Clean Energy Incentive Tax Credit

Businesses that use certain renewable energy sources or waste materials to produce electricity that is sold to an unrelated person may be entitled to an income tax credit. The facility must be placed in service, or co-firing with coal must begin, on or after January 1, 2006, but before January 1, 2011.

Sole proprietorships, corporations and pass-through entities, such as partnerships, subchapter S corporations, limited liability companies and business trusts may claim the tax credit.

To qualify for the credit:

The business must produce electricity during the tax year using primarily "qualified energy resources" (see Internal Revenue Code Section 45) which includes any solid, non-hazardous, cellulosic waste material that is segregated from other waste materials and is derived from the following:

• Forest-related resources, including mill residues (except sawdust and wood shavings), forest thinnings, slash, or brush, but excluding old-growth timber.
• Waste pallets, crates, dunnage, landscape or right-of-way trimmings.
• Agricultural sources (orchard tree crops, vineyard, grain, legumes, sugar, and other crop by-products or residues).

“Qualified energy resources” also includes methane gas or other combustible gases resulting from the decomposition of organic materials from an agricultural operation or from a landfill or a wastewater treatment plant using either anaerobic or thermal decomposition, or a combination of both.

The business must apply for and receive an initial credit certificate from the Maryland Energy Administration (MEA) before claiming this credit. The initial credit certificate must state the amount of electricity the taxpayer expects to produce in a qualified Maryland facility over the five-year period specified in the initial credit certificate. The total amount of the credit stated in the initial credit certificate cannot exceed $2.5 million.

How the credit is calculated:

The credit is 0.85 cents for each kilowatt hour of electricity produced at a Maryland facility using qualified energy resources during the five-year period after the facility is originally placed in service.

If the facility produces electricity from qualified energy resources co-fired with coal, the credit is reduced to 0.5 cents per kilowatt hour of electricity produced during the five-year period beginning on the date of the initial co-firing. The credit claimed each year cannot exceed one-fifth of the credit amount stated in the initial credit certificate. If at least an average of 10 percent of the maximum credit amount stated on the initial credit certificate is not claimed over a three-year period, the MEA may cancel a portion of the amount stated on the initial credit certificate.

If the credit is more than the state tax liability, the unused credit may be carried forward for the next ten tax years. The MEA cannot issue an initial credit certificate after December 31, 2010, and the total of the maximum credit amounts on initial credit certificates issued through that date cannot exceed $25 million.

Documentation required:

A copy of the initial credit certificate issued by the MEA must be submitted with the income tax return.

Corporate income tax:

Form 500CR must be completed and submitted with the corporate income tax return (Form 500).

Personal income tax:

Form 500CR must be completed and submitted with the income tax return (Form 502 or Form 505). If the business is a pass-through entity, Form 500CR must be prepared for the pass-through entity and submitted with the entity's income tax return (Form 510). A modified federal Schedule K-1 provided by the pass-through entity to its members must separately state their shares of the credit. Individuals or entities must attach this statement to the Form 500CR submitted with their personal (Form 502 or 505), corporate (Form 500), or pass-through entity (Form 510) income tax returns.

For more information, contact:

Revenue Administration Division
Comptroller of Maryland
Annapolis, MD 21411-0001
Phone: 410-260-7980 from Central Maryland,
1-800-MD TAXES from elsewhere
E-mail: taxhelp@comp.state.md.us

Maryland Energy Administration
1623 Forest Drive, Suite 300
Annapolis, MD 21403
Phone: 410-260-7655
1-800-72 ENERGY
Web site: www.energy.state.md.us