CCH Tax Day Report
Hawaii legislation creates a new renewable fuels production credit against corporate and personal income tax and repeals the existing ethanol facility construction credit. The creation of the new credit and repeal of the existing credit are applicable to taxable years beginning after December 31, 2016, and the new credit is scheduled to be repealed on December 31, 2021. A summary of the new renewable fuels production credit is provided below.
Qualifications for Credit
To qualify for the renewable fuels production credit, the taxpayer’s production of renewable fuels must not be less than 15 billion British thermal units of renewable fuels per year.
“Renewable fuels” means fuels produced from renewable feedstocks. The fuels must be sold as a fuel and must meet the relevant ASTM International specifications for the particular fuel or other industry specifications for liquid or gaseous fuels, including methanol, ethanol, or other alcohols; hydrogen; biodiesel or renewable diesel; biogas; other biofuels; and renewable jet fuel or renewable gasoline. Renewable feedstocks include biomass crops, agricultural residues, oil crops, sugar and starch crops, other agricultural crops, grease and waste cooking oil, food wastes, municipal solid wastes and industrial wastes, water, and animal residues and wastes that can be used to generate energy.
For each taxpayer producing renewable fuels, the annual dollar amount of the renewable fuels production tax credit during the five-year credit period is 20 cents per 76,000 British thermal units of renewable fuels using the lower heating value sold for distribution in Hawaii. The amount of this credit claimed by a taxpayer cannot exceed $3 million per taxable year. No other personal or corporate income tax credit may be claimed for the costs related to renewable fuels production that are used to properly claim a renewable fuels production credit for the taxable year. Also, the total amount of certified credits cannot exceed $3 million per year.
In the case of a partnership, S corporation, estate, or trust, the distribution and share of the renewable fuels production credit will be determined pursuant to IRC §704(b).
The renewable fuels production credit claims must be filed on or before the end of the 12th month following the close of the taxable year for which the credit may be claimed. Failure to comply with this provision constitutes a waiver of the right to claim the credit.
The renewable fuels production credit is available for a maximum period of five consecutive years, beginning from the first taxable year in which a taxpayer begins renewable fuels production at a level of at least 15 billion British thermal units of renewable fuels per year.
Verification and Certification
The Hawaii Department of Business, Economic Development, and Tourism (DBEDT) must verify the amount and type of renewable fuels produced and sold, including the purpose for which the fuel was produced; certify the total amount of the tax credit for each taxable year and the cumulative amount of the tax credit during the credit period; and total all renewable fuels production that the DBEDT certifies.
When a determination is made, the DBEDT will issue a certificate to the taxpayer verifying the amount of renewable fuels produced and sold, the credit amount certified for each taxable year, and the cumulative amount of the credit during the credit period. The taxpayer must file the certificate with the taxpayer’s income tax return. Notwithstanding the DBEDT’s certification authority, the Director of Taxation may audit and adjust the certification to conform to the facts.
Carryover of Credit
If the renewable fuels production credit exceeds the taxpayer’s net income tax liability, the excess of the credit over liability may be used as a credit against the taxpayer’s net income tax liability in subsequent years until it is exhausted.
Notice and Information Requirements
The legislation requires credit claimants to provide written notice to the Department of Taxation and the DBEDT regarding their intent to begin production of renewable fuels. In addition, credit claimants must provide written notice to the Director of Taxation and the Director of the DBEDT regarding their production start date and the expected renewable fuels production. Claimants must also annually provide these directors with information regarding fuels produced and sold during the previous calendar year, types of fuels, feedstocks used, number and residency of employees at the claimant’s facility, and projected production for the succeeding year.
Act 202 (S.B. 2652), Laws 2016, effective July 5, 2016, and applicable as noted