Close
Close

Senate Finance Committee advances energy tax bill

RFP
Tax Hot Topics newsletter The Senate Finance Committee advanced a sweeping energy tax package on 14-14 partisan vote on May 26. The Clean Energy for America Act (S. 1298) could move to the Senate floor on the split vote under the power-sharing agreement between Republicans and Democrats, but it is unlikely to do so as stand-alone legislation.

The bill is better viewed as a marker laid down by Senate Finance Committee Chair Ron Wyden, D-Ore., as part of ongoing negotiations over what to include in an energy tax package in a broader infrastructure bill. The proposal aligns fairly closely with the energy tax package detailed in Treasury’s “Green Book” proposal. Both would enhance current incentives with a refundable direct pay mechanism and labor standards. But there are also key differences.

Unlike the Treasury proposal, the Wyden bill would generally replace the Section 48 and Section 45 credits for various sources of alternative energy with technology-neutral credits for producing electricity below an emissions threshold. A credit would also be available for combined heat and power systems based on emissions standards. In most cases, the credits would be available for the same technologies qualifying under Section 45 and Section 48 and the Green Book, and would operate in a similar way. Under the Wyden bill, taxpayers could elect to claim a credit similar to the current Section 45 credit, which would be equal to 2.5 cents per kilowatt-hour for electricity produced in the first 10 years after a facility is placed in service. Unlike the Green Book, this version of the credit would be available for solar technology, which does not currently qualify for the Section 45 credit.

Taxpayers could alternatively elect to claim a credit similar to the current Section 48 credit equal to 30% of the basis. Certain transmission and power storage improvements could also qualify for the 30% credit, as could homeowners.

The credits would begin to phase out once certain nationwide emission standards were reached. There was bipartisan agreement to add an amendment increasing credit amounts 25% for “nascent” technologies and to add a clean energy credit. The Wyden bill would also repeal “normalization” rules requiring certain regulated utilities to incorporate the value for credits in customer pricing over a number of years, something not in other Democratic energy bills.

The bill would replace the current alternative and biofuel credits for specific fuels with a new technology-neutral fuel tax credit that would offer a credit up to $1 per gallon for fuels with a “well-to-wheel” emissions profile lower than set standards. The credits would be refundable and phase out when nationwide emissions targets were reached.

The proposal would replace the current electric vehicle credit, which offers up to $7,500 per vehicle but phases out for each manufacturer when they reach sales thresholds, with a new uncapped credit of 30% of the cost of zero-emission vehicles. The credit would begin to phase out once electric cars represent more than 50% of annual vehicle sales. The Green Book does not propose to extend or replace the current electric vehicle credit for consumer vehicles, but would create a new more generous credit for heavy duty vehicles.

The proposal would also reform incentives for energy-efficient homes and increase the Section 179D deduction for energy-efficient commercial building improvements from a maximum of $1.80 per square foot to $5 per square foot under a new sliding scale for energy efficiency.

Finally, the legislation would repeal a long list of tax incentives for “fossil fuels,” including:

  • The two-year amortization for geological and geophysical expenditures
  • The seven-year cost recovery for Alaskan and natural gas pipelines
  • Deductions for tertiary injectants
  • Expensing for intangible drilling costs
  • Percentage depletion
  • Capital gains treatment of certain coal royalties
  • The enhanced oil recovery credit
  • The marginal wells credit
  • The advanced coal project credit
  • The coal gasification credit
  • The exceptions for oil and gas publicly traded partnerships to avoid being taxed as C corporations

Contact:
Dustin Stamper
Managing Director
Washington National Tax Office
T +1 202 861 4144

Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.