In August 2007, Kentucky enacted the Incentives for Energy Independence Act (IEIA) (KRS 154.27-010 through 154.27-090). As with many Kentucky administered tax incentive program, the inducements under the IEIA are negotiated by the Kentucky Cabinet for Economic Development (subject to final approval by the Kentucky Economic Development Finance Authority (KEDFA)). For renewable energy facilities, the incentives may include:
- Credit of up to 100% of the Kentucky income tax or the limited liability entity tax;
- sales and use tax refunds of up to 100%; and/or
- a wage assessment credit of up to 4% for associated employees on their income tax.
Eligible companies include any company that constructs, retrofits, or upgrades a facility to:
- Increase the production and sale of alternative transportation fuels;
- Increase the production and sale of synthetic natural gas, chemicals, chemical feed stocks, or liquid fuels from coal, biomass resources, or waste coal through a gasification process;
- Increase the production and sale of energy-efficient alternative fuels; and/or
- Generate electricity for sale through alternative methods such as solar power, wind power, biomass resources, landfill methane gas, hydropower, or other renewable resources..
To qualify, the facility must be:
- An alternative fuel facility or gasification facility that is carbon capture ready and uses oil shale, tar sands, or coal as the primary feedstock. The minimum capital investment is $100 million.
- An alternative fuel facility or gasification facility that is carbon capture ready and uses biomass resources as the primary feedstock. The minimum capital investment is $25 million.
- An energy-efficient alternative fuel facility that produces a homogeneous fuel from processes designed to densify feedstock coal, waste coal, or biomass resources. The minimum capital investment is $25 million.
- An alternative fuel facility that uses natural gas or natural gas liquids as the primary feedstock. The minimum capital investment is $1 million.
- A renewable energy facility that meets the minimum electrical output requirement of at least one megawatt of power for: wind, hydro, biomass, landfill methane; or generation of 50 KW for solar. The minimum capital investment is $1 million. The electricity from a renewable energy facility must be sold to an unrelated party.
- A carbon dioxide transmission pipeline. The minimum capital investment is $50 million.
Tax incentives are available for up to 25 years for the following:
- Sales and Use Tax Refunds: Refunds of up to 100 percent of the taxes paid on tangible personal property used to construct, retrofit or upgrade a facility, on materials, machinery and equipment used to construct, retrofit or upgrade an eligible project.
- Severance Tax: Refunds of up to 80 percent of the taxes paid on the purchase or severance of coal or natural gas.
- Tax Credits: Credit up to 100 percent of corporate income or Limited Liability Entity Tax liability arising from the project.
- Wage Assessment: Approved companies may require employees whose jobs were created as a result of the associated project to pay a wage assessment of up to 4% of their gross wages. Employees will be allowed a Kentucky income tax credit equal to the assessment withheld from their wages. Thus, incentives up to four percent (4%) of gross wages of each employee. Additionally, advanced disbursement of post-construction incentives using a formula based on percentage of labor component in construction and the utilization of Kentucky residents in construction phase may be available. Advance disbursement repayments may be based upon incentives earned in the future.
The maximum recovery for a single project from all incentives may not exceed 50% of the capital investment.
Prior to making any capital investments, the company must submit an application to KEDFA, with a $1,000 application fee. Each incentive is negotiated on a case-by-case basis, but not to exceed 25 years from the project’s activation date. There is also a 0.25% administrative fee assessed after the final incentives package is settled (capped at $50,000). The process is as follows:
- Application is made to KEDFA, which verifies
i. Applicant has met all statutory and regulatory requirements.
ii. Applicant has secured or is in process of securing all necessary permits, certificates or approvals.
iii. Proposed facility is carbon capture ready, if applicable.
iv. Applicant has a plan that includes a projected number of Kentucky residents to be employed at the facility after completion and during construction.
- Application is forwarded to the Office of Energy Policy and Department of Revenue for review.
- Application may also be forwarded to independent consultants, as necessary.
- Comments are received from external reviews.
- KEDFA determines whether project appears to be eligible for the program and, if so, grants preliminary approval. Prior to final approval, the applicant must provide all supporting data requested by KEDFA, secure all required permits or take appropriate steps to do so, and cooperate with KEDFA to obtain opinions or recommendations from any outside consultants.
- A labor market analysis must be prepared by a Kentucky Post-Secondary Education Institution in the region where the project will be located.
- A Memorandum of Agreement is entered into between KEDFA and Applicant.
- Terms of a Tax Incentive Agreement (TIA) are negotiated to include the type of incentive and amount and the agreement activation date is established for a period not to exceed five years from final approval.
- Final Resolution must then be approved by KEDFA authorizing the execution of the tax incentive agreement.
- Once the TIA activation occurs, the company begins incurring recoverable costs or engaging in recoverable activity and, then, incentives are available at the appropriate time.
As with most Kentucky tax incentive programs, there are no specific property tax incentives. KRS §§ 154.27-010 et seq.
In addition, there is also the Tennessee Valley Authority’s (“TVA’s”) Renewable Standard Offer program, which provides power purchase contracts of up to 20 years to developers of renewable projects (biomass combustion, biomass gasification, methane recovery, wind and solar) greater than 50 KW and up to 20 MW in size. To be eligible, the project must have gone online after October 1, 2010. The energy seller must provide TVA with project financing and interconnection agreements as well as metering installation plans, and must sign over title to renewable energy certificates and other environmental attributes generated by the system.
Renewable and Efficiency Portfolio Standard (REPS)
By 2025, the REPS provides for twenty-five (25%) percent of Kentucky’s energy needs being met by reductions through energy efficiency and conservation, and through the use of renewable resources (1,000 MW). Kentucky’s strategy has been focused on solar development from residential and commercial buildings. However, more utility-scale solar facilities are planned. As to wind, Kentucky identified class 3+ areas, whose development may result in small-scale wind systems with the capacity to generate 34 MW of wind energy power.
About the Author:
Mark Lansing focuses his practice on property tax & condemnation matters with respect to energy, industrial and commercial properties. He achieves significant property tax savings and assessment reductions for his clients through litigation, negotiations (settlements), due diligence reviews and alternative agreements (e.g., PILOTs). Mark assists clients with their valuation of complex property, and through real property tax management. Mr. Lansing also works with energy, industrial and commercial companies in buying, building and operating facilities to effectively manage their property taxes, including due diligence review in the purchase or development phase, and representation before administrative agencies.
As an experienced trial lawyer, Mark has successfully represented clients in settlement negotiations, motions, trials and appeals at all levels of state and Federal Courts (including, Circuit Courts of Appeal). Mark is also well published in property tax and condemnation valuation matters. Mark may be reached in our Washington, D.C. office at 202.466.5964, or via email at email@example.com and you may visit his bio here.