Note: This post was updated on December 5 to reflect a likely two-week continuing resolution Congress is considering that would keep the Federal Government fully funded through December 21.
Mostly provides one-year retroactive extensions for expired energy technologies
On November 26, the House Ways and Means Committee unveiled its draft of the Taxpayer First Act of 2018, which would retroactively extend several dozen tax credits that expired at the end of 2017 as well as make additional technical corrections to the Tax Cuts and Jobs Act (comprehensive tax reform legislation enacted in December 2017). Here’s what clean energy businesses need to know about the proposal and how to engage.
What is the current status of energy tax measures?
Laws enacted during the 114th and 115th Congresses established multi-year extensions and phase downs of the production tax credit for wind and investment tax credit for solar, giving longer-term certainty for developers and investors to plan new projects and drive down costs. Many other clean energy industries have continued to operate for years on short-term extensions—sometimes even applying retroactively to the preceding calendar year. These industries have been seeking longer-term certainty to create parity, promote competition, and drive down technology costs. Additionally, some energy technologies are currently excluded from the tax code, such as storage and waste heat to power, and industry advocates have been seeking to gain access to credits available to other technologies.
The latest action on federal tax policy occurred in February 2018, with the enactment of the Bipartisan Budget Act. The legislation included a multi-year extension and phase-down, through the end of 2021, of the credits for the section 48 investment tax credit and 25D energy efficient residential property credit technologies—creating greater parity for the combined heat and power, geothermal heat pump, microturbine, and small wind industries. The legislation also modified the nuclear production tax credit and carbon capture and storage credit to address changes sought by these industries. However, other energy tax credits—including those for biodiesel, energy efficiency, biomass, geothermal, landfill gas, municipal waste to energy, hydropower, and marine and hydrokinetic energy—only received a one year, retroactive extension of a number of tax credits through the end of 2017.
What energy provisions are included in the new tax legislation?
The House proposal reinstates and provides a one-year, retroactive extension of expired energy tax credits. Introduction of the bill is promising in that it sets the stage for potential action on tax extenders. However, the affected energy industries are seeking multi-year extensions to provide more certainty for businesses and investors. The bill also does not address the energy technologies currently excluded from the tax code, such as storage and waste heat to power.
The one exception is that the legislation provides a multi-year extension and phase-down of the biodiesel and renewable diesel blender tax credit through the end of 2024. This may be a strategic nod to incoming Senate Finance Committee Chairman Chuck Grassley, for whom this credit is a priority.
The legislation extends the following energy tax credits through the end of 2018:
- Production tax credit for closed-loop biomass, open-loop biomass, geothermal, solar, landfill gas, municipal solid waste to energy, qualified hydropower, and marine and hydrokinetic energy (Sec. 45(d)) and the ability to use the investment tax credit (Sec. 48) in lieu of the production tax credit
- Residential energy improvements, energy efficient homes, and commercial buildings (Sec. 25C, 45(L) and 179(D))
- Qualified fuel cell motor vehicles and 2-wheeled plug-in electric vehicles (Sec. 30B and 30D)
- Alternative fuel refueling property, excise tax credits, and second-generation biofuel producer credit – Sec. 30C, 40(b), 168(l), 6426(d and e), 6427(e)
Of note to startup energy companies, the bill includes the text of the American Innovation Act of 2018, which could help drive down costs for new businesses by increasing allowable deductions for startup and organizational costs in the first year of a business:
- Startup costs are expenses that normally would be deductible as business costs, except for having been incurred prior to the launch of business operations.
- The legislation raises the cap on allowable deductions from $5,000 to $20,000.
- It also allows for net operating losses (i.e., when a company loses money or accrues tax offsets) from the first three years of operation to be carried forward even in the event of an ownership change. This is a change to current law, which limits the ability for new owners to deduct net operating losses.
For a more detailed explanation of the American Innovation Act, read a summary from GovTrack and simplified explanation from TechCrunch.
What are the prospects for enactment of the new tax legislation?
As a stand-alone measure, the House tax proposal would require 60 votes to pass the Senate and might face a challenge from Senate Democrats. However, the House will likely seek to combine the legislation into a stopgap spending bill that needs to pass Congress to avoid a partial government shutdown after Dec. 7. Congress is likely to pass a two-week continuing resolution that would that would keep the Federal Government open until Dec. 21. Other items that might be combined into that spending bill include the final conference agreement on the Farm Bill, if lawmakers from the House and Senate can reconcile differences in their versions of the bill in time. Progress on the spending bill is currently contingent on working out a deal with the White House on funding for the border wall.
How can clean energy businesses engage?
If federal tax provisions are important to your business, speak up now and convey your tax priorities to your Members of Congress. Ask your elected officials to speak to leadership offices and the tax-writing committees (House Ways and Means and Senate Finance) on behalf of your priorities.
The Clean Energy Business Network is working to promote greater parity for clean energy technologies that are not treated favorably in the current tax code. Customize and send a message to your elected officials now urging them to address these inequities.
For a review of recent action on tax policy and the current status of energy tax law, see these additional CEBN resources:
Update on Federal Appropriations and Tax (Feb. 6, 2018)
Final Action on Tax Cuts and Jobs Act (Dec. 19, 2017)
The Clean Energy Business Network (CEBN) works to advance the clean energy economy through policy, public education, and business support for small- and medium-size energy companies. Started in 2009 by The Pew Charitable Trusts, the CEBN is now a small business division of the Business Council for Sustainable Energy. The CEBN represents 3,000+ business leaders across all 50 U.S. states working with a broad range of clean energy and transportation technologies.