Fed unveils details of tax credit for 'clean energy equipment'

August 28, 2009
| By Pete Daly |
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The federal government has now issued guidelines for the 30 percent investment tax credit included in the American Recovery and Reinvestment Act for new production of "clean energy equipment" — but there isn't much time left to apply for it, and qualifying for the credit probably won't be easy for manufacturers not already producing the specified equipment or developing plans to go into it.

Sept. 16 is the deadline for the preliminary application, with Oct. 16 the final application due date, according to Jim Manning, a partner in the Grand Rapids office of Plante & Moran. By Jan. 15, applicants will know whether the IRS has approved their project.

The credit, clarified Aug. 14 by the U.S. departments of Treasury and Energy, is capped at a total value of $2.3 billion over the next two years, and "once that's gone, it's gone," said Manning.

According to a recent announcement from the Department of the Treasury, the ARRA passed in February authorized Treasury "to provide developers with an investment tax credit of 30 percent for facilities that manufacture particular types of energy equipment. Qualifying manufacturers will produce solar, wind, and geothermal energy equipment; fuel cells, microturbines, and batteries; electric cars; electric grids to support the transmission of renewable energy; energy conservation technologies; and equipment that captures and sequesters carbon dioxide or reduces greenhouse gas emissions."

"These tax credits will help create thousands of high-quality manufacturing jobs in some of the highest growth segments of the economy. This is an opportunity to develop our global leadership in clean energy manufacturing and build a secure, sustained base of jobs for America's workers," said Energy Secretary Steven Chu.

Manning said the tax credit may be applicable to manufacturers that are "exiting the auto industry."

However, there are qualification rules and some uncertainties related to the credit that will make it challenging. Manning said one key aspect of the tax credit that is "not overly clear" has generated calls to him from manufacturers who expressed interest in erecting a new facility to produce the so-called clean energy equipment.

"The structural components (of a building) do not qualify for the 30 percent credit," said Manning.

Manning said the government will be using several criteria to determine which projects qualify for the credit — one of the most important factors being projects that can "start early and finish quickly."

The Treasury Department announcement noted that the credits are available for two years "or until the ($2.3 billion) cap is reached."

Manning said he did not know if the federal government intended to determine which are qualifying project applications as they come in or all at once just prior to Jan. 15.

"I would encourage any of my clients to do this as quickly as possible," he said.

For companies that might be able to qualify, "you have to make sure you are on top of this and you have thought about this," he said.

He emphasized that the application deadlines are "amazingly short," in his opinion.

Another major factor determining who gets the credit will be production of things that are clearly considered part of "viable commercial energy" devices. Manning said if a manufacturer is proposing to make "something crazy that's never going to be viable," the IRS and DOE probably won't give it a second look. They will also want to know if the proposed production will create jobs for Americans.

The credit is not retroactive and is non-refundable, although it can be carried forward if it is not usable in the first year, said Manning.

One local manufacturer already established as a producer of "clean energy" components is Cascade Engineering. Jessica Lehtie, sales and marketing manager at Cascade Renewable Energy Solutions, said that going into production of products such as the rotor blades they make for the Swift small wind turbine "takes a lot of work, and you have to know the market too."

"My guess is that most of the people that are going to be applying for (the tax credit) are already working on a plan — they already have something in place."

Manning said projects that do qualify must be in production within four years of the go-ahead from the DOE.

"That will be a concern for projects that could be a little ways down the road, but you still need to get it approved" now, he said.

As for the $2.3 billion cap being reached before some manufacturers have a chance to develop a viable plan for a viable product, Manning said it is possible there could be a second chance.

"My guess is that, hopefully, there's going to be another run of this next year, if this is a successful campaign" to spur clean energy production and create American jobs.

"And that's only me hoping," added Manning.

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