During the 2011 legislative session, the Oregon legislature passed three bills that will affect Oregon tax incentives, particularly for renewable energy projects. Of the three bills passed, the Governor has signed one; the other two are widely anticipated to become law.
HB 3672 (awaiting the Governor's signature) puts an end to the Business Energy Tax Credit ("BETC") for future projects and replaces that program with three separate income tax credits for renewable energy generation, conservation and transportation projects. HB 3672 also extends the sunset dates of, and makes relatively minor changes to, several other Oregon property and income tax incentives, including the biomass producer collector credit, E-commerce credits, the enterprise zone property tax exemption, the Oregon research expenditure credit, the film credit, and the fish screening or by-pass devices income tax credit.
HB 3606 (awaiting the Governor's signature) makes technical changes relevant to certain holders of existing BETCs.
HB 2523, signed by the Governor on June 23, 2011, creates a separate income tax credit for renewable energy resource equipment manufacturing facilities (formerly part of the BETC) and shifts responsibility for that credit program largely to the Oregon Business Development Department.
End of the BETC
HB 3672 abolishes the BETC, which has been in place in various iterations since 1979 and became a substantial incentive—particularly for renewable energy generation projects—between 2001 and 2009. ODOE is unable to issue preliminary certifications after June 30, 2011. For projects that have received preliminary certification, HB 3672 extends the sunset date by at least six months: the new deadline for ODOE to issue final certification is December 31, 2012, unless the taxpayer demonstrates to ODOE's satisfaction that construction began before April 15, 2011.
Technical Changes for Existing BETC Projects
HB 3606 clarifies and revises various provisions relating to projects already eligible for the existing BETC:
- Federal grants (including the U.S. Treasury grant pursuant to section 1603 of the American Recovery and Reinvestment Act of 2009) reduce the total cost of a project, rather than the certified cost, which is often substantially lower.
- An applicant that is not a "taxpayer" (for example, a tax-exempt nonprofit or local government entity) may participate in government-sponsored loan projects in addition to the BETC program.
- The start date of the five-year period over which the BETC may be claimed by the developer, or by the purchaser of a BETC, is clarified to avoid certain mismatches that caused uncertainty.
These changes generally apply retroactively, to address issues of concern to certain holders of existing BETCs.
Renewable Energy Production Systems—New Tax Credit and Grant
For renewable generation projects, HB 3672 creates the Renewable Energy Development Subaccount (the "Fund"), which is to be funded by taxpayer contributions unless the legislature chooses to fund it by legislative appropriation. Taxpayer contributions to the Fund will be eligible for tax credits, but the total statewide amount available for credits is capped at $1.5 million per fiscal year, and the total statewide amount of potential credits may not exceed $3 million per biennium. To the extent a contribution is eligible for a credit the taxpayer will pay an auction price of at least 95 cents per dollar of credit. The entire credit is claimed in the year of contribution, subject to a three-year carryforward. No credit is allowed for a tax year beginning on or after January 1, 2018.
The Fund will be used to provide grants for the construction or installation of "renewable energy production systems," defined as systems that use biomass, solar, geothermal, hydroelectric, wind, landfill gas, biogas or wave, tidal or ocean thermal energy technology to produce energy. A system must have 35 megawatts of nameplate capacity or less. A grant may not exceed 35 percent of the cost, or $250,000 per system. HB 3672 requires preliminary and final certification by ODOE and imposes job creation and anti-abuse requirements similar to the most recent BETC requirements. HB 3672 authorizes ODOE to allocate grant monies among projects if the amount in the Fund is insufficient to award the full amount requested to all applicants.
The provisions in HB 3672 related to the renewable energy production credit and grant are effective for applications filed with ODOE after July 1, 2011 and for tax years beginning on or after January 1, 2011. Extensive rulemaking is expected soon.
New Tax Credit for Energy Conservation Projects
HB 3672 provides an income tax credit for qualifying energy conservation projects, similar to the BETC previously allowed for these projects. Recycling projects, transportation projects and alternative fuel vehicles no longer qualify as conservation projects.
As under the BETC program, qualifying conservation projects are eligible for a credit equal to 35 percent of up to $10 million of certified project costs for a maximum credit of $3.5 million per project; the credit is claimed over a five-year period and is transferable. HB 3672 imposes an overall statewide cap on the program of $28 million in precertified tax credits per biennium and authorizes ODOE to allocate the available amount among applications if necessary.
Tax Credit for Transportation Projects
HB 3672 provides an income tax credit for qualifying transportation projects, essentially continuing a progressively scaled-back version of the credit formerly allowed under the BETC program. For projects other than alternative fuel vehicle infrastructure projects, the credit is equal to the following percentage of the certified cost:
- For tax years beginning on or after January 1, 2011 and before January 1, 2012:
a. 35 percent for projects issued preliminary certification before July 1, 2011; or
b. 25 percent for projects issued preliminary certification on or after July 1, 2011.
- For tax years beginning on or after January 1, 2012 and before January 1, 2013, 25 percent;
- For tax years beginning on or after January 1, 2013 and before January 1, 2014, 20 percent;
- For tax years beginning on or after January 1, 2014 and before January 1, 2015, 15 percent; and
- For tax years beginning on or after January 1, 2015 and before January 1, 2016, 10 percent
Alternative fuel vehicle infrastructure projects are eligible for a credit equal to 35 percent of the certified cost, without a phase-down.
Transportation projects are not subject to a maximum cost cap. Although not entirely clear, it appears that the credit may be claimed over a period of up to five years, based on information the applicant provides in the application for final certification. The credit is transferable. HB 3672 imposes an overall statewide cap on the program of $20 million in potential tax credits per biennium.
ODOE is responsible for administering and for rulemaking related to administration and certification of the credits for both conservation and transportation projects. The provisions in HB 3672 related to both credits are effective for applications filed with ODOE after July 1, 2011 and for tax years beginning on or after January 1, 2011. For projects other than alternative fuel vehicle infrastructure projects, the sunset provision of HB 3672 states that the first tax year for which the credit may be claimed must begin before January 1, 2016. For alternative fuel vehicle infrastructure projects, the first tax year for which the credit may be claimed must begin before January 1, 2018.
Tax Credit for Residential Energy Devices
HB 3672 leaves the tax credit for residential renewable projects, formerly known as the Residential Energy Tax Credit or "RETC," largely intact. In addition, no statewide cap on the total amount of credit applies, except in the case of third-party alternative energy device installations. For most appliances and for alternative fuel vehicles and related equipment, however, HB 3672 eliminates the credit if the first tax year for which the credit would be allowed begins on or after January 1, 2012.
HB 3672 largely codifies ODOE's existing practice of making "third-party energy device installations" eligible for the residential energy device credit. A third-party energy device installation is an alternative energy device installed in connection with residential property and owned by a person other than the homeowner in accordance with a lease or other agreement, with a term of at least 10 years, that covers maintenance and either the use of, or the power generated by, the device. For these projects, a third-party installer may batch up to 25 projects in one application, and HB 3672 imposes a statewide program cap of $10 million in potential tax credits per tax year.
The provisions in HB 3672 related to the residential device credits are effective for certifications issued by ODOE on or after January 1, 2012 and for tax years beginning on or after January 1, 2012. The sunset provision states that the first year for which the credit may be claimed must begin before January 1, 2018.
Other Credits Affected by HB 3672
- The sunset date for the biomass producer-collector credit is extended to tax years beginning on or before January 1, 2018, and the credit for woody and agricultural biomass is now measured in dry tons as opposed to wet tons, which was intended to significantly reduce the amount of credit for such producers and collectors. No specific dollar amount of credit per unit of biomass is assigned to municipally generated food waste or yard debris; therefore, the credit appears to have been eliminated for biomass consisting of either of these items.
- The sunset dates for both the qualified research credit and the alternative qualified research credit are extended to tax years beginning before January 1, 2018, but the credit limits are decreased from $2 million to $1 million, and the amount claimed as a credit must be added back to income. These changes are effective for tax years beginning on or after January 1, 2012, except that the add-back requirement is immediately effective.
- The sunset date for the film production credit is extended. The first tax year for which the credit is allowed must begin before January 1, 2018. This credit and grant program, on which the renewable generation credit and grant program was modeled, was also amended to require an auction for the sale of credit certifications and to increase the amount a taxpayer is required to pay, from 90 cents per dollar of tax credit to 95 cents per dollar. This change is generally effective for certifications issued on or after June 30, 2012. For the 2011-13 biennium, the total reimbursements to local filmmakers may not exceed $250,000. For all biennia, the Oregon Film and Video Office may not certify more than $6 million in tax credits per biennium.
- The sunset dates for the electronic commerce income tax credit (pursuant to ORS 315.507) and fish screening or by-pass devices income tax credit (pursuant to ORS 315.138) are extended to January 1, 2018.
- The sunset dates for the long-term rural enterprise zone income tax credit and property tax exemption are extended so that the taxpayer must obtain certification on or before June 30, 2018 and June 30, 2025, respectively.
Credit for Renewable Energy Resource Equipment Manufacturing Facilities
HB 2523, mentioned above, creates a separate credit for renewable energy resource equipment manufacturing facilities (the "Manufacturing Credit"). Under the BETC program, renewable energy resource equipment manufacturing facilities were eligible for up to a $20 million income tax credit (50 percent of a maximum of $40 million in certified costs per project). The Manufacturing Credit retains these credit and certification limits as well as many of the BETC certification standards and requirements. HB 2523 retains an overall statewide cap on the Manufacturing Credit program of $200 million in potential tax credits for the biennium ending June 30, 2013. Neither HB 2523 nor HB 3672 changes the sunset date for this program; a taxpayer must receive preliminary certification before January 1, 2014.
The main change to the Manufacturing Credit program is that the administration of the program is being shifted from ODOE to the Oregon Business Development Department ("Business Oregon"). The transfer of administration to Business Oregon is viewed as fairly insignificant because Business Oregon has historically been involved with these projects and ODOE's function with respect to manufacturing projects has been more technical. This change generally becomes operative January 1, 2012; however, ODOE and Business Oregon are authorized to take transition actions as necessary prior to that date.