Oregon’s Business Energy Tax Credit
Over the last several years, one of the most pressing issues facing
Oregon businesses has been the drastic increase in the cost of energy.
As a result, there have been increased governmental efforts to develop
alternative energy forms to reduce dependence on foreign energy sources
while also reducing our impact on the environment. These efforts are
driven, in part, through state tax incentives. One of the most often-claimed
incentives provided by the Oregon legislature is the Business Energy Tax
The BETC encourages Oregonians to produce and use renewable
energy, and is available to those who invest in energy conservation,
recycling, renewable energy resources, and less-polluting transportation
fuels used in their trade or business. In summary, the BETC is equal to
thirty-fi ve (35%) percent of the eligible project costs, or, the incremental
cost of the system or equipment beyond standard practice. The BETC
credit may offset either individual tax or corporate income excise tax, and
is spread out over fi ve years: ten (10%) percent in the fi rst and second
years, and fi ve (5%) percent each year thereafter. If you are unable to
utilize the BETC credit in a given year, you may carry the credit forward
for up to eight years.
For most taxpayers, the BETC functions in one of two ways. The
fi rst method is called the “Straight Tax Credit Option.” Here, the taxpayer
receives a state income tax credit of up to 50% of qualifi ed capital costs
for renewable energy projects. The “eligible cost” for purposes of obtaining
the BETC is equal to the lesser of the facility cost or the maximum
eligible cost for a particular project as determined by the Oregon Department
of Energy (“DOE”). Depending on the type and size of a project,
along with the amount of increased effi ciency created by such project, the
maximum amount of eligible costs is capped at $20 million.
Eligible costs must be directly related to the project. Such costs
include equipment, engineering and design fees, materials, supplies and
installation. Loan fees, permits and legal fees also may be claimed. If
the total eligible costs of the project are $20,000 or less, the taxpayer may
receive a tax credit of up to $10,000 in the year of the project. If the total
eligible costs exceed $20,000, the taxpayer gets a credit of 10% of the
eligible costs for a period of fi ve years. If the tax credit in a particular year
exceeds your tax liability, you can carry forward the unused portion for up
to eight years.
The second way to take advantage of the BETC is by using the
“pass through” or “monetization” option. Here, the individual or business
transfers the credit to a third party in return for a lump-sum cash payment
upon project completion. The payment amount varies based on a “passthrough
rate,” which takes into account the BETC’s net present value (as
determined by the DOE). The pass through option may be advantageous
for businesses (with or without tax liability) that wish to reduce energy
costs while infusing capital into current projects.
Recently, the Oregon legislature extended the BETC to home
builder installed renewable energy systems, with an added credit for certain
“high performance homes.” The basic credit is up to $9,000 for a
single family dwelling and up to a $12,000 credit for high performance
homes. A “high performance home” is defi ned as a dwelling constructed
by a builder licensed under the Oregon Residential Specialty Code. The
home must meet certain BETC technical requirements established by the
DOE that result in a reduction of the net energy purchased for the home’s
BETC eligibility requires adherence to strict guidelines. All projects
eligible for the BETC must be pre-approved by DOE. Applications
must be received by DOE before a project begins and must be completed
within three years of preliminary certifi cation by DOE. Furthermore, all
credits must be claimed within eight years of the tax credit date.
Although most people support the idea of the private production
of renewable energy, one focal concern has always been its prohibitive
cost. Investors in such systems wish to see a short “break even” point,
in which the sum of savings on energy bills exceeds the up-front installation
costs. Due to the availability of various public and private incentives,
as well as advances in renewable energy technology, the break even
point continues to grow shorter. For example, in some cases, businesses
installing solar energy production cells have seen the break even point
achieved in as little as five years.
Oregon’s government has a strong commitment to renewable energy.
Private investors are showing a strong commitment as well, investing
billions in capital in recent years in renewable energy technology.
With the recent explosion in energy costs, the public is also increasing
their use of renewable resources. In fact, the Oregon House Revenue
Committee has been told to expect the use of up to $300 million in BETC
tax credits over the next fi ve years. It might make sense to see if your
business can take advantage of this available incentive.
If you have questions whether the BETC credit is benefi cial to you
and your business, please contact out closely held business members
Randall L. Duncan or Jonathan D. Mishkin, LL.M., at (503) 242-0000, and
we will be glad to assist you.
Randall L. Duncan
Direct Line: 541-417-6010
Jonathan D. Mishkin, LL.M.
Direct Line: 503-417-6007
1001 SW Fifth Avenue
Portland, OR 97204-1116
Phone: (503) 242-0000
Fax: (503) 241-1458
360 E. 10th Avenue, Suite 300
Eugene, OR 97401-3273
Phone: (541) 485-0220
Fax: (541) 686-6564
333 High Street, N.E.
Salem, OR 97301-3632
Phone: (503) 371-3330
Fax: (503) 371-5336
Nothing in this communication creates or is intended to create an attorney-client relationship with
you, constitutes the provision of legal advice, or creates any legal duty to you. If you are seeking
legal advice, you should fi rst contact a member of the Closely Held Business Team with the understanding
that any attorney-client relationship would be subsequently established by a specifi c
written agreement with Harrang Long Gary Rudnick P.C. To maintain confi dentiality, you should
not forward any unsolicited information you deem to be confi dential until after an attorney-client
relationship has been established.