Incentives Watch: How Do States Support Recycling and Waste Reduction Efforts?

The Environmental Protection Agency has been collecting data on waste generation and disposal in the U.S. for over 30 years. The data is used to measure how successful various programs around the country are and to determine best practices for reducing the national waste stream. Similarly, a number of studies have examined recycling practices and found that the percentage of items that are recycled ranges from 60 to 80 percent. But how do state and local governments get people’s recyclables from curbside to new recycled material? Some states, such as the following examples, provide tax incentives to encourage recycling.  

Colorado: Plastic Recycling Investment Tax Credit

Colorado resident individuals can claim a plastic recycling investment tax credit for expenditures to third parties for rent, wages, supplies, consumable tools, equipment, test inventory, and utilities used in new plastic recycling technology. The credit is 20 percent of the first $10,000 of net expenditures. The credit is nonrefundable, and unused credits may be carried forward five years. The credit is claimed on the taxpayer's Colorado tax return; copies of receipts, bills, and other documentation of qualified expenses must be filed with the return.

Louisiana: Qualified New Recycling Manufacturing Process Equipment and Services Contracts Credit

Louisiana offers a credit to taxpayers equal to a percentage of a taxpayer's costs of purchasing new recycling manufacturing or process equipment. The credit must be used exclusively in-state. Additionally, new machinery or apparatus must be used only for processing post-consumer waste material or recovered material and producing finished products that are composed of at least 50 percent post-consumer waste material or recovered material. The credit is a percentage of the taxpayer's cost of purchasing qualified new recycling manufacturing or process equipment and qualified service contracts, and the annual aggregate amount of allowable credits for all taxpayers is $3.6 million.

Kentucky: Recycling or Composting Equipment Credit

Kentucky offers taxpayers a credit for purchasing equipment that will be used exclusively in the state for recycling or composting post-consumer waste materials. The equipment must have a useful life of five or more years or have a recapture period of five years from the date the equipment was purchased; qualified equipment with a useful life of less than five years has a recapture period of three years from the date of purchase. If a taxpayer who receives the tax credit sells, transfers, or disposes of the qualifying equipment before the recapture period's end, the tax credit will be redetermined.

Montana Recycling Credit

Montana individual taxpayers and businesses can claim a credit for an investment in depreciable equipment purchased to collect or process reclaimed material or to manufacture products from reclaimed material. The credit is 25 percent of the property's cost on the first $250,000 invested; 15 percent of the property's cost on the next $250,000; and 5 percent of the property's cost on the next $500,000. No credit may be claimed for investments in excess of $1 million. The credit is claimed using Form RCYL.

Virginia: Recyclable Materials Processing Equipment and Alternative Recycling Credit  

Virginia offers taxpayers a 20 percent credit of the purchase price of machinery and equipment purchased for use predominately in a manufacturing facility or plant in-state to manufacture, process, compound, or produce tangible personal property from recyclable materials for sale. The total credit allowed in a taxable year cannot exceed 40 percent of the Virginia income tax liability of the taxpayer, and no more than $2 million tax credits total are allowed in a fiscal year. Unused credits can be carried forward 10 years.  

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Are other states considering adding a recycling credit?  

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