The American Taxpayer Relief Act of 2012 (ATRA), known as the “fiscal cliff legislation,” extends several federal renewable energy tax credits, including the production tax credit under section 45 of the Internal Revenue Code. The production tax credit equals 1.5¢ per kilowatt hour of electricity produced from certain qualified energy resources at a qualified facility for 10 years after the facility is placed in service. The ATRA extended the production tax credit for qualified wind energy facilities from January 1, 2013, to January 1, 2014.
In addition, the ATRA amended the definition of “qualified facilities” by providing that wind and geothermal facilities that begin construction prior to January 1, 2014, now qualify. Previously, the facility had a “place in service date” requirement, so the new “construction start date” requirement is less restrictive for renewable energy projects seeking to take advantage of the credit. “The modification adopted, which allows projects to qualify for the production tax credit based upon being under construction, represents an approach to renewable tax incentives that will work more effectively for geothermal and other renewable power technologies that have longer development lead times,” noted a Geothermal Energy Association press release. Wind projects, for example, have an 18-24 month timeline, a spokeswoman for the American Wind Energy Association (AWEA) told Bloomberg BNA Jan. 8.
IMPACT ON THE STATES. Although a federal credit, changes to the production tax credit impact the states as well. One of the most important impacts is more sales and income tax revenue from the renewable industry for state coffers, Karl Gawell, Executive Director of the Geothermal Energy Association told Bloomberg BNA Jan. 7. “In addition, since roughly half of geothermal development is on federal land and pays royalties once production begins then both state[s] and count[ies] will see additional revenues in the future,” said Gawell. Of these federal geothermal royalties, Gawell noted that half go to state governments and a quarter go to county governments.
Besides more revenue, states will likely see an increase in the number of jobs created due to the federal production tax credit changes enacted by the ATRA, as more workers will be needed to complete the various projects started as a result of the credit extension. For the geothermal industry, the production tax credit changes “mean new construction, manufacturing, drilling, and other jobs created, as well as sales of services and equipment,” according to Gawell. Geothermal projects, in particular, are very “labor intensive” and include a “large number of construction and drilling jobs during development to long-term operating and maintenance jobs,” noted Gawell.
Despite the expected increase in jobs now that the production tax credit has been extended, the uncertainty surrounding the production tax credit last year has already affected the wind industry through the loss of “jobs across the spectrum, including manufacturing jobs,” a spokeswoman for the AWEA told Bloomberg BNA Jan. 8. This job loss affects numerous areas, as there are approximately 500 facilities manufacturing wind component parts across 44 states, according to the AWEA.
STATE TAX CREDITS. State tax credits, alone, are not sufficient to sustain the renewable energy industry, said Gawell. The problem is that most of the state tax credits and incentives are available for solar energy, not geothermal energy, projects, noted Gawell. Add on top of this the fact that half of all geothermal projects must pay federal royalties and you have an industry that relies heavily on tax credits offered at the federal level. For the wind industry, despite the fact that the “[s]tates have always served as a leader in renewable energy policy, . . .” in order “to ensure the maturing U.S. is an attractive market for long-term investment in heavy manufacturing of wind components, national policy and signal is needed to maintain manufacturing in the U.S. working in tandem with policy leadership from the states,” said the AWEA. Thus, reliance on state tax credits alone does not seem plausible for the wind and geothermal industries.
One issue the ATRA did not resolve is the uncertainty surrounding the federal production credit. Because it was extended only for one year, it is difficult for the industry to plan long-term investments that could benefit the states.
For more information about the federal production tax credit, as well as state renewable energy credits, check out Bloomberg BNA’s Green Incentives Navigator.
In other developments . . .
The New York Department of Taxation and Finance advised that a taxpayer operating a data center is entitled to the sales and use tax exemption for internet data center operators, according to a Bloomberg BNA Weekly State Tax Reportarticle.
By: Kathleen Caggiano
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