North Carolina

North Carolina

July 09, 2015 | By Keith Martin in Washington, DC

NORTH CAROLINA extended a deadline for completing renewable energy projects to qualify for a 35% state tax credit.

The deadline had been December 2015. The governor signed a bill in early May allowing until the end of 2016 to complete any project on which the developer has “incurred” at least a minimum percentage of project costs and completed a minimum percentage of “physical work” by December 31, 2015. The percentage is 50% for projects with a DC capacity of 65 megawatts or more. It is 80% for smaller projects.

The developer must notify the state tax department by October 1 this year of any poten-tially eligible 2016 projects by letting the department know each location, total cost estimate and project size. A processing fee of $1,000 per MW must be paid with each application. There is a minimum fee of $5,000 per application.

The developer must then submit documentation by March 1, 2016 confirming that enough costs were incurred or enough physical work was completed on each project to qualify for the tax credit. The taxpayer will have to certify that the thresholds were met and also enclose a notarized report from a North Carolina certified public accountant confirming that enough costs were incurred or from an independent engineer licensed in North Carolina confirming that enough physical work was completed.

The state is expected to follow the federal rules for determining when costs are “incurred.” Costs are not incurred under the federal rules merely by spending money. Rather, the developer must take delivery of equipment or services to count the costs, with one exception. A payment at year end for equipment or services that will be delivered within 3 1/2 months of payment counts as a 2015 cost, assuming the developer is authorized to use the 3 1/2-month rule as a “method of accounting.”

It is less clear whether the state will follow the federal rules for determining percentage of completion. Bobby Weaver, the expert on the renewable energy credit with the state tax department, said in an email in mid-May that “I anticipate that we will be providing guidance to taxpayers in the near future.”

North Carolina allows a 35% tax credit to be claimed on new solar, wind, geothermal, biomass, hydroelectric and combined heat and power equipment. The credit is claimed entirely in the year the equipment is put in service if the equipment is put to personal use. It is claimed ratably over five years if the equipment is put to business use.

Meanwhile, a longer extension of the tax credit may also be possible. The North Carolina House voted in late May to extend the existing credit for another two years for projects completed through December 2017 without the need to meet construction thresholds by the end of 2015. Projects larger than 1 MW would qualify for a 35% tax credit if completed in 2016, but only a 20% credit if not completed until 2017. The North Carolina Senate has not adopted the extension, and the issue has gone to a House-Senate conference committee along with a number of other issues. The conference committee has until August 14 to act.

The state legislature is also debating whether to freeze the percentage of electricity that utilities in the state must supply from renewable energy at 6% rather than let it rise to 10% in 2018 and 12.5% in 2021 and whether to reduce the maximum size of projects for which “standard offer” contracts are available to sell electricity to North Carolina utilities from five megawatts to 100 kilowatts.

Standard offer contracts for up to five megawatts could remain available for projects to generate electricity from swine and poultry waste.