I will make an admission. I took tax in law school, and, it was the academic equivalent of having my left arm sawed off without anaesthesia. Why? Mostly because things which should have been clear seemed hopelessly obscure. Now I deal with advising clients on incentives available for sustainable projects, and the tax code and I have had to battle to a stalemate. At least, I battle, and the tax code just sits there impentarably.
One of the features which is particularly difficicult is the relationship between 26 USC 45, which deals with tax credits for producing renewable energy (the "production tax credit" or PTC), 26 USC 48 which deals with tax credits for investing in renewable energy equipement (the "investment tax credit" or ITC) and the Renewable Energy Grant created by the ARRA. All three of these relate to businesses which have installed renewable energy technologies, like solar, wind and geothermal. It should be clear and easy to understand which ones apply to your business and what the incentive will be. As with all things related to the tax code, however, it is not.
I am going to attempt to clear up some of the obscurity, but, as with all information on this blog, it is for informational purposes only, not legal advice; and you should consult your legal and financial advisor to provide you with proper advice for your business.
|Title||Applies to||Amount of Incentive|
|Production Tax Credit||
||1.5 cents per kW of power generated at a qualified facility for the 10 years beginning on the date the facility was placed in service AND sold to an unrelated person during the taxable year|
|Investment Tax Credit||
||30% of the cost of the "energy property" for solar and small wind, 10% for geothermal and other renewable sources|
|Renewable Energy Grant||Applicable property under Section 45 or 48||10% or 30% of the basis of the property, depending on the type of property placed in service during 2009 or 2010 or after 2010 if construction began on the property during 2009 or 2010 and the property is placed in service by a certain date known as the credit termination date|
The incentives are mutually exclusive--The PTC and the ITC cannot both be taken, and they can be swapped for the REG, but you cannot take the PTC/ITC and the REG.
In plain english, it appears that the PTC is designed for renewable energy sources where the power is designed to be sold to others as a Renewable Energy Credit, and the ITC is designed for renewable energy sources where the power is used on-site. The Renewable Energy Grant allows companies which have invested in either type of renewable energy capacity to receive cash, as opposed to a tax credit, which is helpful particularly if the company has no tax liability or a tax loss.
There are some resources available to help you sort through this morass. The DSIRE database has quick summaries of available state and federal incentives. The Utah Clean Energy site has a nice summary of the renewable energy features of the ARRA. The DOE site has a useful summary of renewable energy incentives for businesses as well.