Last year, the North Carolina General Assembly delayed the repeal of the tax credit for investing in renewable energy property in N.C. Gen. Stat. § 105-129.16A. Under the delayed sunset, the credit is repealed for renewable energy property placed into service on or after January 1, 2017. A taxpayer must meet certain conditions to be eligible for the delayed sunset (“Safe Harbor”), including filing an application on or before October 1, 2015. As the deadline approaches to file this critical document, significant questions remain.
Conditions for Qualifying for the Safe Harbor
Under N.C. Gen. Stat. § 105-129.16A(f), a taxpayer must meet four conditions to be eligible for the Safe Harbor.
Documents Required to Verify Third and Fourth Conditions
- An application for extension must be filed on or before October 1, 2015. The application must contain an estimate of the total cost of the project, the total anticipated credit to be claimed and the total size in megawatt capacity.
- The taxpayer must pay a fee of $1000 per megawatt of capacity, with a minimum fee of $5000.
- The taxpayer must incur a minimum percentage of the costs of the project on or before January 1, 2016.
- The taxpayer must complete a minimum percentage of the physical construction of the project on or before January 1, 2016. For projects with a total size of 65 megawatts of direct current, the minimum percentages are 80%. For projects larger than 65 megawatts, the minimum percentages are 50%.
To verify that the taxpayer has satisfied the third and fourth conditions listed above, the taxpayer is required to provide the following three forms of documentation on or before March 1, 2016:
Issues to be Resolved Regarding the Safe Harbor
- Written certification that, by January 1, 2016, at least the minimum percentage of the total cost of the project was incurred and at least the minimum percentage of the physical construction was complete.
- Notarized copy of a written report prepared by an independent engineer licensed in North Carolina with expertise in the construction and installation of renewable energy property stating that at least the minimum percentage of the project was constructed and installed before January 1, 2016.
- Notarized copy of a written report prepared by a certified public accountant licensed in North Carolina with expertise in accounting for and the taxation of renewable energy property stating that the minimum percentage of the total cost of the project was paid or incurred as determined under Internal Revenue Code § 461 (and other relevant sections) before January 1, 2016.
- Is the application fee based on direct current or alternating current?
- If a project will be sold before the end of the year, who should apply for the credit?
- What is included in the “physical construction” of the project?
- When is a cost “incurred”?
- When is a project complete?
Parker Poe’s tax lawyers and Energy Industry Team have the combined experience to efficiently and effectively assist clients with all aspects of a renewable energy project and, in particular, these questions related to qualifying for the Safe Harbor.
Kay Miller Hobart has over 20 years of experience in North Carolina taxation. Prior to joining Parker Poe, Ms. Hobart served as Special Deputy Attorney General for the North Carolina Department of Justice, where she led all of the state’s tax litigation. As Special Deputy, she also participated in the development and drafting of the state’s tax legislation and served as a senior advisor to the Secretary of Revenue and other high level state officials on matters of tax law and policy. Ms. Hobart currently advises businesses on all aspects of state and local taxation, including renewable energy tax credits.
Henry Campen leads Parker Poe’s multidisciplinary energy practice and helps developers of wind, solar, and biomass successfully navigate complex federal, state and local regulations for electric generating plants. He has been a successful advocate for regulated utility companies and has permitted over 2500 megawatts of renewable energy fueled by electrical generation.