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Business Energy Tax Credit Pass-Through
The State of Oregon has a Business Energy Tax Credit Program. This program encourages businesses to engage and invest in certain energy saving activities by issuing them tax credits. A good example would be a business that makes wind turbines. Since not all of these businesses need or want these energy tax credits that are due to them, the State of Oregon allows these businesses to sell these tax credits. The method for selling the credits is strictly supervised by the Oregon Energy program. At the end of the transfer transaction, the buyer receives a credit certificate directly from the State of Oregon.
The program that allows you to buy the tax credits of others is called The Business Energy Tax Credit Pass-through Option. As outlined above, the goal of the project is to transfer a tax credit to a pass-through partner in return for a lump-sum cash payment upon completion of the project. The Pass-through Option now allows non-profit organizations, schools, governmental agencies, tribes, other public entities and businesses without tax liability to use the Business Energy Tax Credit by transferring their tax credit for an eligible project to a partner with a tax liability.
A tax credit is a dollar for dollar reduction of you Oregon taxes and is much better than a tax deduction. For example, if you owed $7,000 of taxes on your Oregon return, and you had purchased $6,000 of Oregon energy credits, then the net amount due on your return would only be $1,000.
RATES:
When the Pass-through Option is used, the pass-through partner pays the project owner a lump-sum payment calculated using the pass-through rate. The pass-through rate takes into account the value of the money over time and other factors. The Oregon Department of Energy reviews and sets the pass-through rate. The pass-through rate used is the rate in effect at the time the Oregon Department of Energy receives the Pass-through Agreement. The pass-through payment is paid before the Final Tax Credit Certificate is issued to the pass-through partner.
The rates depend on if the credit is a 35% or 50% credit as well as how quickly the credit can be used, either all in 1 year or over 5 years. The 35% or 50% relates to the business that generated the credits and if the costs / project qualified for either a 35% or a 50% rate. We provide this information to you as it helps to understand the pricing of the credits.
The current rates to purchase the credits are as follows:
• The cost to buy a 35% credit that can be used in full in 1 year is 30.5%.
• The cost to buy a 35% credit that can be used over 5 years is 25.55%.
• The cost to buy a 50% credit that can be used in full in 1 year is 43.50%.
• The cost to buy a 50% credit that can be used over 5 years is 33.50%.
Examples:
• If there was $10,000 of qualified expenses in a 35% one year project, then there would be a $3,500 credit available to take in full in one year as it relates to these costs. The cost to purchase the $10,000 of credits would be $3,050 ($10,000 * 30.5%)
• If the project was a 50% five year project, then the amount of the tax credit is $5,000. This amount would be taken over 5 years and the cost would be $3,350.
PASS-THROUGH PARTNER:
Project owners are responsible for securing their own pass-through partner. The Oregon Department of Energy cannot guarantee pass-through partners for any project owners, but they can most certainly assist you. In addition, Napier and Company is set up with The Oregon Department of Energy to work directly with them to secure and facilitate the transaction on behalf of our clients.
If you would like assistance in finding a pass-through partner for your project, please contact us so that we can assist you with the amount of credit that may make sense for you as well as help facilitate the purchase of the credits.
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