Finding Your Way Through the Tax Code Thicket to Gain Energy Project Credits

Finding Your Way Through the Tax Code Thicket to Gain Energy Project Credits

I will make an admission. I took tax in law school, and it was the academic equivalent of having my left arm sawed off without anesthesia.

Why? Mostly because things which should have been clear seemed hopelessly obscure. Now I deal with advising clients on incentives available for sustainable projects, and the tax code and I have had to battle to a stalemate. At least, I battle, and the tax code just sits there impenetrably.

One of the features that is particularly difficult is the relationship between 26 USC 45, which deals with tax credits for producing renewable energy (the "production tax credit" or PTC); 26 USC 48, which deals with tax credits for investing in renewable energy equipement (the "investment tax credit" or ITC); and the Renewable Energy Grant, created by the ARRA. All three relate to businesses that have installed renewable energy technologies, like solar, wind and geothermal. 

It should be clear and easy to understand which ones apply to your business and what the incentive will be. As with all things related to the tax code, however, it is not.

I am going to attempt to clear up some of the obscurity, but it is for informational purposes only, not legal advice; and you should consult your legal and financial advisor to provide you with proper advice for your business.


 
The incentives are mutually exclusive: The PTC and the ITC cannot both be taken, and they can be swapped for the REG, but you cannot take the PTC/ITC and the REG.

In plain English, it appears that the PTC is designed for renewable energy sources where the power is designed to be sold to others as a renewable energy credit (REC), and the ITC is designed for renewable energy sources where the power is used on site. The Renewable Energy Grant allows companies that have invested in either type of renewable energy capacity to receive cash, as opposed to a tax credit, which is helpful particularly if the company has no tax liability or a tax loss. 

There are some resources available to help you sort through this morass. The DSIRE database has quick summaries of available state and federal incentives. The Utah Clean Energy site has a nice summary of the renewable energy features of the ARRA. The DOE site has a useful summary of renewable energy incentives for businesses as well.


Shari Shapiro, J.D., LEED AP, is an associate with Obermayer Rebmann Maxwell & Hippel LLP in Philadelphia. Shari heads the company's green building initiative. She also writes about green building and the law on her blog at http://www.greenbuildinglawblog.com, where this post originally appeared.

Image CC licensed by Flickr user Josiah Mackenzie.

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