President Obama’s recently released budget proposal for the 2017 fiscal year repeats many of his past energy-related tax proposals, including a permanent extension of the renewable energy production tax credit and a provision making it refundable. Making the production tax credit permanent and refundable signals the administration’s continued strong support for renewable energy. This On the Subject summarizes the key energy-related tax provisions contained in the budget proposal and detailed further in the US Department of the Treasury’s general explanation of the proposal.
Justin Jesse focuses his practice on US and international tax and tax controversy. He advises clients on all aspects of tax disputes, including cases before the US Tax Court, US district courts and the Internal Revenue Service (IRS). Such matters have included disputes relating to captive insurance, research and development credits, transfer pricing and tax advantaged transactions. He has also represented clients before Congress relating to investigations of tax-related matters. Read Justin Jesse's full bio.
On December 18, 2015, President Barack Obama signed into law the Consolidated Appropriations Act, 2016 (H.R. 2029) (the Act), which included welcomed extensions to a number of energy tax incentives. The legislation includes multi-year extensions of the Section 45 Production Tax Credit (the PTC) and the Section 48 Investment Tax Credit (the ITC) for wind and solar projects tempered by a gradual phase out of the total credit available.
President Obama’s recently released budget proposal for the 2016 fiscal year repeats many of his past energy-related tax proposals, including a permanent extension of the renewable energy production tax credit and a provision making it refundable. Making the production tax credit permanent and refundable signals the administration’s continued strong support for renewable energy. This Special Report offers a summary of the key energy-related tax provisions contained in the budget proposal and discussed further in the U.S. Department of the Treasury’s general explanation of the proposal.
Tax reform has been a hot topic as of late, particularly for the energy sector. On September 17, 2014, the Senate Finance Committee continued the focus on energy tax reform by holding a hearing on “Reforming America’s Outdated Energy Tax Code.” The hearing followed a trio of major proposals released this past year to revise the Internal Revenue Code’s energy tax provisions. Last December, former Senate Finance Committee Chairman Max Baucus (D-MT) released a discussion draft proposal to streamline energy tax incentives to make them more predictable and technology-neutral. The proposal consolidates the various tax incentives for clean electricity into a single production tax credit (PTC) or an investment tax credit for all types of power generation facilities that are placed into service after December 31, 2016. In February, House Ways and Means Committee Chairman Dave Camp (R-MI) released a discussion draft of the Tax Reform Act of 2014, which sets forth a broad framework for general tax reform, including the phase out and repeal of many energy-related tax credits such as the PTC. And in March, the President released his fiscal year 2015 budget proposal, which contained energy-related tax provisions such as a permanent extension of the PTC and a provision making the PTC refundable thereby allowing taxpayers without current taxable income to take advantage of the credit. A detailed review and comparison of these three proposals can be found here.
The September hearing on energy tax reform included industry representatives and academic experts as witnesses. At the beginning of the hearing, Committee Chairman Senator Ron Wyden (D-OR) articulated three principles that he views are important in moving energy tax reform forward. First, “the tax code must take the costs and benefits of energy sources into account.” This would include factors “such as efficiency, affordability, pollution, and sustainability.” Second, he advocates replacing “today’s quilt of more than 40 energy tax incentives with a modern, technology-neutral approach.” Third, “the disparity in how the tax code treats energy sources – and the uncertainty it causes – has to end.”
During the course of the hearing, several topics were addressed. A central focus of the hearing centered on achieving “parity” between fossil fuels and renewable fuels through a technology neutral tax structure. The witnesses debated over various ways to achieve such parity, including the proposal to eliminate expensing for drilling intangible costs. Other topics addressed by the witness panel included how to encourage technology advancements in the transmission and storage of energy, allowing renewable energy production to be financed through master limited partnerships, and the carbon tax.
At the end of the hearing, Wyden again reiterated his focus for energy tax reform: a technology-neutral approach focused on performance not fuel type. Although it is unlikely that any broad tax reform will be accomplished in the near future, it appears that there is continued interest in structuring the energy tax provisions in a way that is technology neutral and that achieves parity between fossil and renewable fuels.
A recording of the hearing, as well as the prepared written statements of the witnesses and the introductory remarks of Senators Wyden and Orrin Hatch (R-UT), can be found here.
President Obama’s recently released budget proposal for the 2015 fiscal year contains energy-related tax provisions that include a permanent extension of the production tax credit (PTC) and a provision making it refundable. The recently released discussion draft of the Tax Reform Act of 2014 from House Ways and Means Committee Chairman Dave Camp also contains numerous energy-related tax provisions, but would phase out and repeal the PTC, along with many other energy-related tax credits. In late 2013, former Senate Finance Committee Chairman Max Baucus also released discussion drafts regarding energy-related tax provisions, including a proposal to consolidate the various tax incentives into a PTC or an investment tax credit. This Special Report provides a comparison of the key energy-related tax provisions in each proposal.