December 11, 2017

House and Senate Tax Bills Target Renewable Energy Projects

Holland & Knight Alert
J. Michael Cavanaugh | Kenneth W. Parsons

The U.S. Senate passed its version of a bill to overhaul the U.S. tax code on Dec. 2, 2017, and is now working with the House of Representatives to reconcile its bill with the House's version, passed in November. The goal of Congress is to send a bill to President Donald Trump by Christmas.

The bills both contain provisions that would adversely impact the renewable energy industry, and wind in particular, in several ways. The House bill has more direct impacts, reducing tax credit amounts, but the indirect results of the Senate bill could have more dramatic effect on the renewables industry. The competitive impact on renewables in comparison with fossil fuel generation may be magnified, as the oil, gas and pipeline industries will benefit from reduced tax rates at several levels without any cut in their current tax credits.

House Bill Impact

The House bill reduces the value of the production tax credit (PTC) by eliminating the inflation adjustment for new wind property. Currently 2.4 cents per kilowatt hour of electricity produced, the credit would be reduced to 1.5 cents per kilowatt hour by the House bill. The bill would also reduce the value of the PTC and the investment tax credit (ITC) by eliminating an IRS safe harbor regarding a project's continuity of construction. To qualify for a credit, a project would need to be in continuous construction from start to completion. The Joint Committee estimates that the House bill would reduce renewable energy incentives by $12.3 billion during the next 10 years.

Senate Bill Impact

The Senate bill does not directly alter the PTC or ITC. However, it contains a base erosion and anti-abuse tax (BEAT), which would impose a tax on multinational companies that make related-party, cross-border payments. The tax would apply if a company used such payments to reduce its U.S. tax liability to less than 10 percent of its U.S. income (including the cross-border payments). Neither the PTC or ITC could be used to offset BEAT liability, reducing the value of the credits to investors in renewable energy projects.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.

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