Section 48D: A New Tax Credit For Electric Transmission Property – Energy and Natural Resources

United States:

Section 48D: A New Electric Transmission Property Tax Credit

October 19, 2021

Foley & Lardner

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The Biden government has proposed the creation of a new tax credit under the new Section 48D of the Qualifying Electricity Transmission Property Code which will be operational after December 31, 2021 but before January 1, 2032 (one such credit, the§ 48D credit“). The proposal would also allow for a direct payment option, with the option of paying in cash. The proposed credit would represent an amount equal to 6% of an eligible base to be determined (the”Basic charge“), with a possible increase to 30% (the”Bonus rate“) if certain criteria are met.

Qualifying properties include above-ground, subsea and underground transmission facilities that meet certain criteria, including a minimum voltage of 275 kV and a minimum transmission capacity of 500 MW, as well as any additional facilities and equipment required to operate such a project. A qualified electrical transmission line may replace or upgrade an existing electrical transmission line if the transmission capacity of such upgraded electrical transmission line increases to an amount equal to the existing capacity of such transmission line plus 500 MW. However, the basis associated with the existing transmission line is out of the question for the 48D credit section.

Certain properties and projects that are already in progress are not eligible for Section 48D Loan if (i) a state or political subdivision thereof, a US agency or agency, public service or utility, or other A similar corporation of a state or a political subdivision, or the management or tariff body of an electricity cooperative has selected such a plot of land to cover costs before the date of entry into force of these rules, (ii) construction begins before January 1, 2022, or (iii) construction Any portion of the qualified electrical transmission line to which this property relates begins prior to January 1, 2022.

In order to be able to take advantage of the bonus rate, the project must not only meet the technical requirements but also the new applicable wage and training requirements. To meet applicable wage requirements, all workers and mechanics employed by contractors and subcontractors must be paid applicable wages during the construction of such a project and in some cases for a period thereafter. In order to fulfill the training obligation, at least the applicable percentage of the total working time (5% for projects starting with construction in 2022, 10% for projects starting with construction in 2023 and 15% afterwards) must be performed by qualified apprentices. In addition, every contractor and subcontractor who employs four or more people to carry out a construction project must employ at least one qualified apprentice or, in the event of a lack of availability, work in good faith. If a non-exempt project does not meet wage and training requirements, but otherwise meets the technical requirements for Section 48D Credits, the base rate applies to that property.

Finally, a qualifying electricity transmission property is entitled to an increase in the base rate or bonus rate if such a project meets the domestic content requirements which require that steel, iron or other manufactured products making up the project be made in the United States will states (that is, at least 55% of the total cost of the components of such a product is for components that are mined, produced, or manufactured in the United States). Projects that meet this requirement may be eligible for a 2% increase in the base rate or a 10% increase in the bonus rate.

The content of this article is intended to provide general guidance on the subject. Expert advice should be sought regarding your specific circumstances.

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