Public Power's Position
All types of utilities should be able to access energy tax credits to maximize investments and level the value of these investments.
- Rules and regulations should be as simple and efficient as possible to avoid burdening smaller entities with needless paperwork.
- Congress should consider further amendments to the IRA to encourage investments in smaller and rural communities.
- Congress should remove the threat of sequestration from refundable direct payments.
About the Issue
Energy tax credits are tantamount to the federal government paying a portion of the initial cost of investment in, or paying for the production of, power from certain types of energy facilities. That is why both the Treasury Department and Joint Committee on Taxation consider these tax incentives to be the equivalent of spending, i.e., a tax expenditure. However, because tax-exempt entities, including public power utilities, have no taxes against which to offset a tax credit, they cannot directly receive energy tax credit “payments.”
Under the Inflation Reduction Act, entities including public power utilities and rural electric cooperatives can claim these credits as refundable direct payment tax credits. In effect, the owner is deemed to have made a tax payment equal to the amount of the tax credit, and therefore qualifies for a tax refund. The efficacy of this provision has been severally handicapped by the threat of PAYGO Sequestration.
In implementing the ability to receive refundable direct payment tax credits under the Inflation Reduction Act, Treasury should strive to make rules and regulations as simple and efficient as possible to maximize investments and avoid locking out smaller entities with needless paperwork.
Congress should consider further amendments to the IRA to encourage investments in smaller and rural communities. For example, a 5-megawatt exception from the domestic content requirement for receiving a refundable tax credit may be adequate for a small community solar project, but likely too small to be of any use for the vast majority of even the smallest public power utilities.
Congress should remove the threat of sequestration from refundable direct payments, whether by waving the statutory Pay as You Go Act requirements, or specifically exempting refundable direct pay tax credits from PAYGO.