Incentives Watch: How Do States Encourage Taxpayers to Use New Technologies to Save Energy and Reduce Global Warming?

As extreme weather events become more common, scientists say climate change is a big contributor to the problem. Businesses and individuals are addressing global warming with clean energy, wind power, solar panels, and renewable energy. The U.S. Department of Energy also works with states and local governments to promote energy-efficient and renewable energy technologies, and many states offer energy tax credits for individuals and/or corporations that use these technologies. The following credits are a small sample of state credits that encourage and support clean energy and renewable energy efforts.

Arizona: Renewable Energy Production Credit

Arizona offers a credit for the production of electricity using renewable energy resources. The credit equals $0.01 per kilowatt-hour of the first 200,000 megawatt-hours of electricity produced by a qualified energy generator in the calendar year with a wind or biomass derived qualified energy resource; the maximum credit is $2 million annually per facility or an aggregate total of $20 million for any calendar year. The taxpayer must apply annually for the credit.

Arkansas: Rice Straw Tax Credit

Arkansas’ rice straw tax credit is $15 per ton of rice straw over 500 tons purchased by an in-state taxpayer who buys and uses the straw to process, manufacture, generate energy, or produce ethanol. The maximum credit is 50 percent of the tax year’s total income tax liability. Unused credits may be carried forward for 10 tax years.

Hawaii: Renewable Energy Technologies Credit

In Hawaii, taxpayers who install renewable energy technology systems in- state are eligible for a credit. For property placed in service on or after July 1, 2009, the credit is based on a percentage of the actual cost of the type of system placed in service. For taxable years beginning on or after Jan. 1, 2006, the amount of any utility rebate must be deducted from the cost of the qualifying system and its installation in figuring the credit. Multiple owners of a single system are entitled to a single tax credit, and each owner may claim a portion of the credit based on how much was paid toward the cost of the system subject to tax credit caps.

Montana: Biodiesel Blending and Storage Credit

Montana allows special fuel distributors and owners of motor fuel outlets a credit against income tax equal to 15 percent of the costs of investments in depreciable property used for storing or blending biodiesel with petroleum diesel incurred in the two tax years before the taxpayer begins blending biodiesel fuel for sale. The biodiesel used in the blending process must be made entirely from Montana-produced feedstocks. At least 2 percent of the taxpayer's total diesel sales must be in the form of biodiesel by the end of the third year following the initial tax year in which the initial credit is claimed.

This credit is subject to recapture if the facilities cease operations within five years of receiving the initial credit.

Pennsylvania: Coal Refuse Energy and Reclamation Tax Credit

Pennsylvania offers a credit to taxpayers using recycled coal refuse to generate electricity. Taxpayers are eligible to claim this credit if they own an eligible facility, or if they are the purchaser, affiliate, or assignee of a person to whom a tax credit certificate was awarded. The credit equals $4 per ton of coal refuse used to generate electricity in Pennsylvania during the previous calendar year.

The credit is transferable after the transferor files the tax return for the tax period in which the credit was granted or approved.

Utah: Recycling Market Development Zones Tax Credit

Utah businesses operating in a recycling market development zone may qualify for a credit against corporate franchise tax and income tax or individual income tax. Taxpayers are eligible for the recycling market development zones tax credit based on the purchase price paid for machinery and equipment used directly in commercial composting; or manufacturing facilities or plant units that (1) manufacture, process, compound, or produce recycled items of tangible personal property for sale; or (2) reduce or reuse post-consumer waste material.

 Taxpayers may also qualify for the credit based on expenditures to third parties for rent, wages, supplies, tools, test inventory, and utilities if these expenditures are for establishing and operating recycling or composting technology in Utah.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: What new technology credits do you think will be most used?

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