The Congressional Research Service (CRS) has issued its periodic report on the investment tax credit (ITC).
The report has a helpful summary of current law, useful history and data regarding the cost of the ITC; however, it omits certain ITC eligible technologies from its discussion. The full report is available here: CRS 2016 ITC Report.
Below is a helpful table included in the CRS report that summarizes the tax credit phase out rules for certain renewable energy technologies:
What the table above and the report as a whole overlooks is that open and closed-loop biomass, landfill gas, trash to electricity, qualified hydropower, and tidal power (i.e., marine and hydrokinetic) (Other Technologies) projects also qualify for a 30% ITC, if the project beings construction prior to 2017. I.R.C. § 48(a)(5)(A), (C) (cross-referencing, inter alia, § 45(d)(2), (3), (4), (6), (7), (9) and (11)).
Like wind, the Other Technologies are addressed in section 45, which provides them initially with a PTC, but then section 48 enables the projects using wind or the Other Technologies to elect an ITC in lieu of the PTC.
The Other Technologies were also overlooked in Protecting American from Tax Hikes Act of 2015, which in December of 2015 extended the begun of construction deadlines for wind and solar. Possibly, the CRS author was referring to materials related to that Act in preparing the report, and thus overlooked the Other Technologies.
Advocates for the Other Technologies are hopeful that in the lame-duck session of Congress following the election that Other Technologies will be provided with the same tax credit extension that wind received last year.
Highlights from CRS’s Report
Selected highlights from the CRS report are quoted below.
Summary of Current Law
- Under current law, the ITC for most non-solar technologies will expire at the end of 2016. [Emphasis added.] There is a permanent 10% ITC for solar and geothermal technologies. Increased credit rates for the solar are available through 2021.
History of the ITC
- The energy tax credit was first enacted as part of the Energy Tax Act of 1978 (P.L. 95-618), which created a temporary 10% tax credit for business energy property and equipment using energy resources other than oil or natural gas. Tax credits for solar and wind energy property were refundable (credits could be received as a payment if the taxpayer did not have tax liability to offset), with non-refundable credits available for a wide range of other qualifying technologies and property.
- The Windfall Profit Tax Act of 1980 (P.L. 96-223) substantially expanded the energy credit to further the objective of developing an abundant range of energy resources and promoting investment in energy conservation. Tax credits for solar and wind investments were extended for three years, through 1985. Additionally, the credit rate for solar and wind was increased to 15%, and the credit was made non-refundable.
- The 10% credit for biomass was also extended for three years, through 1985. The definition of biomass included materials such as municipal solid waste.
- When enacting the Tax Reform Act of 1986 (TRA86;P.L. 99-514), Congress believed it desirable to maintain tax credits for renewable energy property to continue stimulating technological development and the use of renewal energy sources. While there was not support for a board extension of the energy credit (investment credits generally were repealed or allowed to expire TRA86), investment tax credits for solar and geothermal energy were extended but phased down to 10% before being set to expire December 31, 1988.
- The Energy Policy Act of 1992 (P.L. 102-486) made the credits for solar and geothermal permanent. After P.L. 102-486, the only tax credits remaining from the Energy Tax Act of 1978 (P.L. 950618) were the newly permanent 10% solar and geothermal credits.
- The Energy Policy Act of 2005 (EPACT05; P.L. 109-58) increased the solar ITC from 10% to 30% for 2006 and 2007.
- The Emergency Economic Stabilization Act of 2008 (P.L. 110-343) substantially expanded and provided a long-term extension of the temporary components of the energy credit… Specifically, the EPACT05 credits for solar, fuel cells, and microturbines were extended for eight years, through December 31, 2016.
Cost of the ITC
- For much of its history, there was little cost associated with the energy credit. From the credits inception in 1978, through 20067, the Joint Committee on Taxation (JCT) estimated that tax expenditures- or forgone revenue- associated with the energy credit was generally de minimis (less than $50 million per year). There were three exceptions, fiscal years (FYs) 1997, 1998 and 2007, when the tax expenditure for the credit was $0.1 billion.
- The estimated cost of the energy credit, or estimates of forgone revenue, have increased in recent years. The majority of the cost is for solar credits.
- The JCT estimated that the changes to the energy credit enacted in P.L. 114-113, the extension of the 30% rate for solar and changing the credit deadline to a construction start date, will cost $5.0 billion between FY2016 and FY2025. This cost is in addition to the tax expenditures that would have been provided under the 10% permanent tax credit for solar and geothermal that was previously current law.