The U.S. House American Recovery and Reinvestment Tax Act of 2009 and the U.S. Senate stimulus packages include favorable renewable energy incentives.
On January 22, 2009, the U.S. House Ways and Means Committee approved a $303 billion tax stimulus package containing significant general tax and renewable energy incentives for businesses. The package, entitled the American Recovery and Reinvestment Act of 2009 (H.R. 598) (the Act), is expected to come to a vote on January 28, 2009. A similar package is scheduled to be marked up by the U.S. Senate Committee on Finance on January 27, 2009.
The Act, as introduced, would create significant renewable energy incentives, including:
- Extension of the renewable electricity production tax credit placed in service date for qualified facilities for three years through 2013 (or through 2012 for wind facilities)
- Creation of an irrevocable election to have certain qualified facilities, placed in service between 2009 and 2010, treated as energy property eligible for the 30 percent investment credit in lieu of claiming renewable electricity production tax credits for the property
- Elimination of investment credit caps applicable to qualified small wind energy facilities, and removal of the rule requiring taxpayers to reduce their investment credit-eligible basis by subsidizing energy financing or by proceeds from private activity bonds
- Authorization of the issuance of up to $1.6 billion in additional clean renewable energy bonds and an additional $2.4 billion of qualified energy conservation bonds
- Creation of a new 20 percent credit for qualified research expenses paid or incurred in 2009 or 2010 in the renewable energy, energy conservation, efficient transmission and distribution of electricity, and carbon capture and sequestration
- Elimination of credits caps for certain categories of residential energy efficient property, including solar, hot water, geothermal and wind property, and elimination of the reduction in credits for using subsidized energy financing
- Creation of a grant program for certain qualified facilities placed in service between 2009 and 2010. The grant amount tracks the amount of the energy credit available for such facilities and would be granted in lieu of any energy credit
In addition to renewable energy incentives, the Act, among other general business incentives, would increase the general net operating loss (NOL) carryback period from two years to five years in the case of any NOL for any taxable year ending in 2008 or 2009. A proposed amendment to the Act introduced by the House Ways and Means Committee Chair Charles B. Rangel (D-NY), however, would limit NOL deductions carried back to the five year period proposed by the Act to 90 percent of such deductions. Under both the Act and the package to be considered by the U.S. Senate, the NOL carryback period increase does not apply to Troubled Asset Relief Program (TARP) recipients, defined as any taxpayer if the federal government acquires, at any time, an equity interest in the taxpayer pursuant to the Emergency Economic Stabilization Act of 2008, the federal government acquires, at any time, any warrant to acquire an equity interest in the taxpayer pursuant to such act, or the taxpayer is a member of the same affiliated group as a taxpayer to which the NOL carryback period increase would not apply.
The Act would also extend the additional first-year depreciation deduction for one year through 2009 (or through 2010 for certain property with a longer depreciable life and transportation property). The election to claim additional research or minimum tax credits in lieu of claiming additional first-year depreciation would also be extended to apply to property placed in service in 2009.
The U.S. Senate package to be considered includes similar provisions to those above, although with some differences, including:
- The Senate package would permit 100 percent, as opposed to the 90 percent proposed in the U.S. House amendment, of NOL deductions to be carried back for the five year period.
- The Senate package would increase the carryback period for general business credits for 2008 and 2009 from one taxable year to five years. The House Act does not appear to contain this provision.
- The Senate package would remove present law limitations to permit general business credits for the taxable years ending in 2008 or 2009 to offset 100 percent of a taxpayer’s net income tax
Please note that the U.S. Senate’s package proposal to increase the carryback period for general business credits and create the ability to offset 100 percent of net income tax by such credits does not appear to exclude TARP recipients from obtaining these incentives. Importantly, this could potentially attract TARP recipients, who have limited 2009 tax attributes, to participate as tax equity investors in renewable energy projects. Other than the minor differences between the U.S. Senate and the U.S. House packages highlighted above, the general business and energy incentives discussed herein are nearly identical in both packages, which may streamline the conference process and perhaps ultimately the bill’s passage.