Important Tribal Tax Provisions Included in the Emergency Economic Stabilization Act of 2008
 
October 14, 2008
 
Telly J. Meier- Washington
Kathleen Nilles - Washington

Senate included tax extenders and energy provisions in the amended bill, which became Public Law (110-343) on October 3, 2008.

On October 3, the President signed into law H.R. 1424 (Kennedy, D-RI), the Senate-amended Emergency Economic Stabilization Act of 2008, commonly referred to as the “bailout” bill, which includes important extenders for tribal tax provisions and provides eligibility for tribal governments for two different energy bonds. Although the House initially failed to pass its bailout bill on September 29, the Senate amended the bill by including tax extenders and energy provisions, which the House then passed on October 3. Specifically, the bill included an extension of the Indian employment tax credit and the accelerated depreciation for business property on Indian reservations. In addition, the bill also authorized new clean renewable energy bonds and qualified energy conservation bonds and allocated funds for the new market tax credit. Below is a brief description of the tribal provisions included within the bill:

Indian Employment Credit

This provision provides taxable employers with a business tax credit for employing individuals who work and live on or near an Indian reservation. The maximum amount of wages and health insurance costs taken into account for each employee is $20,000. The credit is computed by determining the increase in wages and health insurance costs paid by the employer over the amount (if any) paid by the employer in 1993. Wages for which the Work Opportunity Tax Credit is available are not qualified wages for the Indian employment tax credit. The provision extends the credit to December 31, 2009, and applies to taxable years beginning after December 31, 2007. Thus, the credit can be taken for employment costs already incurred this year and for costs incurred next year.

Accelerated Depreciation for Business Property on Indian Reservations

A special depreciation recovery period applies to qualified Indian reservation property placed in service after December 31, 2007. In general, qualified Indian reservation property is property used predominantly in the active conduct of a trade or business within an Indian reservation, which is not used outside the reservation on a regular basis and was not acquired from a related person. This provision extends the placed-in-service date for the special depreciation recovery period for qualified Indian reservation property to December 31, 2009. Thus, taxable entities placing depreciable property in service this year and anytime before the end of next year will qualify for this reservation tax incentive.

New Clean Renewable Energy Bonds (CREBs)

The bill provides for $800 million of new clean renewable energy bonds to finance facilities that generate electricity from wind, closed-loop biomass, open-loop biomass, geothermal, small irrigation, qualified hydropower, landfill gas, marine renewable and trash combustion facilities. This $800 million authorization is subdivided into thirds: one-third for qualifying projects of state/local/tribal governments; one-third for qualifying projects of public power providers; and one-third for qualifying projects of electric cooperatives.
The bill extended the deadline for issuing CREBs to December 31, 2009. These bonds provide a tax credit to the bond holder which effectively subsidizes the interest that would otherwise be payable by the borrower.

Qualified Energy Conservation Bonds (QECBs)

The bill provides for a total of $800 million available for qualified energy conservation bonds, which create a new category of tax credit bonds to finance government initiatives designed to reduce greenhouse gas emissions and will be allocated to states, municipalities and tribal governments. QEBCs may be used to finance qualified conservation purposes, which include the following:

• capital expenditures incurred for purposes of reducing energy consumption in publicly owned buildings by at least 20 percent
• implementing green community programs
• rural development involving the production of electricity from renewable energy sources
• any facility eligible for the production tax credit under Section 45 (other than Indian coal and refined coal production facilities)
• expenditures with respect to facilities or grants that support reach in the development of cellulosic ethanol or other nonfossil fuels, technologies for the capture and sequestration of carbon dioxide produced through the use of fossil fuels, increasing the efficiency of existing technologies for producing nonfossil fuels, automobile battery technologies and other technologies to reduce fossil fuel consumption in transportation, and technologies to reduce energy use in buildings
• mass commuting facilities and related facilities that reduce the consumption of energy, including expenditures to reduce pollution from vehicles used for mass commuting
• demonstration projects designed to promote the commercialization of green building technology, conversion of agricultural waste for use in the production of fuel or otherwise, advanced battery manufacturing technologies, technologies to reduce peak use of electricity, and technologies for the capture and sequestration of carbon dioxide emitted from combusting fossil fuels in order to produce electricity
• public education campaigns to promote energy efficiency (other than movies, concerts, or other events held primarily for entertainment purposes)

Allocations of QECBs will be made to the states based on each state’s proportional population as compared to the population of the United States. Further, each large local government, which is defined as any municipality or county that has a population of 100,000 or more, will receive a portion of its state’s allocation. The amount allocated to each large local government will be determined by its proportional population to the state. For the purposes of this provision, Indian tribal governments will be treated as large local governments to the extent their population resides within the state in which the Indian tribal government is located. Additionally, QECBs issued by Indian tribal governments must satisfy the tribal tax-exempt bond requirements which are essential government functions and certain manufacturing purposes.

New Markets Tax Credit

The bill provides for an allocation of $3.5 billion towards the New Markets Tax Credit (NMTC) under Section 45D of the Internal Revenue Code for fiscal year 2009. The NMTC enhances the opportunities for economic development funding in distressed communities, including many Indian reservations. NMTCs are available for equity investments in Community Development Entities (CDE) – including community development financial institutions, small business investment companies and venture capital firms – that are organized to serve or provide investment capital for low-income communities or low-income persons. A CDE must be a domestic corporation (including nonprofit) or a partnership for tax purposes. While a tribal law entity does not meet these requirements, to qualify, tribes can establish state law corporations or partnerships (including in the form of LLCs). More information about the 2009 NMTC allocations is expected in late December. The application deadline is expected to be in early spring.

For more information, contact:

Kathleen Nilles
202.457.1815
kathleen.nilles@hklaw.com

Telly J. Meier
202.419.2549
telly.meier@hklaw.com

toll free: 1.888.688.8500


About Our Indian Law Practice