Production Tax Credit
The Production Tax Credits on renewable energy are a highly controversial energy policy credit that has been used to encourage the development of alternative energy sources.
The Production Tax credit is a credit given to companies that engage in the production and sale of electricity through the use of renewable energy technologies. It also includes provisions for the production of electricity by the use of refined coal or Indian coal. The Credit has been around for many years in different forms and has received several extensions over the years as the political climate has moved more toward renewable energy sources and less dependence on oil as an energy source.
The credit is claimed by an entity that is engaged in the actual production of electricity. The credit averages out to about 1.5 cents per kilowatt hour of power produced. The credit is claimed on Form 8835, Renewable Electricity, Refined Coal, and Indian Coal Production Credit. The total credit as determined on this form will then be entered on the appropriate line on Form 3800, Business Credits.
Form 8835 is one of those IRS forms that can cause a real headache trying to read and follow, but since the Production Tax Credit is geared toward Electricity producing companies, it can be assumed the form is attacked by some well trained professionals. The word, “qualified”, is used over and over in the instructions. The restrictions and qualifications are quite detailed and have changed as the Production Tax Credit has been changed by IRS regulations and legislative changes over the years.
The controversy surrounding the Production Tax Credit as a spur to such things as the wind driven electricity industry centers on the restrictions and qualifications. Critics claim that there are other spurs to development of renewable energy that work better than tax credits to corporations. They also claim the short extensions of the credit have created a “boom and bust” mentality in many companies. They rush production of renewable energy in order to qualify for the credit before a cut off date, and then abandon the projects when the credit is not in order any longer.
Many countries in Europe have taken the lead in the production of renewable energy by using incentives other than tax credits. When the credits are based on use of renewable energy rather than on the sale of it, a broader base of support is created extending to the distribution and end users. Regardless of the controversy, the Production Tax Credits as they exist are still important credits for a business that qualifies for them.