Section 48D: A New Tax Credit for Electric Transmission Property

The Biden Administration has proposed the creation of a brand new tax credit score below the brand new Section 48D of the Code for qualifying electrical energy transmission property that’s positioned in service after December 31, 2021, however earlier than January 1, 2032 (such credit score, the “Section 48D Credit”). The proposal would additionally permit a direct-pay choice to elect a money cost.  The proposed credit score could be for an quantity equal to six% of a to-be-determined eligible foundation (the “Base Rate”), with a doable enhance to 30% (the “Bonus Rate”) if sure standards are met. 

Qualifying property would come with overhead, submarine and underground transmission amenities assembly sure standards, together with a minimal voltage of 275 kV and a minimal transmission capability of 500 MW, and any ancillary amenities and tools essential to function such mission.  A qualifying electrical transmission line could also be a substitute, or improve, to an present electrical transmission line if the transmission capability of such electrical transmission line, as upgraded, will increase to an quantity equal to the prevailing capability of such transmission line plus 500 MW. Nevertheless, the premise allocable to the prevailing transmission line wouldn’t be eligible for the Section 48D Credit.

Sure property and initiatives already in course of are usually not eligible for the Section 48D Credit if (i) a state or political subdivision thereof, any company or instrumentality of the US, a public service or public utility fee or different related physique of any state or political subdivision, or the governing or rate-making physique of an electrical cooperative has, earlier than the date of the enactment of those guidelines, chosen such property for price restoration, (ii) building begins earlier than January 1, 2022, or (iii) building of any portion of the qualifying electrical transmission line to which such property relates begins earlier than January 1, 2022.

Along with the technical necessities, to say the credit score on the Bonus Charge, the mission should fulfill the brand new prevailing wage and apprenticeship necessities.  To fulfill the prevailing wage requirement,any laborers and mechanics employed by contractors and subcontractors have to be paid prevailing wages throughout the building of such mission and, in some instances, an outlined interval after.  To fulfill the apprenticeship requirement, a minimum of the relevant proportion of whole labor hours (5% for initiatives for which building begins in 2022, 10% for initiatives starting building in 2023, and 15% thereafter) have to be carried out by certified apprentices.  Moreover, every contractor and subcontractor who employs 4 or extra people to carry out building on an relevant mission should additionally make use of a minimum of one certified apprentice or, within the case of an absence of availability, present a very good religion effort to take action. If a non-exempt mission fails to fulfill the wage and apprenticeship necessities, however in any other case meets the technical necessities for the Section 48D Credit, such property will qualify for the Base Charge.

Lastly, qualifying electrical energy transmission property is eligible for a rise to both the Base Charge or the Bonus Charge if such mission meets the home content material requirement, which requires the metal, iron, or different manufactured merchandise that comprise the mission be produced in america (i.e., a minimum of 55% of the full price of the elements of such product is attributable to elements which might be mined, produced, or manufactured in america).  Tasks satisfying this requirement may very well be eligible for a 2% enhance to the Base Charge or a ten% enhance to the Bonus Charge.

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