The Tax Extender Act of 2017 (Extenders Bill) would, if enacted, extend and change tax credits for the renewable energy, alternative fuels and nuclear energy industries, and also would make other changes relevant to the energy sector. The Extenders Bill provisions include:
- Extensions of the PTC and ITC for technologies not previously extended -- notably, no proposed reductions in the PTC amount or changes to the beginning of construction rules.
- Extensions of the biodiesel and alternative fuel tax credits.
- Extensions and favorable changes to the nuclear PTC, consistent with changes proposed by the House in its November 2, 2017, version of the bill then known as the Tax Cuts and Jobs Act.
- Extensions of many of the other energy tax credits and extensions of certain energy taxes and other provisions.
Senate Finance Committee Chairman Orrin Hatch introduced the Extenders Bill on December 20, 2017, and the bill is expected to receive consideration in early 2018. This alert summarizes the principal provisions of the Extenders Bill that address energy tax provisions of the Internal Revenue Code.
On December 22, 2017, the President signed into law a tax reform bill, H.R. 1, formerly known as the Tax Cuts and Jobs Act (the “2017 Tax Act”). An earlier version of the 2017 Tax Act included a number of energy tax changes; however, those provisions were not included in the final version of the 2017 Tax Act. The Extenders Bill was introduced following the release of the final version of the 2017 Tax Act. See the Eversheds Sutherland Tax Reform Law blog for more information about the 2017 Tax Act, including alerts on the energy provisions of the 2017 Tax Act.
Production Tax Credit (PTC)
The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) extended the Section 45 PTC (and Section 48 ITC in lieu of PTC) for wind projects to provide as follows:
Under the Extenders Bill, the PTC (and ITC in lieu of PTC for facilities described in Section 45) would be available, retroactive to January 1, 2017, for the following facilities if construction begins by December 31, 2018:
- closed-loop biomass facilities,
- open-loop biomass facilities,
- geothermal energy facilities,
- landfill gas facilities,
- trash facilities,
- qualified hydropower facilities, and
- marine and hydrokinetic renewable energy facilities.
Investment Tax Credit (ITC)
The PATH Act extended the Section 48 ITC for solar projects to provide as follows:
The Extenders Bill would extend the ITC, retroactive to January 1, 2017, for the other types of facilities described in Section 48 that were not extended by the PATH Act, as described below:
- geothermal electric facilities would follow the same rules as provided for solar in the chart above.
- qualified fuel cell, fiber-optic solar and small wind facilities would be entitled to the ITC as follows:
If construction begins: And the project is placed in service by: The applicable ITC percentage is:
Prior to 2020 The end of 2023 30%
In 2020 The end of 2023 26%
In 2021 The end of 2023 22%
If construction of these facilities begins after 2021 or the project is not placed in service by the end of 2023, no ITC would be available.
- Qualified microturbine, combined heat and power, and geothermal heat pump facilities would be entitled to a 10% ITC if construction begins before 2022.
Biodiesel, Alternative Fuels and Second Generation Biofuels
The Extenders Bill would extend the Section 40A biodiesel and renewable diesel credits as well as the Section 6426 and Section 6427 biodiesel and alternative fuels credits (other than the Section 6427 credit for alternative fuel mixtures) for fuel sold or used by December 31, 2018, applicable retroactively to fuel sold or used in 2017. Consistent with prior retroactive extensions of these credits, the Secretary of Treasury is directed to issue guidance for making 2017 claims, which, we expect, would be substantially similar to guidance provided for prior retroactive extensions.
The Extenders Bill also would extend the Section 40 second generation biofuel producer credit to biofuel produced through December 31, 2018, applicable retroactively to production in 2017.
The Extenders Bill would also modify the PTC for advanced nuclear power facilities. The Extenders Bill provides for the allocation of unutilized national megawatt capacity limitation amounts. Under the new provision, the Secretary must allocate any unutilized capacity limitation as rapidly as practicable beginning in 2021, first to facilities already placed in service that did not receive their full nameplate capacity, and then to facilities placed in service beginning in 2021 in the order they are placed in service. A national megawatt limitation amount is considered unutilized if the facility to which it was allocated has not been placed in service by the end of 2020.
The Extenders Bill would also permit qualified public entities, defined as government entities, mutual or cooperative electric companies, and not-for-profit electric utilities, to elect to transfer the nuclear PTC and have an eligible project partner be treated as the taxpayer for purposes of the nuclear PTC. An “eligible project partner” is defined broadly, and includes any person: (1) responsible for or participating in the design or construction of the facility; (2) participating in the provision of nuclear steam supply to the facility; (3) participating in the provision of nuclear fuel to the facility; (4) that is a financial institution providing financing to the facility; or (5) having ownership in the facility. If the credit is claimed by a partnership, a partner that is a qualified public entity will be treated as the taxpayer for its distributive share and an “eligible project partner” will include any other partner of the partnership. For any credits transferred to an eligible project partner, the eligible project partner must take the credits in the taxable year ending with or after the taxable year of the transferring qualified public entity.
Residential Energy Efficient Property
The Extenders Bill would extend the credit for residential energy efficient property for all property covered by Section 25D (qualified solar electric, solar water heating, fuel cell, small wind energy, and geothermal heat pump property) through December 31, 2021, with a phase out of the credit amount. The phase out applies to all Section 25D property and allows for a credit of 30% of property placed in service through 2019 (retroactive to property placed in service in 2017), 26% of property placed in service in 2020, and 22% of the property placed in service in 2021.
Other Proposed Energy Credit Related Changes
- Extension of the Section 4611 oil spill liability trust fund financing rate through 2018.
- Extension of the Section 25C nonbusiness energy property credit to property placed in service by December 31, 2018. The extension is retroactive to property placed in service in 2017.
- Extension of the Section 30B credit for fuel cell motor vehicles to property purchased by December 31, 2018. The extension is retroactive to property purchased in 2017.
- Extension of the Section 30C alternative fuel vehicle refueling property credit to property placed in service by December 31, 2018, applicable retroactively to property placed in service in 2017.
- Extension of the Section 30D credit for two-wheeled plug-in electric vehicles through 2019, applicable retroactively to vehicles acquired in 2017.
- Extension of the Section 45(e)(10) credit for Indian coal production facilities for coal produced by December 31, 2018, retroactive to production in 2017.
- Extension of the Section 45L credit for energy-efficient new homes acquired by December 31, 2018, applicable retroactively to homes acquired in 2017.
- Changes to calculation of the Section 45Q carbon dioxide sequestration credit.
- Extension of the Section 168(l) special allowance for second generation biofuel plant property through 2018, applicable retroactively to property placed in service in 2017.
- Extension of the Section 179D energy efficient commercial buildings deduction through 2018, applicable retroactively to property placed in service in 2017.
- Extension of the Section 451(i) special rule for sales or dispositions to implement FERC or state electric restructuring policy for qualified electric utilities through 2018, applicable retroactively to dispositions in 2017.