Sales and Use Tax Refund for Renewable Energy

Summary

In June 2005, Iowa enacted legislation creating a production incentive -- which may be used as either a tax credit or as a refund on sales and use tax already remitted -- for energy generated by and purchased from qualifying biomass, wind and solar facilities. Facility owners will receive 1.5¢ per kilowatt-hour for electricity generated. (Alternatively, the state offers $4.50 per million BTUs of biogas used to generate either electricity or heat for commercial purposes, or $1.44 per thousand cubic feet of hydrogen fuel generated by and purchased from an eligible renewable-energy facility.) To qualify for this incentive, renewable-energy facilities must be at least 51% owned by Iowa farms, residents, school districts, electric cooperatives or small businesses (as defined in Iowa Code § 15.102). Facilities must be approved by the Iowa Utilities Board (IUB). A producer or a purchaser must apply to the IUB for the incentive by submitting an application form and a signed copy of a power-purchase agreement, and by designating either the producer or the purchaser of renewable energy as the credit recipient. The IUB will notify the Iowa Department of Revenue (DOR) of the number of kilowatt-hours or BTUs generated by each facility, and the DOR will issue a renewable-energy tax credit certificate to either the producer or purchaser. A certificate may be transferred or sold one time to a third party. Certificates may be used against the state's personal income tax, business tax, financial-institutions tax, or sales and use tax. In order to use a certificate against Iowa's sales and use tax, a certificate bearer must apply to the DOR for a refund of the amount of sales and use tax imposed and paid during the reporting period. By January 31 after the end of the calendar year during which the certificate is to be applied, applicants must report the total amount of sales and use tax paid during the reporting period. The amounts of sales and use tax must be listed separately. Eligible facilities must be placed into service on or after July 1, 2005, and before January 1, 2011. A producer or purchaser will receive renewable-energy tax credit certificates for 10 years beginning with the initial sale of electricity, biogas or hydrogen. The maximum amount of nameplate generating capacity of all wind facilities eligible for the credit is 90 MW. The maximum combined nameplate generating capacity of all other eligible renewable-energy facilities is 10 MW. A facility's combined nameplate generating capacity and maximum hourly output capability of energy production capacity equivalent, divided by the number of separate owners, may not exceed 2.5 MW per owner.