Oregon is considering whether to claw back profits that some buyers of state tax credits made by buying credits at a reduced price.
The state rewarded owners of new renewable energy projects in the state through a business energy tax credit – called BETC. The program ended in 2014.
Developers who were unable to use the credits could sell them. Sales could be arranged through the Oregon Department of Energy or privately. The Department of Energy had a formula for setting the sales price. DOE rules required private sales to be at the same price, but the department decided not to enforce the requirement, and private sales were sometimes at prices that were well below the formula price.
Critics charge that the private sales at low prices meant that too little of the intended subsidy ended up with renewable energy companies. The Department of Energy is proposing to amend its rules retroactively to drop the requirement that private sales be at the formula price.
However, the Secretary of State has asked the department for records relating to private sales, including notices from developers who were planning private sales. Some state legislators have said they “might consider” legislation to take back some of the tax credits sold at low prices.
There have been 43 audits of BETC transactions by the state Department of Revenue. The department found in 20 of the audits that buyers of the tax credits underpaid capital gains taxes when they used the credits.
The IRS said in an internal legal memorandum in 2011 that someone who buys a state tax credit has a capital gain, when he uses it, equal to the difference between the state taxes the credit offset and the amount he paid for the credit. Thus, for example, a buyer who pays $70 for a $100 tax credit has a capital gain of $30 when the credit is used. (For earlier coverage, see the May 2012 Project Finance NewsWire article State Tax Credits.)