Alternative Energy Production Tax Credit (Personal) (Pennsylvania)
Last modified on October 11, 2009.
Financial Incentive Program
In July 2008, Pennsylvania enacted H.B. 1 during a special legislative session devoted solely to energy policy. One of the provisions included in this legislation is an tax credit of 15% on investments in alternative energy production projects located within the state of Pennsylvania with an expected useful life of 4 years or longer. The term "alternative energy production project" is broadly defined to include a wide variety of technologies, including facilities that produce energy from wind, solar, biomass, geothermal, waste coal, waste energy, and alternative fuels as defined under the state [[Alternative Energy Portfolio Standard (AEPS).] Also eligible are facilities that manufacture alternative energy and energy efficiency products and components; facilities that perform alternative energy research and development; and projects for the development or enhancement of rail transportation systems that deliver alternative fuels or use high efficiency locomotives. Eligible taxpayers are those who pay personal income taxes, corporate income taxes, or the capital-stock & foreign franchise tax (referenced in the legislation as Articles III, IV, and VI of the Pennsylvania Tax Reform Code of 1971). Any taxpayer that "develops or constructs" an eligible project may apply for the tax credit.
Applications for the tax credit must be submitted to the Department of Revenue by September 15 of each year for project investments made during the previous calendar year. For 2009 applications, investments must have been made between July 9, 2008 (the effective date of the legislation) and December 31, 2008 in order to qualify for a tax credit.
The tax credit is available for all development, equipment and construction costs paid for qualifying alternative energy projects, but may not exceed $1 million per taxpayer per year. Taxpayers must deduct the amount of any federal, state, and local government grant or subsidy when determining their cost basis. Taxpayers that are unable to use whole amount of the credit during the year in which it is first approved may carry forward the remaining balance for up to five years following the first year of eligibility. Credits may not be carried back or used to generate a tax refund. For individuals it is important to note that the tax credit may not be applied to a joint tax return.
With the approval of the DEP, credits may be sold or assigned to another party if no claim for the credit is made within one year of application approval. Any party that purchases or is assigned a credit must claim the tax benefit immediately and may not carry any portion forward to another year. The amount of the credit claimed by a purchaser or an assignee may not exceed 50% of their qualified tax liability for that year.
Pass-through entities, defined as partnerships and S-corporations, are permitted to transfer all or part of the credit to shareholders, members, or partners in proportion to their share of the distributed income. Transferred credits must be redeemed during the year they are transferred. Credits obtained in this fashion do not effect alternative energy production tax credits to which a person is otherwise entitled. In other words, the credit available to a homeowner that installs a qualified system is treated entirely separately from credits transferred to the homeowner from a pass-through entity.
The law also defines the total amount of tax credits that may be approved each year as follows:
- FY 2009 through FY 2012: $5 million
- FY 2013: $8 million
- FY 2014 through FY 2015: $10 million ]]
- FY 2016: $2 million
If approved applications exceed these limits in a given year, each taxpayer's credit will be pro-rated so that the total value of approved credits complies with these restrictions. No credits may be approved after December 31, 2016.
The DEP is required to submit a report to the legislature by September 1st of each year summarizing the effectiveness of the credit and including information such as claimant names, credits claimed, project types, and jobs created. Questions on tax credit applications and approvals should be directed to the Department of Environmental Protection, Office of Energy and Technology Deployment. The program website also contains the tax credit guidelines, application, and a list of frequently asked questions.
- About DSIRE Database of State Incentives for Renewables & Efficiency accessed September 9, 2009