Incentives Watch: Are Transferable Tax Credits Going to Become a Thing of the Past?

There has been a lot of interest lately regarding the transferability of tax credits. Last week, we mentioned how the Obama administration is trying to persuade corporations to invest in clean energy, despite the end of a grant program that paid developers for unused credits. As a result, clean energy investors are now going to need to rely even more on the tax equity market.

On the state level, many taxpayers become eligible for various renewable energy tax credits but lack any tax liability in the state. So, the taxpayers try to sell off their unused credits to companies that have substantial state tax liabilities. For example, Arizona’s solar heating or electric vehicle recharge outlets tax credit, Missouri’s alternative fuel vehicle refueling property credit, and New Mexico’s agricultural biomass credit are all transferable, according to Bloomberg BNA’s Green Incentives Navigator.

In Oklahoma, a House of Representatives Subcommittee recently voted against a bill that would have eliminated the transferability of tax credits in the state, according to a NewsOKarticle. Six transferable credits were suspended for two years, so Oklahoma could make up for revenue shortfalls. For the 2008 and 2009 calendar years, approximately $27 million in tax credits were transferred. The moratorium ends this year, so it will be interesting to see what happens with these credits. 

Although businesses and insurance companies tend to be the biggest buyers of tax credits, other people can buy them, too. Interestingly, a reporter attempted to buy some tax credits in Oklahoma recently but was turned away; he noted that “[t]ransferable credits are a touchy subject right now,” according to the StateImpactarticle.

Some people argue that if the states do away with the transferability aspect of tax credits, then the credits will lose their attractiveness and people will not want them. For companies with no tax liability in a particular state, the tax credits will be totally worthless. If the tax credits are worthless, then companies will look elsewhere for other benefit programs, which could mean the loss of jobs or investment in a state. 

On the other hand, what about all the money that states could save if the transferability aspect of tax credits was eliminated? We will just have to wait and see what happens in the state legislatures this year.

­­­­­­­ In other developments . . .

The Colorado Court of Appeals recently granted an interlocutory review petition regarding the liability of conservation easement credit transferees.  For more information about the case, check out this Weekly State Tax Reportarticle.

By: Kathleen Caggiano

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