the entry into the market place of E85--gasoline blended with 85 percent ethanol.
“Stability in such policies is crucial to maintaining private investment,” Brent Erickson, executive vice president of the Biotechnology Industry Organization, said in a statement Jan. 2.
Also included in the bill was a one-year extension of several energy efficiency related tax incentives retroactively through 2012, such as an extension of up to $500 for homeowners who make specific home improvements such as the installation of efficient water heaters, air conditioners, and furnaces as well as for new insulation, windows, doors, and roofs, according to the Alliance to Save Energy, a nonprofit group.
The bill also continues in tax years 2012 and 2013 a tax credit of $2,000 per home for builders of new, highly efficient homes and a credit for American manufacturers of highly-efficient refrigerators, clothes washers, and dishwashers, the alliance said in a statement.
A spokeswoman for the Senate Finance Committee said all of the energy tax incentives included in H.R. 8 were identical to the energy tax provisions included in S. 3521, the tax extenders legislation approved by the Senate Finance Committee, save for a technical change that updated an efficiency standard for the new energy efficient home credit.
By Ari Natter
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