1999 Tax Law Changes - Business and Energy Tax Credits
VIII. BUSINESS AND ENERGY TAX CREDITS
Article 3B
Name of Article: The name of Article 3B of Chapter 105 of the General Statutes was changed from "Business Tax Credit" to "Business and Energy Tax Credits." The change reflects the addition of two new tax credits to the Article. New G.S. 105-129.16A in that Article is a consolidation of various energy tax credits that were previously in Article 4. New G.S. 105-129.16B in that Article is a new affordable housing tax credit. As enacted, both the new credits in Article 3B are numbered G.S. 105-129.16A. The Department asked the Codifier of Statutes, which is the Attorney General's Office, to designate the energy tax credit as G.S. 105-129.16A and the affordable housing credit as G.S. 105-129.16B.
(Effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 2, S.L. 99-342 and SB 1115, s. 11, S.L. 99-360.)
Sunset of Credits in Article 3B: The tax credit in G.S. 105-129.16 for investing in business property is repealed effective for property placed in service on or after January 1, 2002. The new consolidated tax credit in G.S. 105-129.16A for investing in renewable energy property is repealed effective for property placed in service on or after January 1, 2006. The repeal of the energy credit is not clear from the session laws and will be clarified by legislation in 2000. The credit for low-income housing in G.S. 105-129.16B is repealed effective for buildings to which federal credits are allocated on or after January 1, 2006.
(SB 1115, s. 1, S.L. 99-360.)
G.S. 105-129.15 - Definitions: A previous clarifying change made to this statute takes effect for tax year 1999, and a new amendment to the statute renumbers an existing definition and adds three new definitions. The 1998 General Assembly amended the definition of "cost" to clarify how to determine the cost of property acquired in a capital lease. The same change was made to the definition of "cost" that applies to the Article 3A tax credits.
The three new definitions apply to the consolidated credit for investing in renewable energy property set out in new G.S. 105-129.16A. The new definitions and the renumbered definition are as follows:
Hydroelectric generator: The term is defined as "a machine that produces electricity by waterpower or by the friction of water or steam." This is the same definition that was in repealed G.S. 105-130.33, the corporate income tax credit for installation of a hydroelectric generator, and repealed G.S. 105-151.7, the repealed individual income tax credit for installation of a hydroelectric generator.
Purchase: This definition was renumbered from subdivision (3) to subdivision (4) to keep the definitions in alphabetical order. Renewable biomass resources: The term is defined as "organic matter produced by terrestrial and aquatic plants and animals, such as standing vegetation, aquatic crops, forestry and agricultural residues, landfill wastes, and animal wastes." This is the same definition, without examples, that was in repealed G.S. 105-130.30, the corporate income tax credit for construction of a methane gas facility, and repealed G.S. 105-151.10, the individual income tax credit for construction of a methane gas facility.
Renewable energy property: This definition has no counterpart in the repealed energy tax credits. The term includes biomass equipment, hydroelectric generators, solar energy equipment, and wind equipment. The definition combines parts of several of the credits, such as the solar energy credits in repealed G.S. 105-130.23 105-130.32, 105-151.2, and 105-151.8, and changes them. The category of solar energy equipment, for example, is expanded to include equipment used for daylighting, distillation, desalination, and detoxification, and the requirement that solar energy equipment meet the performance critieria of the Secretary of Revenue has been deleted.
(Clarifying change to "cost" effective for taxable years beginning on or after January 1, 1999; SB 1569, S.L. 98-55; other definition changes effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 2, S.L. 99-342.)
G.S. 105-129.16A - Credit for Investing in Renewable Energy Property: The credit set out in this section replaces the following energy tax credits, which are repealed:
Repealed Corporate Income Tax Credits
G.S. 105-130.23, Credit for solar energy equipment in residential buildings
G.S. 105-130.26, Credit for conversion of industrial boiler to wood fuel
G.S. 105-130.27A, Credit for construction of a peat facility
G.S. 105-130.29, Credit for construction of an olivine brick facility
G.S. 105-130.30, Credit for construction of a methane gas facility
G.S. 105-130.31, Credit for installation of a wind energy device
G.S. 105-130.32, Credit for installation of solar energy equipment for the production of heat or electricity in certain processes
G.S. 105-130.33, Credit for installation of a hydroelectric generator
Repealed Individual Income Tax Credits
G.S. 105-151.2, Credit for solar energy equipment
G.S. 105-151.5, Credit for conversion of industrial boiler to wood fuel
G.S. 105-151.7, Credit for installation of a hydroelectric generator
G.S. 105-151.8, Credit for installation of solar energy equipment for the production of heat or electricity in certain processes
G.S. 105-151.9, Credit for installation of a wind energy device
G.S. 105-151.10, Credit for construction of a methane gas facility.
New Credit
Subsection (a) of new G.S. 105-129.16A provides a tax credit equal to 35% of the cost of renewable energy property constructed, purchased, or leased by a taxpayer and placed into service in this State during the taxable year. If the property serves a single-family dwelling, the credit is taken for the taxable year in which the property is placed in service. For all other property, the credit is taken in five equal installments beginning with the year the property is placed in service. The credit can be taken against franchise tax or income tax.
Subsection (b) provides that the credit expires and any remaining installments of the credit are not claimed if the property is disposed of, taken out of service, or moved out of the State during the five-year installment period.
Subsection (c) imposes ceilings on the credit. For nonresidential property, the credit ceiling is $250,000 per installation. For residential property, the ceilings are:
- $1,400 per dwelling unit for solar energy equipment for domestic water heating
- $3,500 per dwelling unit for solar energy equipment for active space heating, combined active space and domestic hot water systems, and passive space heating
- $10,500 per installation for any other renewable energy property for residential property.
Subsection (d) prohibits a taxpayer from claiming a credit for renewable energy property in this section if the taxpayer is claiming any other credit allowed in Chapter 105 with respect to the property. A taxpayer may not take a credit for property the taxpayer leases from another unless the taxpayer obtains the lessor's written certification that the lessor will not claim a credit with respect to the property.
(Effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 2, S.L. 99-342.)
G.S. 105-129.16B - New Low-Income Housing Credit: This new statute creates a credit for investing in low-income housing. The credit is effective for taxable years beginning on or after January 1, 2000, and expires effective for buildings to which federal credits are allocated on or after January 1, 2006. A taxpayer is allowed a credit if it qualifies for a federal income tax credit for low-income housing under section 42 of the Code and meets any of the following additional requirements:
- The property is located in a Tier 1 or 2 area.
- The property is located in a Tier 3 or 4 area and 40% of its residential units are both rent-restricted and occupied by individuals whose income is 50% or less of the area median gross income.
- The property is located in a Tier 5 area and 40% of it's residential units are both rent-restricted and occupied by individuals whose income is 35% or less of area median gross income.
The amount of the credit is equal to 75% of the total federal credit if the building is located in a Tier 1 or Tier 2 area. For buildings in other tier designations, the credit is equal to 25% of the total federal credit. The credit is taken in five equal installments beginning in the first taxable year in which the federal credit is taken. The federal credit is the total allowed during the 10-year federal credit period plus the disallowed first year credit allowed in the 11th year. The total federal credit is calculated based on the qualified basis as of the end of the first year of the credit period and is not recalculated to reflect subsequent increases in the basis.
The credit is forfeited if the taxpayer becomes ineligible for the federal credit. If the taxpayer is required to recapture all or part of the federal credit claimed, it becomes liable for all past taxes avoided as a result of the credit plus interest. The due date for past tax and interest is 30 days after the credit is forfeited.
(Effective for taxable years beginning on or after January 1, 2000, and expires effective for buildings to which federal credits are allocated on or after January 1, 2006; SB 1115, s. 1 and 11, S.L. 99-360.)
G.S. 105-129.17 - Conforming Changes: This statute was amended to refer to credits rather than a single credit. This reflects the addition of the new energy credit in G.S. 105-129.16A and the new low-income housing credit in G.S. 105-129.16B. Before the addition of these credits, Article 3B contained only one credit, the credit in G.S. 105-129.16 for investing in business property.
(Effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 2, S.L. 99-342 and SB 1115, s. 13, S.L. 99-360.)
G.S. 105-129.18 - Conforming Changes: This statute was rewritten to refer to one of several credits rather than a single credit. This reflects the addition of the new energy credit in G.S. 105-129.16A and the new low-income housing credit in G.S. 105-129.16B. Before the addition of these credits, Article 3B contained only one credit, the credit in G.S. 105-129.16 for investing in business property.
(Effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 2, S.L. 99-342 and SB 1115, s. 14, S.L. 99-360.)
G.S. 105-129.19 - Information on New Credits: This statute was rewritten to impose new reporting requirements on the Department. The new reporting requirements are for the new energy tax credit in G.S. 105-129.16A and the new low-income housing credit in G.S. 105-129.16B. The Department's annual report to the Legislative Research Commission and the Fiscal Research Division of the General Assembly must include the cost of renewable energy property for which an energy credit is claimed and the location of each building for which a low-income housing credit is claimed.
(Effective for taxable years beginning on or after January 1, 2000; HB 1472, s. 2, S.L. 99-342 and SB 1115, s. 15, S.L. 99-360.)