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Pollution control tax: State and local credits and incentives

Credits & Incentives talk with Deloitte

“Credits & Incentives talk with Deloitte,” is a monthly column by Kevin Potter of Deloitte Tax LLP, featured in the Journal of Multistate Taxation and Incentives, a Thomson Reuters publication. The July 2017 edition, co-authored with Darilyn Stewart and Bruce Kessler, provides an overview of state programs providing tax credits and incentives that seek to offset the costs of implementing pollution control activities.

Overview

Manufacturers, utilities, technology companies, extractive businesses—indeed industries of all stripes—may have day-to-day processes and activities that may cause pollution of differing types and magnitudes. In this regard, many industries are required by federal, state, or local regulations to reduce or eliminate certain pollutants from their business activities. This regulatory push towards becoming greener and cleaner is augmented by state programs providing tax credits and incentives that seek to offset the costs of implementing pollution control activities.

What is pollution?

The term "pollution" is defined as the "contamination of air, water, or soil by substances that are harmful to living organisms."1 The prevention of pollution often involves practices that increase efficiency in the use of energy, water, or other natural resources, and protect resources through conservation.

The federal Pollution Prevention Act (P2) defines "pollution prevention" as "reducing or eliminating waste at the source by modifying production processes, promoting the use of nontoxic or less toxic substances, implementing conservation techniques, and reusing materials rather than putting them into the waste stream."2 P2 has focused industry on pollution source reduction through equipment and technology modifications, process or procedure modifications, reformulation or redesign of products, and improvements in training.3 Likewise, state and local governments have enacted their own statutes seeking to influence corporate behavior towards increased pollution prevention.

While industry in the United States has become increasingly accepting of the need to become more environmentally conscious and sustainable, upfront investment costs remain a barrier. To help decrease these costs, federal, state, and local governments have employed tax and financial incentives to encourage investments in pollution control equipment and mitigation activity.

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What is pollution control equipment?

Pollution control equipment and property can encompass a wide variety of items used by businesses to mitigate odors, vapors, water contamination, or other emissions. Likewise, certain systems such as air filtration systems, double-walled tanks, and leak retaining walls may be considered pollution control equipment even though they may be characterized as "real" (versus "personal") property.

Even investments in low-emission or zero-emission vehicles, and the infrastructure to support battery-electric vehicles, plug-in hybrid-electric vehicles, and hydrogen fuel-cell-electric vehicles, are now generally considered to be pollution control "equipment."

Because the definition of pollution, as well as what is considered an eligible pollution control investment, typically varies from one state to the next, careful analysis is required to differentiate those various state rules and requirements.

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State-level pollution control tax credits and incentives

Many states offer qualifying businesses one or more types of incentives to invest in pollution control equipment and mitigation activity. The format of the incentive may differ depending on the state and the focus of its tax code.

The incentives may include corporate income tax credits (e.g., investment tax credits), sales and use tax exemptions, property tax exemptions, and in some cases, cash grants. Qualification for these incentives is typically based on the type of business activity and/or industry within the state.

Download the PDF to read the full article and to learn more about state tax incentives.

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For more information regarding tax credits and incentives, contact:

Kevin Potter, managing director, Deloitte Tax LLP, New York, +1 212 492 3630

​More from "Credits & Incentives talk with Deloitte"

References

1 The American Heritage Science Dictionary, Houghton Mifflin Company (1st ed. 1995).

2 Pollution Prevention Act of 1990, Pub. L. No. 107-508, 104 Stat. 1388-321 et seq.; 42 U.S.C. § 13101 (1990).

3 42 U.S.C. § 13101 et seq.

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