“Green” Federal and State Tax Incentives

1. “Green” Federal and State Tax Incentives August 22, 2012 Christopher Bradburn, CPA William Graff, JD, LL.M Tim Conrad, JD

2. Christopher Bradburn, CPA Director Katz, Sapper & Miller 317.580.2140 cbradburn@ksmcpa.com

3. Timothy Conrad, JD State and Local Tax Katz, Sapper & Miller 317.452.1388 tconrad@ksmcpa.com

4. William Graff, JD, LL.M Tax Department Katz, Sapper & Miller 317.580.2067 wgraff@ksmcpa.com

5. Federal Tax Credits William Graff, JD, LL.M

6. Renewable Electricity Production Credit (PTC) • Under §45, taxpayers are allowed a credit for producing and selling renewable electricity, refined coal, and Indian coal • It must be produced by the taxpayer from qualified energy resources • It must be produced by the taxpayer at a qualified facility during the credit period • Placed in service after Oct 22, 2004 but before Dec 31, 2013 + nameplate capacity rating at least 150 kWh • It must be sold in a qualified sale • Generally an unrelated person

7. Renewable Electricity (cont’d) • 2.2¢ per kWh of electricity adjusted for inflation. • Taxpayer may claim a credit during the 10 year period commencing with the date it was placed into service.

8. Renewable Electricity (cont’d) • Wind facility (2009-2012) (§ 45(d)(1)) • Expires year end 2012 • Closed /open – loop biomass facility (§ 45(d)(2),(3) • Expires year end 2013 • Geothermal energy facility (§ 45(d)(4)) • Expires year end 2013

9. Renewable Electricity (cont’d) • Municipal Solid Waste (§ 45(d)(6)) • Expires end of year 2013 • Facilities credit is reduced by half • Qualified hydropower facility (§ 45(d)(8)) • Expires end of year 2013 • Facilities credit is reduced by half

10. Business – Energy Credit (ITC)§48 • Business energy credit that incentivizes business equipment using energy sources other than oil or gas • Energy credit for any tax year is the energy percentage of the basis of each energy property placed in service during the year. • The energy percentage is 30% in the case of:

11. Energy Credit (cont’d) • Solar Energy Property Credit §48(a)(3)(A)(i) • The Credit, worth 30% of the property's basis before 2017, becomes worth 10% of the property's basis on January 1, 2017 • Small Wind Energy §48(a)(3)(A)(vi) • The credit is equal to 30% of the basis of the property. • Expires end of year 2016 • Fuel Cell Property • The amount of the credit cannot exceed $1,500 for each 0.5 kw of the capacity of the plant, but is otherwise equal to 30% of the basis in the equipment at the time it is placed in service. • Expires end of year 2016

12. Energy Credit (cont’d) • Some property like, Geothermal property and Microturbine property only receive 10%

13. PTC vs. ITC • The American Recovery and Reinvestment Act of 2009 (H.R. 1) allows taxpayers eligible for the federal renewable electricity production tax credit (PTC) to take the federal business energy investment tax credit (ITC) instead of the PTC.

14. Non-Business Energy Credit • Section 25C: windows, insulation, hot water heaters: Expired Dec. 2010

15. Residential Energy Efficient Property Credit §25D • Under §25D, individual taxpayers are allowed a residential energy efficient property credit for qualified energy efficiency property expenditures made during the taxable year. • Generally 30% of qualified • Solar • Solar water heating • Fuel cell (limited to $500 per ½ kWh) • Small wind energy • Geothermal heat pump property • The credit does not apply with respect to property placed in service after December 31, 2016.

16. Alternative Fuel Vehicle Credits • Fuel Cell Vehicles: (§30B) • Vehicles propelled by chemically combining oxygen with hydrogen and creating electricity • Fuel cell stack that converts hydrogen gas with oxygen from the air into electricity to drive the electric motor. • Honda FCX Clarity

17. Alternative Fuel Vehicles§30B • Natural Gas: is a clean burning fossil fuel stored in a gaseous state as Compressed Natural Gas (CNG) or in a liquid state as Liquefied Natural Gas (LNG). Natural gas capable vehicles are available as either dedicated natural gas or bi-fuel natural gas and gasoline.  • LPG (Liquefied Petroleum Gas), often referred to as propane, LPG is a clean burning fossil fuel that produces fewer toxic and smog-forming air pollutants than gasoline. 

18. Why CNG? • Ford F-250 Super Duty pickup • GMC Sierra 2500 HD pickup • Dodge Ram 2500 heavy duty pickup • Has both a gasoline and CNG storage tanks. • Engine switches automatically between the two • Obama administration's 2013 budget would replace the $7,500 electric vehicle credit with an advanced technology credit worth up to $10,000.

19. Plug-in Electric-Drive Motor Vehicle Credit §30D • A four-wheel vehicle propelled by a battery with at least 4 kilowatt-hours of electricity that can be charged from an external source • Base credit of $2,500 plus $417 for each kWh of additional battery capacity in excess of 4 kWh • Depending on vehicle weight, max allowable credit varies between $7,500 (>10,000 lbs.) $15,000(<26,000 lbs.)

20. Vehicles Certified • CODA sedan • Chevrolet Volt • Tesla Roadster • Nissan Leaf • Smart Fortwo • Think City EV

21. Alternative Fuel Vehicle Refueling Property Credit • Under §30C, taxpayers may claim a credit for placing in service qualified alternative-fuel vehicle refueling property. • Taxpayer must reduce the basis of any property for which the credit is allowed • The §30C alternative-fuel vehicle refueling property credit for a tax year equals 30% of the cost of the qualified alternative-fuel vehicle refueling property placed in service by the taxpayer during the tax year.

22. Policy in the Future

23. State and Local Green Energy Incentives Tim Conrad, JD

24. State and Local Incentives for Green Energy • State incentives • Targeted incentives • Traditional incentives • Favorable tax policies • Local incentives

25. Targeted Incentives • States may create incentives that are only accessible by green projects • Indiana examples • Hoosier Alternative Fuel Vehicle Manufacturer Tax Credit (I.C. § 6-3.1-31.9-1) • Ethanol Production Tax Credit (I.C. § 6-3.1-28) • Blended Biodiesel Tax Credit (I.C. § 6-3.1-27) • Deduction for solar powered roof vents or fans (I.C. § 6-3-2-5.3)

26. Traditional Incentives • You can always put a green hat on a traditional incentive program • Indiana examples • EDGE credit (jobs) (I.C. § 6-3.1-13) • HBI credit (capital investment) (I.C. § 6-3.1-13) • SEF training reimbursement (I.C. § 5-28-7) • VCI credit (venture capital) (I.C. § 6-3.1-24) • Research Credit (I.C. § 6-3.1-4)

27. Favorable Tax Policies • Can you acquire equipment exempt from sales tax? • See Rev. Ruling 2009-06 ST • Can you get a property tax deduction? • See I.C. § 6-1.1-12 • Fuel tax • Decal instead of road tax

28. Local Incentives • Typical local incentives include: • Waiver of fees • Granting variances • Loans • Reimbursements • Indiana communities with green incentives • Indianapolis • Bloomington

29. Application of Concepts/Case Studies Christopher Bradburn, CPA

30. Considerations for Advisors • Understanding the technology • Identifying applicable incentives • Assessing client needs

31. Renewable Portfolio Standards

32. Broad Knowledge Base • “Green” overlaps with various disciplines and skill sets • Science • Engineering • Tax • Construction • Finance • State and Local Tax

33. Case Study:Anaerobic Digester Technology • §48 Investment tax credit or §45 production tax credit? • Understanding the technology • What does the technology produce? • How does the technology produce? • How will the product of the technology be used?

34. Case Study:Anaerobic Digester Technology

35. Case Study:Anaerobic Digester Technology • §48 investment tax credit • 30% credit • Qualified fuel cell technology • Certain solar technology generating electricity, heat, light or hot water • Qualified small wind energy property

36. Case Study:Anaerobic Digester Technology • §48 investment tax credit • 10% credit • Geothermal technology to produce, distribute or use energy from a geothermal deposit • Combined heat and power systems • Qualified microturbine property • Geothermal heat sink technology

37. Case Study:Anaerobic Digester Technology • §48(a)(5) election to treat qualified facilities as energy property • Property part of qualified investment credit facility treated as 30% energy property

38. Case Study:Anaerobic Digester Technology • Qualified investment credit facility (§48(a)(5)(C)(ii) • Landfill gas facility – a facility producing electricity from gas derived from biodegradation of municipal solid waste

39. Case Study:Anaerobic Digester Technology • The term “solid waste” means any garbage, refuse, sludge from a waste treatment plant, water supply treatment plant, or air pollution control facility and other discarded material, including solid, liquid, semisolid, or contained gaseous material resulting from industrial, commercial, mining, and agricultural operations, and from community activities, but does not include solid or dissolved material in domestic sewage, or solid or dissolved materials in irrigation return flows or industrial discharges which are point sources subject to permits under section 1342 of title 33, or source, special nuclear, or byproduct material as defined by the Atomic Energy Act of 1954, as amended (68 Stat. 923) [42 U.S.C. 2011 et seq.].

40. Case Study:Anaerobic Digester Technology • Trash facility – a facility that uses municipal solid waste to produce electricity (other than a landfill gas facility)

41. Case Study:Solar Panel Installation • Capital investment analysis • ROI not payback period • Before-tax and after-tax returns • Impact of incentives

42. Case Study:Solar Panel Installation

43. Case Study:Solar Panel Installation

44. Case Study:Solar Panel Installation

45. Case Study:Solar Panel Installation