What tribal governments should know about clean energy investment tax credits
As tax credits have become more widely available in a range of areas, tribal governments and tribal enterprises are taking notice and being noticed for potential partnerships in energy communities. The recent expansion of inflation reduction act tax credits has created new opportunities for Native American communities to participate in renewable energy initiatives while supporting tribal self-governance.
First to come was the Employee Retention Tax Credit (ERTC) and now, thanks to the Inflation Reduction Act, there are Section 45 and Section 48 federal investment tax credits with their emphasis on reaching disadvantaged communities and low-income communities with environmental justice concerns. These eco credits are designed to promote clean energy adoption and reduce greenhouse gas emissions, contributing to overall energy security.
While tribal governments, as tax exempt entities, do not pay taxes or file tax returns, opportunities are available for tribes to participate in the program and receive funding payments through IRA clean energy tax credits. Between now and December 2024, tribes will likely be approached to be partners on renewable energy deals, supporting tribal self-determination in economic development.
The expanded green energy tax credits cover investments in renewable energy that generate solar, wind, geothermal, fuel cells, waste energy recovery, energy storage technology and microgrid controllers. The value of these credits is calculated starting at 6% and can max out at a much higher percentage of the investment depending on factors such as domestic content requirements and prevailing wage requirements. This investment tax credit structure applies to investments placed into service starting January 1, 2023, through December 31, 2024.
Direct pay to tribes
The benefit to the tribal governments involved in these partnerships is that instead of receiving a tax credit, which can be transferred, they can use the direct pay option (also known as elective pay), which allows tribes to directly request payments from the IRS through the IRS clean energy portal. This process acknowledges the unique status of Indian reservations and answers the question, “Do Indian reservations pay taxes?” by providing an alternative mechanism for benefit distribution.
A company bringing the opportunity to the tribe can increase the percentage of the investment that the credit is based on by partnering with tribal communities and completing these projects on tribal lands. This arrangement can be particularly beneficial for companies looking to take advantage of Native American tax credits or exploring options for how to sell tax credits.
So, what can tribes expect to happen next? A variety of businesses may be looking to reach out to discuss partnering with you to create these renewable energy investments. Similar to the ERTC, tribes will receive solicitations from consultants offering to help them file their direct pay requests with the IRS for a fee, likely contingent on the value of the payment. Some may even offer a tax credit for hiring Native American employees as part of these initiatives.
Tribal governments need to be careful before entering into any such agreements, keeping in mind that the IRS has yet to detail the process for making direct payment requests, including any prefiling registration requirements. The Office of Tribal and Native Affairs and the Treasury Tribal Advisory Committee may provide additional guidance on these matters in the future.
How Wipfli can help
Many questions may arise when navigating the Inflation Reduction Act’s clean energy tax credits, including specific programs like the Clean Electricity Investment Credit and the Clean Electricity Production Tax Credit. Wipfli tax professionals with deep experience working with tribal enterprises are ready to work with you to help you understand these new opportunities and maximize your benefits. Contact us to learn more about our services to tribal enterprises and how we can assist with your green energy tax credit initiatives.
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