There are many credits available to manufacturers that can help minimize the tax bite. One such area that manufacturers should explore are credits that stem from "going green." These credits can be of great value, both from a standpoint of benefitting the environment and from a cost savings standpoint. Let's take a look at some of the credits that are available and how a manufacturer can meet the requirements for the tax benefits.

Investment tax credit ( IRC 48C)

  • Under Investment tax credit, the Internal Revenue Service provides for up to $10 billion in tax credits for qualified investments in new, expanded, or reequipped manufacturing facilities that produce certain emissions-reducing technologies.
  • The tax credit is equal to a specified energy percentage of the taxpayer's basis in qualified energy property that the taxpayer places in service during the tax year.
  • The credit rate (also known as the energy percentage) depends on the type of energy property and the year it is placed in service. The base credit rate is generally six percent and increases to 30% if certain requirements are met related to prevailing wages and apprenticeships.
  • The energy credit cannot be claimed for any property that is part of a facility that produces electricity for which the renewable electricity production credit is allowed.
  • Taxpayers may elect to claim the business energy credit instead of the renewable electricity production credit with respect to certain types of facilities.

Production tax credit (IRC 45)

  • The production tax credit is for electricity produced from qualified facilities using qualified energy resources.
  • The credit applies to each kilowatt of electricity that is (a) produced by the taxpayer during a 10-year period that begins on the date the qualified facility is placed in service, and (b) sold to an unrelated person during the tax year.
  • Qualified energy resources are wind, closed-loop biomass, open-loop biomass, geothermal energy, solar energy, small irrigation power, municipal solid waste, qualified hydropower production, and marine and hydrokinetic renewable energy.
  • A qualified facility is one that uses a qualified energy resource to produce electricity. The facility generally must be owned by the taxpayer, but some lessors may also claim the credit. Construction of a qualified facility must begin before January 1, 2025
  • Credit can be transferable to unrelated buyer for cash.
  • No credit is allowed for electricity produced at a qualified investment facility if the taxpayer elects to claim the business energy credit with respect to qualified property that is part of the facility.
  • In lieu of the credit, qualified taxpayers could apply for a federal grant of up to 30 percent of the cost of qualified facilities.

Advanced Manufacturing Production Credit ( IRC 45X)

  • The general business credit includes a credit for certain components produced and sold after December 31, 2022.
  • Clean energy components that qualify for the Manufacturing Production Credit include the PV module and some of its subcomponents, inverters, tracking system components, batteries, and certain critical minerals.
  • The amount of the credit is the sum of all credit amounts determined for each type of eligible component (including any incorporated eligible components) that the taxpayer, as part of its trade or business, produces in the United States or a U.S. possession and sells to an unrelated person during the tax year.
  • The credit is also an eligible credit that an eligible taxpayer may transfer to an unrelated taxpayer. Per the regulations, the production of eligible components may begin before December 31, 2022, but it must be completed and the component must be sold after December 31, 2022.
  • Under the regulations, "produced by the taxpayer" means a process conducted by the taxpayer that substantially transforms constituent elements, materials, or subcomponents into a complete and distinct eligible component that is functionally different from what would result from mere assembly or superficial modification of the elements, materials, or subcomponents. It does not include (i) partial transformation that does not result in substantial transformation, or (ii) minor assembly or superficial modification of the final eligible component.

The investment tax credit is received upfront, but the production tax credit is available based on the units of energy production. The energy production can be impacted by the weather conditions for solar and wind. The Manufacturing Production Credit is impacted by sales of the components.

HLB Gross Collins, P.C.'s Manufacturing, Distribution, and Supply Chain experts can help you evaluate these credits and their potential applicability to your operations. We are committed to helping clients navigate all potential tax savings opportunities and would be happy to discuss these credits as part of your overall tax strategy.