Energy Tax Law Alert: ODOE Issues Final Administrative Rules
On November 24, 2010, the Oregon Department of Energy ("ODOE") issued final permanent administrative rules (the "Permanent Rules") relating to the Business Energy Tax Credit ("BETC"). For a description of the BETC generally, see our previous alerts on November 5, 2009
, February 27, 2008
, and July 2, 2007
The Permanent Rules finalize and make some changes to temporary rules that ODOE issued on May 21, 2010 (the "May Temporary Rules"). ODOE issued the May Temporary Rules after the Oregon legislature passed HB 3680 (2010), which made significant changes to the BETC and granted ODOE substantial rulemaking authority. For a complete description of HB 3680, see our previous alert on March 24, 2010. Prior to finalizing the Permanent Rules, ODOE held one public hearing as well as interactive public meetings.
Overall, the Permanent Rules are very similar to the May Temporary Rules. ODOE did, however, incorporate many of the changes requested during the public meetings. Notably, the Permanent Rules clarify when a final application is considered complete (which addresses a potential "disappearing BETC" issue of concern to some taxpayers), relax the rules for amending a preliminary certificate, and add a safe harbor deadline to file an application for final certification prior to the June 30, 2012 sunset of the program.
The Permanent Rules, like the May Temporary Rules, state that they apply to all pending preliminary and final applications received on or after July 1, 2009.
Elimination of Disappearing BETC
HB 3680 provides that the five-year period to claim the BETC starts when a "completed application" for final certification is filed with ODOE. HB 3680 also provides that a pass-through partner is unable to claim a BETC for a tax year prior to the tax year in which the pass-through partner purchased the BETC. Because it is possible for an applicant to finish a project and file its application for final certification in, for example, 2011 but not sell the BETC until 2012, it was unclear whether a portion of the BETC would be lost.
The Permanent Rules amend the definition of "completed application" and the final certification procedure language to provide that a final certification application will not be considered complete until an applicant has transferred the BETC. The Permanent Rules provide that the five-year BETC period does not start to run until ODOE has received a pass-through partner agreement form from the pass-through partner. This should allow most, if not all, pass-through partners to claim all five years' worth of the credit. The Permanent Rules also provide that when an applicant transfers the BETC to more than one pass-through partner, the final application is considered "completed" for each portion of the BETC that is transferred, and the five-year BETC period begins to run when ODOE receives that completed application. For the remainder not yet transferred the application will be held open for 18 months after ODOE has received the first pass-through partner agreement. After the 18-month period, however, the five-year BETC period will begin to run for the remainder not yet transferred.
Sunset Safe Harbor and Procedure
Pursuant to HB 3680, the BETC is scheduled to "sunset" after June 30, 2012. The law provides that ODOE cannot issue final certificates for the BETC after that date. The Permanent Rules provide that ODOE will grant final certificates for "completed applications" received by April 30, 2012.
The sunset statute also creates a problem for applicants that wish to sell a BETC to a pass-through partner. To comply with the safe harbor, those applicants would be required to complete a project and obtain a completed pass-through partner agreement prior to April 30, 2012. The sunset statute makes it unclear whether an applicant that is unable to transfer its BETC prior to the safe harbor date would lose its ability to transfer the BETC. In response to this issue, the Permanent Rules provide that ODOE will issue a final certificate directly to the applicant, if the applicant has indicated its intention to transfer the BETC and has filed an application for final certification (except for the pass-through partner agreement) at least 60 days prior to the statutory sunset date. The Permanent Rules do not indicate, however, whether the applicant can then transfer the final certificate to a pass-through partner. ODOE has indicated informally that the Department of Revenue would be required to draft rules to allow such a transfer.
Preliminary Certification Amendment Procedures
In the May Temporary Rules, ODOE amended the rule governing an applicant's ability to amend a preliminary certificate issued on or after July 1, 2009. For those projects, an applicant was authorized to amend its application only if there had been an "equipment modification within 10 percent of the approved specifications." For preliminary certificates issued on or before July 1, 2009, an applicant could also amend its certificate if there had been a change in ownership or if the amendments to the facility had increased its potential output or improved its efficiency but not otherwise resulted in an increased potential tax credit.
The Permanent Rules eliminate any distinction between preliminary certificates issued before and after July 1, 2009. Rather, the Permanent Rules apply the same amendment requirements to all preliminary certificates. The Permanent Rules provide that a preliminary certificate can be amended in the following circumstances:
- An equipment modification within 10 percent of the approved specifications;
- A change in ownership; or
- An increase in a facility's output or other improvements to the facility that do not increase the potential tax credit.
In addition, the Permanent Rules clarify that a modification to equipment within 10 percent of approved specifications relates to the capacity of the equipment.
Other Changes Compared to the May Temporary Rules
- The Permanent Rules amend the definition of "facility" to provide that solar arrays erected on a dwelling must be used exclusively for business purposes and are required to be separately metered from the residence to qualify for a BETC. In addition, the final rules provide that "facility" does not include a renewable energy system or device that is placed on a residence, unless the residence is used exclusively as a rental dwelling.
- The Permanent Rules amend the definition of "rental weatherization" to provide examples of an eligible second weatherization measure when an applicant is required to perform a minimum of two measures. Such measures include adding flooring, attic, ceiling, or wall insulation; replacing exterior doors; and duct sealing.
- The Permanent Rules delete the definitions of "commissioning," "dwelling unit," and "industrial process energy facility."
- The Permanent Rules amend the definition of "transportation facility."
The Oregon legislature will meet again in 2011. Because the current economic downturn continues to affect Oregon, the BETC could face further changes or cutbacks. In addition, it is unclear whether the Department of Revenue will issue rules that will provide a mechanism for an applicant to transfer a final certificate after the sunset date of June 30, 2012.
If you have further questions, please contact:
Robert Manicke at (503) 294-9664 or email@example.com
Stephen Hall at (503) 294-9625 or firstname.lastname@example.org
Chris Heuer at (503) 294-9206 or email@example.com
William Holmes at (503) 294-9207 or firstname.lastname@example.org
Adam Kobos at (503) 294-9246 or email@example.com
Kevin Pearson at (503) 294-9622 or firstname.lastname@example.org
IRS Circular 230 notice: Any tax advice contained herein was not intended or written to be used, and cannot be used, by you or any other person (i) in promoting, marketing or recommending any transaction, plan or arrangement or (ii) for the purpose of avoiding penalties that may be imposed under federal tax law.