Incentives Watch: Is Your Green Energy Credit Constitutional?

Federal and state constitutional clouds may linger over one of the main inducements offered to consumers and producers of alternative energy: state tax credits.

Many tax credits are aimed at luring new companies or industries to a state. One question is whether it is constitutional to treat out-of-state taxpayers differently than in-state taxpayers.

The issue came up before the U.S. Supreme Court in DaimlerChrysler Corp. v. Cuno, but the high court never addressed the case on the merits. Instead, the U.S. Supreme Court reversed the U.S. Sixth Circuit Court of Appeal’s ruling after concluding that the group of taxpayers who filed the lawsuit lacked standing to challenge the tax incentive. The Sixth Circuit had ruled that Ohio's investment tax credit violated the U.S. Commerce Clause.

Another question is whether a state tax credit is in harmony with existing state tax law. The validity of a property tax exemption for green energy equipment recently came into question in Tennessee. Taxpayers in the state may no longer be allowed to claim a property tax exemption for certain machinery and equipment used to produce electricity for green energy production facilities based on the issuance of a recent state’s attorney general opinion.

The Tennessee Attorney General concluded that the valuation method for machinery and equipment used to produce electricity in a certified green energy production facility is unconstitutional because there is no credible rationale to support the valuation cap, notes a Bloomberg BNA Green Incentives Monitorarticle.

Under Tennessee law, the value on certified green energy production facilities is deemed to be its salvage value, for property tax purposes, and is capped at 0.5% of the facilities’ acquisition value.

At least one Republican legislator in Tennessee is seeking to repeal the property tax exemption, according to an article from The Tennessean. However, solar companies plan on fighting the repeal because it will hurt the state’s renewable energy industry, the article reports.

Forty six states offer some type of solar energy incentive, according to Bloomberg BNA’s Green Incentives Navigator.

In other developments . . .

The Michigan Court of Appeals recently held that a taxpayer that produced video games for public distribution was an eligible production company for a film production tax credit, according to a Bloomberg BNA Weekly State Tax Reportarticle.

By: Kathleen Caggiano

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