Section 48, Investment Tax Credit (ITC): Update and opportunity

Attention food processors: If you have a facility that has the ability to produce electricity from biogas that you anticipate bringing on line in the future, you may have already engaged in activities with respect to that facility that will allow it to qualify for investment tax credits.

Since the American Reinvestment and Recovery Act of 2009, waste-to-energy projects, such as anaerobic digesters that produce electrical power from the biogas they generate, have enjoyed the availability of the 30 percent federal investment tax credit and/or the 1603 grant in lieu of tax credit. Absent congressional action, the investment tax credit remains available, but only for projects that “began construction” before the end of 2013.

Keep in mind that the 30 percent investment tax credit is not just applicable to the electrical generation equipment, but any property that is “integral to the production of electricity,” such as digester storage tanks, gas cleaning equipment, piping, etc. As an example, on a $9 million waste treatment facility, adding a $1 million electrical generator may result in $2.75 million* of federal tax credits at the time the project is placed in service.

If you did not begin construction in 2013—but have plans for a potential waste-to-energy facility—all is not lost. You may still have an opportunity to take advantage of the credit. For example, qualifying projects can be acquired by third parties in such a way that allows the tax credit to move with the project, and the owner at the time the project is placed in service can then claim the credit.

Keep in mind that even if your organization is not structured to use tax credits efficiently (such as a cooperative or an employee-owned company), there are ways to “monetize” the credit by working with a tax credit investor. These investors traditionally are large banks, but can be any organization with adequate tax liability that can use the credit, particularly, C corporations (a large general contractor, for example).

In summary, if you have incurred costs with respect to the development of a waste treatment facility before the end of 2013 (such as design work, ordering of equipment, etc.) or engaged or contracted for any on-site construction (such as foundation work), evaluate your project’s status as it may pertain to investment tax credit eligibility. Additionally, if you did not perform any of these activities, but have plans to develop a waste treatment facility post-2013, the opportunities that may still exist to incorporate the 30 percent investment tax credit into your capital stack and overall cost/benefit analysis related to possible electrical production as a means to lower your overall costs of waste management.

*Every project is different and must be carefully examined to determine the actual potential amount of tax credit it may qualify.

For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely.  The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.