Final tax bill includes up to 80% offset for wind, solar tax credits

The application of the BEAT provision has been dialed back, however the law adds new complexity and it is not clear how investors will react to the new system.

December 15, 2017 Christian Roselund

Image: Pixabay

In the complicated and secretive process around the crafting of final tax reform bill by congressional Republicans, clean energy has been largely spared. First, provisions to weaken the Production Tax Credit (PTC) and eliminate the electric vehicle tax credit in the House version of the bill were removed. Second, a proposal to bring back a 20% Alternative Minimum Tax, which would have made tax credits largely useless, was taken out.

The last threat to clean energy in the final bill is the Base Erosion Anti-Abuse Tax (BEAT) provision. This lives on, albeit in a reduced fashion. According to the American Council on Renewable Energy (ACORE), business tax credits including the Investment Tax Credit (ITC) and PTC can now be used to offset up to 80% of the BEAT tax.

However, there is more to the story. The BEAT provision will lower the threshold that triggers application of the tax to multinational companies. In existing tax law 4% of a company’s total deductions could be associated with foreign activity, but the new law would bring that down to 2% for financial institutions and 3% for other companies.

Overall, ACORE says that the new law introduces complexity which may interrupt tax equity investment. “Many tax equity investors are potentially subject to the BEAT tax and will only able to determine if they are covered under the complex formula in the new law once they have completed their year-end tax calculations,” states ACORE.

The organization also notes that it will take time to assess the language in the new law and how financial institutions that invest in solar and wind will respond. Meanwhile, Advanced Energy Economy (AEE) has stated that it expects the new measure to lower the level of tax equity investment in renewable energy. “We are still concerned about the impact of certain elements of the bill, particularly the BEAT provision, which will likely undermine investment in advanced energy,” declares AEE.

pv magazine will bring you additional assessments of the expected impact on the tax equity market by industry analysts next week.

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