Early on November 19, 2021, the House passed H.R. 5376, the Build Back Better Act (the “Act”) along partisan lines. Passage came after the Congressional Budget Office released projections on the overall net cost of the package.1 The Act will now make its way to the Senate where consideration is expected to begin after the Thanksgiving holiday. A number of Democratic senators have expressed reservations over the Act and, as such, revisions to the proposed legislation are expected. If changes are made, the final version of the legislation will need to be approved by both the Senate and the House.
Our previous coverage of the first round of legislative text released by the House can be found here. As noted in that coverage, the Act would extend the current production and investment tax credits (albeit under a different framework) for projects beginning construction before January 1, 2027. For projects beginning construction in 2027 and beyond, the Act would create a new technology-neutral credit structure whereby taxpayers could elect a production-based or investment-based tax credit.
The Act would also extend and enhance the carbon sequestration tax credit, create a new tax credit for hydrogen production, and add a “direct pay” option for certain tax credits. In addition, the Act would expand the definition of “qualifying income” for purposes of the publicly traded partnership rules to include income derived from various renewable energy activities. The Act also includes a provision imposing a corporate minimum tax (generally equal to 15% of a corporation’s book income)—however, certain renewable credits would be available to offset this minimum tax.
Since release of that initial text and our prior coverage, the House released a modified version of the proposals. Among the changes made to the legislation passed by the House are the following:
- Section 45 Production Tax Credit (“PTC”)
- Qualified facilities located in “energy communities” (i.e., a coal mine which closed after December 31, 1999 or a coal-fired electric generating unit which was retired after December 31, 2009) would qualify for an additional 10% PTC (prior to the application of the domestic content bonus rate).
- Section 48 Investment Tax Credit (“ITC”)
- The credit expiration for projects beginning construction before January 1, 2027 and not placed in service before January 1, 2029 would be eliminated.
- There would be a 13-year ITC extension, through 2033 (with phasedown beginning in 2022) for (i) waste energy recovery property, (ii) equipment which uses the ground or ground water as a thermal energy source, and (iii) combined heat and power system property.
- The definition of ”energy communities” would be made consistent with the definition used in Section 45 (i.e., oil and gas communities would be excluded).
- Section 48D ITC for Transmission Property
- “Superconducting line” (i.e., a transmission line that conducts all of its current over superconducting material) would be added to the definition of a “qualifying electric transmission line.”
- Section 45Q Carbon Capture Extension
- Taxpayers would be eligible to receive the full credit amount without satisfying the wage and apprenticeship requirements if the project begins construction within 60 days after the date the Treasury Secretary publishes guidance on these requirements.
- Section 45X Clean Hydrogen PTC
- The clean hydrogen PTC would be revised by increasing the “applicable percentage” to –
- 100% if the lifecycle greenhouse gas emissions rate is less than 0.45 kilograms of CO2e (carbon dioxide equivalent) per kilogram of hydrogen,
- 4% if the lifecycle greenhouse gas emissions rate is between 1.5-0.45 kilograms of CO2e,
- 25% if the lifecycle greenhouse gas emissions rate is between 2.5-1.5 kilograms of CO2e,
- 20% if the lifecycle greenhouse gas emissions rate is between 4-2.5 kilograms of CO2e, and
- 15% if the lifecycle greenhouse gas emissions rate is between 6-4 kilograms of CO2e.
- The available ITC with respect to clean hydrogen production facilities that elect the ITC would be similarly modified.
- Section 45W Zero-Emission Nuclear Power PTC
- The zero-emissions nuclear PTC would be increased by reducing the “reduction amount” from 80% to 16% of gross receipts from any electricity produced by such facility and sold to unrelated persons.
- Section 45CC Clean Fuel Production Credit
- The fuel emissions factor would be reduced from 75 kilograms of CO2e per MMBtu to 50 kilograms.
- Corporate AMT
- A clarifying rule for related partnership groups would be added: If the financial results of a taxpayer are reported on the applicable financial statements for a group of entities that includes one or more partnerships, adjusted financial statement income would take into account the earnings of such partnerships in the same proportion as the taxpayer’s distributive share of items from the partnerships required to be included in gross income.
1 According to the Congressional Budget Office, the Act will add $367 billion to the deficit over the next ten years.