Tax Reform

On November 16, 2017, the U.S. House of Representatives passed a comprehensive tax bill, H.R. 1, the “Tax Cuts and Jobs Act” while the Senate Finance Committee advanced its own version of a tax bill (available here), which the Republican leadership hopes to bring to a vote in the full Senate during the last week of November. The House and Senate bills differ in terms of the timing of new tax rates, interest deductibility on certain types of redevelopment bonds, issuance of certain types of tax credit bonds, electric vehicle credits, and investment tax credits for certain types of alternative energy sources, and a variety of other provisions.

The Senate bill is largely silent on energy matters. The House bill retains the solar investment tax credit (ITC) phaseout plan that was passed as part of a bipartisan budget compromise in 2015, and extended the tax credit in the ITC phaseout plan to other generation sources, including combined heat and power, fuel cells, geothermal, and qualified small wind projects. The Senate bill does not have similar provisions to expand the phaseout to include these other generation sources. The House bill cuts the production tax credit (PTC) for wind from 2.3 cents/kWh to 1.5 cents kWh, while the Senate bill includes no such change to current law. The Senate bill is also silent on the nuclear PTC, which was included in the House bill to address the delays at the Summer and Vogtle nuclear plants.

While both the House and Senate versions continue to leave untouched the tax exempt status of municipal bonds, the House bill eliminates private activity bonds (PABs), which state and local governments rely on to help private entities raise money for development projects that have public benefits. The Senate bill is silent on PABs. Additionally, the Senate bill is silent on qualified tax credit bonds, which state and local governments utilize to help finance energy efficiency measures, clean and renewable energy projects, and certain school construction projects. The House bill eliminates the issuance of these types of tax credit bonds.

The House bill eliminates the $7,500 credit for electric vehicles, which some electric utilities rely on for customer participation in their energy storage or time-of-use policies as well as for their own operations. The Senate bill is silent on this tax credit.

Under current law, interest on government bonds and other non-profit bonds may be included in adjusted corporate earnings and subject to alternative minimum tax (AMT) liability. Both the House and Senate bills aim to do away with the AMT for individuals and businesses. Both bills also provide for immediate, 100% expensing and cost recovery of expenses, for five years, for certain types of qualified property but which does not apply to regulated utilities.

The Republican leadership in the Senate aims to bring their legislation to the full chamber when it reconvenes after the Thanksgiving break. However, many key swing Republican senators have yet to voice their support for the bill or outline their key demands. Once the Senate passes its version of the bill, Congress will need to reconcile the House and Senate versions in conference before a bill is sent to the President. For more information on the tax bill and other Capitol Hill developments, please contact Jeffrey C. Genzer.