States and Cities Use Tax Incentives to Drive Green Economy
In 2010, Joseph Romm, a Senior Fellow at the Center for American Progress, testified before the House Ways and Means Committee and shared his findings about how certain provisions of the U.S. tax code inhibit cost-effective commercialization and deployment of clean, homegrown energy. Dr. Romm is well-respected and experienced in this area; during 1997, he was the acting assistant secretary at the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy, and from 1995 to 1998, he was principal deputy assistant secretary.
At the time of his testimony, Dr. Romm noted that the country’s tax policy needed a comprehensive energy strategy. While barriers to clean energy still exist through all levels of government, certain cities and states are deploying their own tax policy in a way that encourages environmentally conscious conduct.
Philadelphia
For example, in Philadelphia, lawmakers passed an ordinance which amends the green roof tax credit, effective for tax year 2016. PlanPhilly.com explained that the plan doubles the credit applicants may receive as a credit against their Business Income and Receipts Tax (BIRT) to 50 percent of the cost of constructing the green roof, not to exceed $100,000. The credit is currently 25 percent of the cost.
Councilwoman Blondell Reynolds-Brown introduced the plan in February. She justified doubling of the credit because “green roofs bring a sizable value to the property owner and the city. In addition, green roofs “control storm water, help curtail flooding, grow fresh fruits and vegetables, pump clean air back into the atmosphere and save property owners money by extending the life of the roof.” The city has allocated $1 million for the tax credits.
PlanPhilly revealed that Philadelphia’s green roof tax credit program has not paid out very much since its original roll-out in 2007. Only $42,670 in BIRT taxes have been waived for green-roof construction, which implies that only $170,000 has been spent in constructing tax-incentivized green roofs. Councilwoman Reynolds-Brown hopes the bill will encourage more business owners to consider green-roof construction.
New Mexico
The state of New Mexico is also incentivizing environmentally beneficial conduct with tax credits. Since 2007, the state has offered a Sustainable Building Tax Credit (SBTC), which the Manufactured Housing Research Alliance described as the “most aggressive green building tax credit legislation in the country.”
Lawmakers recently passed SB 279, the new sustainable building tax credit with water conservation requirements, the purpose of which is to encourage sustainable building. The credit is available for the renovation of an existing building in New Mexico into a sustainable building or the permanent installation of manufactured housing, regardless of where the housing is manufactured provided it qualifies as a sustainable building.
The amount of the tax credit is based on the certification level the building achieves in the LEED (Leadership in Energy and Environmental Design) green building rating system and the amount of qualified occupied square footage in the building, as set forth in the Income Tax Act, Section 7-2-18.19 and Corporate Income and Franchise Tax Act, Section 7-2A-21.
New Mexico offers several other Conservation and Preservation Tax Credits to reward efforts to preserve or conserve New Mexico’s cultural, agricultural, and natural resources.
North Dakota
In an October 2014 brief by the Pew Charitable Trusts, the organization discussed the interesting situation in North Dakota that allows the state to capitalize on two seemingly contradictory efforts simultaneously: dirty energy in the form of oil and gas development, and clean energy in the form of wind, solar, and biomass. Biomass is the use of plant, animal, or vegetable derived materials to create energy.
North Dakota’s clean energy sector is driven by its abundant wind resources. A leader in wind energy, the state’s wind resource potential nearly matches the capacity of all U.S. fossil fuel power plants. In 2013, 16 percent of North Dakota’s electricity came from wind, and between 2014 and 2023, officials expect to attract $2.9 billion in wind energy investment.
The state no longer offers a 3 percent tax credit for the installation of a biomass, geothermal, solar, or wind energy device in a building or on property owned or leased in North Dakota. Even so, Governor Dalrymple just signed House Bill 1228, which extends the carry-forward period for excess income tax credits derived from these devices. The bill provides that any excess tax credits earned for wind energy devices installed after September 30, 2008, and before January 1, 2012, may be used as a credit carryover to each of the thirty succeeding taxable years, up from twenty years.
In addition, a 10-year extension applies to tax credits for geothermal, solar, or biomass energy devices installed after September 30, 2008, and wind energy devices installed after December 31, 2011.
Texas
The Texas Comptroller of Public Accounts announced that over Memorial Day weekend, encompassing May 23-25, 2015, shoppers will get a tax break on the purchase of certain energy efficient household electronic devices identified with the familiar Energy Star logo:
Eligible devices include the following:
- Air conditioners priced at $6,000 or less (including delivery and installation charges);
- Refrigerators priced at $2,000 or less (including delivery and installation charges);
- Ceiling fans;
- Incandescent and fluorescent light bulbs;
- Clothes washers (Energy Star does not label clothes dryers because most use similar amounts of energy);
- Dishwashers;
- Dehumidifiers;
- Programmable thermostats (even though Energy Star stopped labeling programmable thermostats in 2009, any remaining inventory available for sale is subject to the tax holiday).
Delivery, shipping, handling or transportation charges connected to the sale of a qualifying item purchased tax free during the sales tax holiday also qualify for the exemption, whether separately stated or billed, or not.
Texas has been offering this Energy Star tax holiday since 2007, and with good reason: temperatures during the month of May tend to rise nearly ten degrees. In a major city like Houston, which is the largest city in Texas, and the fourth largest in the nation behind New York, Los Angeles and Chicago, that means increases from about 80 degrees Fahrenheit to almost 90 degrees. Record highs have been set at temperature levels between 90 degrees and 100 degrees during the month.
