Over the past few years, many tax incentives and credits have been created to encourage the use of environmentally friendly resources. In fact, three states this year have enacted or expanded income tax credits for production of renewable chemicals, including:
Kentucky Renewable Chemicals Production Credit
In Kentucky, the renewable chemicals production credit takes effect for tax years beginning after 2020. The credit will sunset or expire on December 31, 2024. Eligible taxpayers may claim the credit against:
- corporation income or limited liability entity tax; and
- personal income tax.
What is the Kentucky Credit Amount?
The credit is equal to the amount authorized by the Kentucky Department of Agriculture in the credit agreement. The credit is capped at $10 million per year.
Who is eligible for the Kentucky Credit?
Eligible taxpayers include businesses physically located in Kentucky that:
- operate for profit;
- organize, expand, or locate in Kentucky on or after July 1, 2020; and
- create new jobs and retain those jobs for at least four years; or
- invest a substantial amount of new capital and maintain that capital for at least four years.
The credit does not apply to:
- professional service providers;
- health care service providers;
- medical treatment providers; or
- retail operations.
It also does not apply to any business that:
- relocates operations from another area of Kentucky; or
- reduces operations in another area of Kentucky.
Maine Renewable Chemicals Tax Credit
Maine has also enacted a credit against corporate and personal income taxes for production of renewable chemicals. The credit is applicable to tax years beginning on or after January 1, 2021.
What is the Maine Credit Amount?
The credit amount is 8¢ per pound of renewable chemicals.
Who is eligible for the Maine Credit?
A taxpayer must demonstrate that at least 75% of employees hired to harvest the renewable biomass meet Employment Security Law eligibility conditions.
If the taxpayer does not contract directly with those retained to harvest the renewable biomass, the taxpayer may obtain the necessary documentation from the landowner or other entity that contracts directly.
New Mexico Agricultural Biomass Credit
What is the New Mexico Credit Amount?
The credit is equal to $5 per wet ton of agricultural biomass. New Mexico limits the combined total of all agricultural biomass credits to $5 million annually.
Who is eligible for the New Mexico Credit?
An owner of a dairy or feedlot may claim the credit for biomass transported to a facility that uses the biomass to generate electricity or create fuels. Taxpayers must apply and be approved for a certificate of transportation to the New Mexico Energy, Minerals, and Natural Resources Department.
By Amber Harker, J.D.