BILL ANALYSIS Ó
SJR 10
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Date of Hearing: September 9, 2015
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Philip Ting, Chair
SJR
10 (Stone) - As Amended September 4, 2015
SENATE VOTE: 38-0
SUBJECT: Federal Investment Tax Credit: solar energy
SUMMARY: Requests that the United States (U.S.) Congress take
immediate action to extend the federal investment tax credit in
Sections 48 and 25D of Title 26 of the U.S. Code (U.S.C.).
Specifically, this resolution:
1)Contains the following recitals:
a) The U.S. has an abundance of solar energy resources that
are sufficient to supply a significant portion of the
energy needs of the U.S.;
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b) Farmers can become more economically resilient to the
unique and difficult challenges facing farming communities
through solar power;
c) Schools and educational institutions, as well as other
governmental entities and nonprofit entities, can save
considerable amounts of limited public moneys by investing
in solar power;
d) Homeowners, renters, and businesses statewide can
control for rising energy costs through the investment in
solar power;
e) Rural communities can benefit from the construction of
utility scale solar energy projects;
f) All of these markets rely on the federal investment tax
credit to make solar energy affordable for all who want it;
g) The solar energy industry employs 54,000 Californians
and is one of the nation's fastest growing job creators,
employing 173,807 people nationwide and growing at a rate
nearly 20 times faster than the overall economy, according
to The Solar Foundation;
h) The loss of the investment tax credit would lead to
significant job losses in California and beyond in 2017;
i) Accelerated development and use of solar energy
technologies would provide numerous benefits to all
citizens of California and the U.S., including improved
national security, healthier rural economies, improved air
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and environmental quality, and abundant, reliable, and
affordable energy;
j) The solar industry adds more than $15 billion to the
U.S. economy and increased energy production from domestic
solar energy resources would attract substantial new
investments in energy infrastructure and create local
economic growth;
aa) Increased use of solar energy is practical and can be
cost effective with the help of consistent, long-term
supportive policies and proper incentives to stimulate
markets and infrastructure, such as the investment tax
credit;
bb) Long-term supportive policies and proper incentives at
the local, state, and federal levels have brought about
significant cost reductions within the solar industry in
California and across the country;
cc) Public policies aimed at enhancing solar energy
production and accelerating technological improvements will
further reduce energy costs over time and increase market
demand; and,
dd) The federal investment tax credit for solar power is set
to decrease from 30% to 10% for commercial consumers and
from 30% to 0% for residential consumers after December 31,
2016.
2)Directs the Secretary of the Senate to transmit copies of this
resolution to the President and Vice President, to the Speaker
of the House of Representatives, to the Majority Leader of the
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Senate, and to each Senator and Representative from California
in the U.S. Congress.
EXISTING FEDERAL LAW:
1)Allows a tax credit for residential energy efficient property.
Specifically allows individuals, under 26 U.S.C. Section 25D,
a credit equal to 30% of the:
a) "Qualified solar electric property expenditures" made by
the taxpayer during the year; and,
b) "Qualified solar water heating property expenditures"
made by the taxpayer during the year.
2)Defines a "qualified solar electric property expenditure" as
an expenditure for property that uses solar energy to generate
electricity for use in a dwelling unit located in the U.S. and
used as a residence by the taxpayer.
3)Defines a "qualified solar water heating property expenditure"
to mean an expenditure for property to heat water for use in a
dwelling unit located in the U.S. and used as a residence by
the taxpayer if at least half of the energy used by such
property for such purpose is derived from the sun.
4)Provides that the credit allowed under 26 U.S.C. Section 25D
shall not apply to property placed in service after December
31, 2016.
5)Allows a business energy investment credit under 26 U.S.C.
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Section 48. Specifically allows a credit generally equal to
10% of the taxpayer's basis in qualified energy property
placed in service during the tax year. For property placed in
service before 2017, the credit percentage is increased to 30%
for equipment that uses solar energy to generate electricity,
to heat or cool a structure, or to provide solar process heat
(except when used to heat a swimming pool).
FISCAL EFFECT: None
COMMENTS:
1)The author has provided the following statement in support of
this resolution:
SJR 10 is a resolution that calls on the U.S. Congress to
extend the Federal Investment Tax Credit for Solar Energy.
The tax credit is set to decrease from 30 percent to 10
percent for commercial consumers and from 30 percent to 0
percent for residential consumers after December 31, 2016.
The solar energy industry employs 54,000 Californians and
is one of the nation's fastest growing job creators,
employing 173,807 people nationwide and growing at a rate
nearly 20 times faster than the overall economy, according
to The Solar Foundation. The solar industry adds more than
$15 billion to the United States economy and increased
energy production from domestic solar energy resources
would attract substantial new investments in energy
infrastructure and create local economic growth.
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The loss of the investment tax credit would not only lead
to significant job losses in California and beyond in 2017,
but would also make solar energy less affordable to all who
want to take advantage of this sources of clean energy.
This is a worthy tax credit, and is deserving of being
extended.
2)This resolution is supported by Environment California, which
notes the following:
Thanks to the pairing of California's robust solar energy
polices and the Solar ITC at the federal level, California
has become the nationwide leader in solar power, putting
the state on the path towards fulfilling a number of
critical environmental goals. This, in turn, has spurred
significant job creation and economic development in
communities across the state.
For example, solar power offers the agricultural community
an important tool for controlling rising energy costs and
making farmers more economically resilient and better able
to invest in local jobs. In addition, solar offers school
districts an increasingly important tool for lowering
rising energy costs so as to put more scare public dollars
toward education. Lastly, solar also gives homeowners and
small businesses important opportunities to control rising
energy costs. All of these solar energy consumers directly
benefit from Sections 48 and 25D of [the] federal tax code,
also known as the Solar Investment Tax Credit.
3)Committee Staff comments:
a) General background : SJR 10 (Stone) urges Congress to
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extend two federal income tax credits: the residential
energy efficiency tax credit and the investment tax credit
for qualified energy property. The first tax credit is set
to expire on December 31, 2016; the second tax credit will
be substantially modified on January 1, 2017, when the
credit percentage will decrease from 30% to 10%.
The residential energy efficiency tax credit (Section 25D
of the Internal Revenue Code (IRC)) was initially
established by the Energy Policy Act of 2005, and then
substantially expanded in 2008 and 2009. Thus, a taxpayer
may claim a credit equal to 30% of qualified expenditures
for a system or property that serves "a dwelling unit
located in the United States that is owned and used as a
residence by the taxpayer." These qualified expenditures
must be incurred for, or in connection with, solar-electric
systems, solar water heating systems, fuel cells, small
wind energy property and geothermal heat pump property
placed in service during the taxable year. If the federal
tax credit exceeds tax liability, the excess amount may be
carried forward to the succeeding taxable year.
In contrast, IRC Section 48 allows taxpayers an investment tax
credit for 30% of the basis of a qualified energy property
placed in service during the taxable year.<1> The qualifying
energy property includes certain fuel cell, solar, geothermal
power production, small wind energy, combined heat and power
system, and geothermal heat pump property. The investment
credit amount is generally equal to 30% of the taxpayer's basis
in qualified fuel cell property, certain solar energy property,
and wind energy property. The credit amount is 10% of the
taxpayer's basis in all other types of qualifying energy
---------------------------
<1>
This investment tax credit is also distinct from the energy
production credit, which awards a tax credit based on the amount
of energy produced (IRC Section 45)
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property. Energy property is defined, among others, as
equipment that uses solar energy to generate electricity to heat
or cool a structure or to provide solar process heat, except
property used to heat a swimming pool. Energy property also
includes equipment that uses solar energy to illuminate the
inside of a structure using fiber-optic distributed sunlight.
The investment tax credit may be claimed entirely in the year
the facility is placed in service.
In February 2009, Congress enacted, and President Obama signed,
the American Recovery and Reinvestment Act, which, among other
things, allowed taxpayers to make an irrevocable election to
receive a federal grant payment in lieu of the investment tax
credit, provided that a qualified facility was placed in service
in 2009, 2010, 2011 or 2012. The grant program was created to
help developers of renewable energy projects to finance these
projects. Often, developers seek investors that are allocated
99% of the income, gains, losses, deductions and tax credits of
the project. However, during the last economic downturn, the
potential investors did not have enough tax liability to utilize
those deductions and credits. The creation of the grant program
allowed developers to receive a federal subsidy to continue with
the renewable energy projects. However, by choosing to receive
these payments, applicants elected to forego tax credits under
IRC Sections 48 and 45 with respect to such property for the
taxable year in which the payment is made or any subsequent
taxable year.<2>
b) Reducing the investment tax credit and eliminating the
residential energy efficiency tax credit : The federal
energy tax credits reduce tax liability for individuals and
businesses that purchase qualifying solar energy
technologies, which should encourage additional private
--------------------------
<2> Congress excluded the grant proceeds from a taxpayer's
income but required that the basis of the property be reduced by
50% of the amount of the grant.
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sector investment in solar manufacturing and solar project
construction. As explained by the author's office, the
solar industry is an important component of the U.S.
economy, and long-term incentive programs can make solar
energy practical and cost effective. The goal of this
resolution, in part, is to prevent the significant job
losses in California that would occur as a result of the
federal tax credits being phased out. Despite this
concern, however, job losses have not been shown to occur
when other subsidies have been eliminated. In fact, even
after exhausting the $2.2 billion California Solar
Initiative, which offered financial incentives to
individuals with the goal of supporting 2,000 megawatts of
solar energy in the state, the industry has enjoyed a job
growth rate that is 20 times higher than the overall
economy. As such, the phasing out of the federal tax
credits may not have the detrimental impact that this
resolution aims to prevent. This contention is supported
by the fact that the federal energy credits and the
California Solar Initiative may not be the primary reason
why over one-half of all solar panel installations have
been made in California. According to Severin Borenstein,
Professor at the Berkeley Hass School of Business, the
reason why California leads the nation in residential solar
panel installations is, in part, because California's two
largest utilities have some of the country's highest
average residential electricity prices and because the
rates are tiered.<3> The higher average prices make the
installation of solar panels much more attractive.
Although the elimination and reduction of the federal
energy credits will have an impact, it may only eliminate
marginal projects.
c) Should the tariff be eliminated ? This resolution urges
--------------------------
<3> What Put California at the Top of Residential Solar? Energy
Institute at Hass, University of California, Berkeley. May 26,
2015.
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Congress to extend immediately the federal energy credits;
but if the goal is to increase the number of solar panel
installations in California, this resolution may also want
to encourage the Commerce Department to eliminate tariffs
on solar cells imported from China. Over the last few
years, China has been subsidizing the production of solar
panels. Many of these solar panels have been flooding the
U.S. market, forcing the closure of many domestic
producers. Unfortunately, the tariff and the federal
energy credits appear to be working at odds with each
other. On the one hand, the U.S. is providing huge
subsidies to encourage more businesses and households to
install solar panels; on the other hand, the U.S. is making
it more expensive to purchase inexpensive Chinese made
solar panels. As a result, the Commerce Department has
potentially made the federal energy credits less effective.
REGISTERED SUPPORT / OPPOSITION:
Support
Environment California
Opposition
None on file
Analysis Prepared by:Oksana Jaffe, M. David Ruff, & Carlos
Anguiano / REV. & TAX. / (916) 319-2098
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