S Corporations Allowed to Own Subsidiaries

Regular “C” corporation subsidiary. S corporations may have 80%-or-more-owned C corporation subsidiaries. These C corporation subsidiaries may file a consolidated return with other C corporations with which they are affiliated. The S corporation cannot be included in this return, however.

Note as well that dividends received by the S corporation parent from its C corporation subsidiary are not treated as “passive investment income” to the extent they are attributable to the sub's active conduct of a trade or business. This can help the S corporation avoid the tax on passive income and the possible termination of its S corporation status that applies to S corporations with accumulated earnings and profits (i.e., earnings and profits from a year when it was not an S corporation).

Wholly-owned S corporation subsidiary. An S corporation cannot have a corporate shareholder. This rule ordinarily prevents subsidiaries from being treated as S corporations. However, this rule does not apply to qualified Subchapter S subsidiaries (QSSSs or Qsubs). Thus, an S corporation can have a QSub if it owns 100% of the subsidiary and makes the required election.

A QSub is not treated as a separate corporation. Instead, its assets, liabilities, income, deductions, etc. are all treated as those of the parent S corporation. The sub's accumulated earnings and profits, passive investment income, and built-in gains are also treated as those of the parent. Other tax consequences relating to the S corporation sub can be complex.

If an election is made to treat an existing corporation as a QSub, it will generally be treated as having liquidated in a tax-free subsidiary liquidation. The tax consequences of this move can be complex and must be thoroughly analyzed.

Distributing Taxable Dividend in order to Eliminate an S Corporation's Earnings and Profits

Under the S corporation rules, the S corporation election of a corporation that has accumulated earnings and profits because it was once a C corporation will terminate if, for a period of three consecutive tax years, its passive investment income exceeds 25% of its gross receipts. In addition, the S corporation is subject to a tax on passive investment income for any year in which it exceeds the 25% limitation.

For the past few years, your S corporation has narrowly avoided exceeding the 25% limitation. However, because the maximum individual tax rate on dividends has been reduced to 15%, it may now be feasible to eliminate your S corporation's accumulated earnings and profits by making a dividend distribution equal to the amount of the accumulated earnings and profits. Alternatively, if you prefer not to have the corporation make an actual distribution, the corporation may (with the consent of the affected shareholders) elect to distribute a deemed dividend, which would cause the corporation and the shareholders to be treated as if the corporation distributed a taxable dividend to the shareholders. Once you have eliminated the accumulated earnings and profits, there will no longer be any restriction on the amount of passive investment income that can be earned by the corporation.

The down side is that the shareholders will be subject to a tax on the dividend distribution. However, the maximum tax rate on dividends has been reduced to 15%. This may be acceptable to the shareholders as a cost of removing the passive investment income limitation on the corporation's activities.

Virginia: Constitutionality of Tax Credits

The Virginia Attorney General Kenneth Cuccinelli issued an opinion that the limitations on the General Assembly's appropriation powers contained in Constitution of Va. IV § 16 and Constitution of Va. VIII § 10 do not preclude the enactment of statutes allowing tax credits that Virginia taxpayers may claim for making contributions to sectarian entities, nonprofit organizations not controlled by Virginia or to private schools not owned or controlled by Virginia or one of its political subdivisions. The constitutional restrictions apply only to appropriations of public funds. The Attorney General distinguished appropriations of funds from income tax credits. Credits offset dollar for dollar the tax obligation a taxpayer would otherwise incur and the benefit derived from a tax credit does not flow out of the state's general fund; rather, it reduces the tax revenues that would otherwise go into the general fund. (Attorney General Opinion, 11-144, 05/25/2012.)

Hawaii: Air Pollution Control Facilities Tax Exemption

Effective May 25, 2012, the City and County of Honolulu, Hawaii has adopted Ordinance 12-10, Bill 20 (2012), which repeals the tax exemption for air pollution control facilities under Revised Ordinances of the City and County of Honolulu 1990 §8-10.14. All exemptions granted and in effect on May 25, 2012 continue through the tax year beginning July 1, 2012 until June 30, 2013.

Hawaii: Pulp and Paper Manufacturing Tax Exemption

Effective May 25, 2012, the City and County of Honolulu, Hawaii has adopted Ordinance 12-11, Bill 21 (2012), which repeals the tax exemption for pulp and paper manufacturing property under Revised Ordinances of the City and County of Honolulu 1990 §8-10.11. All exemptions granted and in effect on May 25, 2012 continue through the tax year beginning July 1, 2012 until June 30, 2013.

DOE Announces $3.2 Million to Help Consumers Manage Energy Consumption

The Energy Department announced on May 22 phase I awards totaling nearly $3.2 million that will encourage utilities, local governments, and communities to create programs that empower consumers to better manage their electricity use through improved access to their own electricity consumption data. These projects will complement the Apps for Energy prizes by demonstrating how convenient tools and services can help consumers make more informed decisions about their energy consumption and helping to stimulate the market for the development of additional innovative energy applications. Awards were in seven states: Arizona, California, Iowa, Maine, North Dakota, Pennsylvania, and Texas. For phase II, the department will select one recipient to apply the tools and software to an entire service territory, region, or community.

First Winners Announced for 'Apps for Energy' Competition

The Energy Department on May 22 announced the first round of winners for the "Apps for Energy" competition, selected by a panel of judges. App developers submitted more than 50 innovative mobile and Web applications that will help utility consumers save money by making the most of their "Green Button" electricity usage data. Eligible apps included those for mobile phones, computers, tablets, software programs, and more. Popular Choice awards will also be announced after the conclusion of a public voting period on May 31.

Competing developers created apps that are designed to make the best use of the data provided through the Green Button initiative, which recently announced that nine major utilities and electricity suppliers will provide more than 31 million consumers access to data about their own energy use. The winners are sharing prize money provided jointly by the Energy Department and three private-sector cosponsors of the competition.

The grand prize winner for the best overall app was Leafully, a Seattle-based team, which created an app that helps utility customers visualize their Green Button data as a variety of units, such as the amount of trees needed to offset an individual’s energy usage. Leafully encourages users to set energy savings goals and to share their progress on Facebook.

Energy Department Awards $11 Million for Clean Energy Small Businesses

The Energy Department announced on May 23 a total of $11 million in innovative research and technology grants of up to $150,000 awarded to nearly 67 small businesses in 22 states. The grants were awarded under the department's Small Business Innovation Research program, part of the Obama Administration’s broader support for job-creating small businesses and startup companies nationwide. These businesses are located in Alabama, Arizona, Arkansas, California, Colorado, Florida, Georgia, Illinois, Maryland, Massachusetts, Michigan, Mississippi, New Jersey, New Mexico, New York, Ohio, Pennsylvania, Tennessee, Texas, Vermont, Virginia, and Washington. The businesses will work on 75 research projects including designing better wind turbines and fuel cell technology. They will then be eligible to compete for a second phase of the program with awards up to $1 million over two years.

Support Growing for New Markets Tax Credit Extension

The House Ways and Means Committee is studying nearly all of the so-called tax extenders in advance of an expected extension in December 2012 as well as fundamental tax reform, which could come as early as 2013. The Select Revenue Measures Subcommittee is expected to hold a second hearing on tax extenders in early June, although a date has yet to be announced.

Lawmakers have said that tax breaks that meet certain metrics like job creation and capital formation have a great chance of surviving, but have refused to indicate which extenders they deem to be safe.

The NMTC was originally enacted in 2000 as part of the Community Renewal Tax Relief Act (Pub. L. No. 106-554), and its initial allocation authority was for a total of $15 billion from 2001 through 2007.

The program has been renewed a couple of times, most recently as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Pub. L. No. 111-312), which provided an allocation limit of $3.5 billion for each of 2010 and 2011 and extended through 2016 the carryover period for unused credits.

It provides a 39 percent tax credit of the cost of the qualified equity investment in economically distressed or low-income communities and is claimed over a seven-year period.

If lawmakers choose to extend the NMTC, it would most likely be folded into a larger bill extending dozens of expired and expiring tax breaks.

President Obama proposed to extend and modify the tax credit in his fiscal year 2013 budget submission, choosing to authorize NMTC allocations of $5 billion each for 2012 and 2013.

Mississippi - Credit for Investments Made by Insurers

S.B. 2659, effective July 1, 2012, amends the amount of the insurance premiums tax credit that may be claimed by an insurer that makes qualified investments in a Mississippi small business investment company (SBIC). The legislation provides that, at the time of the investment of designated capital, a participating investor will earn a vested credit against state premium tax liability equal to 100% of the investment in the SBIC (prior to July 1, 2012, the amount is equal to 80% of the investment). In addition, for taxable years 2015 through 2019, an investor may claim the credit in an amount equal to 20% of the investment (prior to this legislation, 16% of the investment could be claimed for tax years 2014 through 2018).

Mississippi - Tax Settlement Funds Paid to Outside Counsel

Funds that a corporation paid, as part of the settlement of its delinquent tax liability to Mississippi, to a private law firm hired by the Attorney General to pursue the delinquency constituted public funds and had to be turned over to Mississippi. The funds that the law firm received were part of the corporation's payment of its tax obligations, and so that money constituted “public funds” for the purposes of the state auditor's statutory authority to recover misappropriated public funds. Article Four, § 100, of the Mississippi Constitution requires that those funds be deposited in the proper public treasury. Neither the Attorney General nor the law firm provided sufficient evidence to establish that the state auditor had waived Mississippi's claim to the funds. Further, the plain language of Miss. Code Ann. § 7-5-7 mandates that outside counsel retained by the Attorney General be paid only from the Attorney General's “contingent fund,” or from funds appropriated to the Attorney General by the legislature. (Pickering v. Langston Law Firm, et al., Miss. S. Ct., Dkt. No. 2010-CA-00362-SCT, 05/24/2012.)

Mississippi State University Wins EcoCAR Competition

EcoCAR 2: Plugging In to the Future today named Mississippi State University its Year One winner at the EcoCAR 2012 Competition in Los Angeles. The 15 universities competing in EcoCAR 2 gathered for six days of judged competition this week with $100,000 in prize money up for grabs. EcoCAR 2, a three-year competition sponsored by the U.S. Department of Energy (DOE), General Motors (GM) and 25 other government and industry leaders, gives students the opportunity to gain real-world, eco-friendly automotive engineering experience while striving to improve the energy efficiency of an already highly-efficient vehicle – the 2013 Chevrolet Malibu.

Year One of the competition series emphasized engineering design though modeling and simulation to select and virtually test their plug-in hybrid electric vehicle architecture. Teams also started developing their hybrid control strategy using hardware-in-the-loop (HIL) simulation tools and designing major vehicle subsystems, including hybrid powertrain, energy storage, and high-voltage electrical systems.

Throughout the competition events in Los Angeles, EcoCAR 2 teams put their designs to the test, giving presentations to industry and government professionals based on their mechanical, electrical, control and HIL strategies, project initiation approval, outreach and business plans, and trade show display.

Mississippi State University was named the Year One winner after impressing more than 100 judges representing various EcoCAR 2 sponsors with its series-parallel plug-in hybrid electric vehicle design.  The team produced top tier design reports, won Best Facilities Inspection, Best Final Technical Report, Best Project Initiation Approval Presentation, Best Trade Show Evaluation, and Best Controls Presentation categories.  The university started competing nine years ago and has since taken first place three times previously.

While Mississippi State won the top prize, it wasn’t the only winning team at the Year One Finals. The eco-engineering teams participated in more than a dozen different events ranging from outreach to powertrain design as they competed for more than $100,000 in prize money. In addition, the second place team is The Ohio State, and University of Waterloo took third place overall.  Now that their vehicle architectures are finalized, the 15 teams also received the keys to the GM-donated 2013 Chevrolet Malibu they will spend the next two years rebuilding, testing and refining. 

Small Business Tax Credits

Both the expanded credit for hiring veterans and the credit for employer-provided health care coverage can provide tax savings to eligible small businesses when they file their 2012 federal income tax returns. In addition, substantial relief from past payroll tax obligations is available to eligible employers who agree to reclassify their workers as employees in the future. Here are details on each of these benefits.

Expanded Tax Credit for Hiring Veterans

A law change enacted late last year now provides an expanded Work Opportunity Tax Credit (WOTC) to employers that hire eligible unemployed veterans. The credit can be as high as $9,600 per veteran for for-profit employers or up to $6,240 for tax-exempt organizations. The amount of the credit depends on a number of factors, including the length of the veteran's unemployment before hire, hours a veteran works and the amount of first-year wages paid. Employers who hire veterans with service-related disabilities may be eligible for the maximum credit.

Certification requirements apply to these new hires. Normally, an eligible employer must file Form 8850 with the state workforce agency within 28 days after the eligible worker begins work. But under a special rule, employers have until June 19, 2012, to complete and file this form for veterans hired on or after Nov. 22, 2011, and before May 22, 2012. The 28-day rule will again apply to eligible veterans hired on or after May 22. This form can be faxed or electronically transmitted to the state workforce agency, as long as the agency is able to receive the certification forms that way.

Businesses claim the credit on their income tax return using Form 5884 and Form 3800. A separate claim procedure using Form 5884-C applies to eligible tax-exempt organizations. Details are on IRS.gov.

Credit Helps Small Employers Provide Health Care Coverage

Small employers that pay at least half of the premiums for employee health insurance coverage under a qualifying arrangement may be eligible for the small business health care tax credit. Enacted two years ago, the credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.

Eligible small employers can claim the credit for 2010 through 2013 and for two additional years beginning in 2014. Targeted to small employers that primarily employ low-and moderate-income workers, the maximum credit, in tax-years 2010 through 2013, is 35 percent of premiums paid by small businesses and 25 percent of premiums paid by tax-exempt organizations, increasing to 50 percent and 35 percent, respectively, in 2014.

Small businesses claim the credit on their income tax return using Form 8941 and Form 3800. Tax-exempt organizations also use Form 8941 and then claim the credit on Form 990-T.

The recently-revamped Small Business Health Care Tax Credit page on IRS.gov is packed with information and resources designed to help small employers see if they qualify for the credit and then figure it correctly. These include a step-by-step guide for determining eligibility, examples of typical tax savings under various scenarios, answers to frequently-asked questions, a YouTube video and a webinar.

Many Businesses can qualify for Substantial Payroll Tax Relief

Many businesses can now resolve past worker classification issues at a low cost by voluntarily reclassifying their workers. Better yet, they don't have to wait for an IRS audit to do so.

By prospectively reclassifying workers, making a minimal payment and meeting a few other requirements, eligible businesses can achieve greater certainty for themselves, their workers and the government. Already, 540 employers have been approved to participate in the new IRS Voluntary Classification Settlement Program (VCSP) since it was launched last September.

The VCSP is available to many businesses, tax-exempt organizations and government entities that currently treat their workers or a class or group of workers as nonemployees or independent contractors, and now want to correctly treat these workers as employees in the future. To be eligible, an employer must: consistently have treated the workers in the past as nonemployees, have filed all required Forms 1099 for the workers for the previous three years and not currently be under audit by the IRS or the Department of Labor or a state agency concerning the classification of these workers.

Interested employers can apply for the program by filing Form 8952. Employers accepted into the program will pay an amount effectively equaling just over one percent of the wages paid to the reclassified workers for the past year. It's that simple. Moreover, employers will not be audited on payroll taxes related to these workers for prior years.

Details on these and other tax benefits are on IRS.gov. In addition, the Small Business Tax Center (www.irs.gov/smallbiz) has links to a variety of useful tax tools for small business, including the Virtual Small Business Tax Workshop, a downloadable tax calendar, common forms and their instructions and help on everything from how to get an Employer Identification Number (EIN) online to how to engage with the IRS in the event of an audit.

Mississippi: Notice to Beer Wholesalers

The Mississippi Department of Revenue issued a memo to provide information regarding the qualifications for shipment of malt beverages and light wine products into Mississippi. Under the Mississippi beer tax law, a manufacturer or importer must enter into an agreement with the State of Mississippi and furnish a surety bond guaranteeing compliance with the law. The alcoholic content of malt beverages must not exceed 5% by weight through June 30, 2012 and 8% by weight effective July 1, 2012 and malt beverages of alcohol content exceeding 5% by weight may not be stored in Mississippi prior to July 1, 2012. The alcoholic content of light wine must not exceed 5% by weight. Beginning July 1, 2012, the alcoholic content may be stated by volume, (maximum alcohol content not to exceed 10.1% by volume for malt beverage products and 6.25 % by volume for light wine products). All malt beverage and light wine products must be qualified with the state before shipment into Mississippi and a cover letter outlining the products and container sizes to be distributed, a copy of the Federal Label Approval, (for malt beverage products), and a certified laboratory analysis showing the alcohol content by weight (and volume if listed on the label) are required to register all malt beverage and light wine products to be distributed in Mississippi. Copies of the actual labels must also be submitted for approval if the alcohol content is listed on the labels. (Notice 72-12-004, Notice to Beer Wholesalers, Mississippi Dept. of Rev., 05/22/2012.)

Maryland: Tax Credit Evaluation Act

H.B. 764, effective July 1, 2012, enacts the Tax Credit Evaluation Act to establish a process for evaluating state tax credits over a 4-year period from July 1, 2014 through July 1, 2017. Credits included in the evaluation are: the enterprise zone; taxes paid to another state; installment sales; earned income; film production activity; job creation; sustainable communities; neighborhood and community assistance contributions; qualified employees with disabilities; Maryland-mined coal; businesses that create new jobs; certain residential real estate property; telecommunication business property; poverty level; employer-provided long-term care insurance; work-based learning program; One Maryland economic development; employment; employee commuter benefits; child and dependent care expenses; quality teacher incentive; long-term care insurance; clean energy incentive; research and development; green buildings; preservation and conservation easements; aquaculture oyster floats; biotechnology investment; cellulosic ethanol technology; bio-heating oil; and qualified electric vehicle recharging property. The bill also repeals the credit for long-term employment of ex-felons.

Mississippi Enacts Health Care Industry Zone Act

Governor Phil Bryant recently signed the Health Care Industry Zone Act which offers tax incentives to various types of health care businesses to stimulate investment in Mississippi by supporting existing acute care hospitals.

Any qualified business that constructs or renovates a health care facility in its designated Health Care Zone will qualify for a 10-year accelerated state income tax depreciation deduction; a sales tax exemption for equipment and materials purchased from the date of the project's certification until three months after the facility is completed; and a property tax “Fee in Lieu” if certain minimum investment is made or, at the county's discretion, an ad valorem tax exemption for 10 years. Qualified businesses may also take advantage of additional incentives, including the Advantage Jobs Credit, the Jobs Tax Credit, and Infrastructure Assistance.

Designated Health Care Zones will include those areas certified by the Mississippi Development Authority (MDA) within designated counties with more than 375 certified acute care hospital beds and/or in a county having a hospital with a minimum capital investment of $250 million constructed before July 1, 2017. A health care industry facility seeking to benefit from the Act's incentives must be located within a five-mile radius of an acute care hospital and must be on real property zoned for the facility's operation.

A “health care industry facility” means a business engaged in the research and development of pharmaceuticals, biologics, biotechnology, diagnostic imaging, medical supplies, medical equipment or medicine and related manufacturing or processing, medical service providers, medical product distribution, or laboratory testing. The facility must create a minimum of 25 new full-time jobs and/or have $10 million of capital investment after July 1, 2012. If the required number of new jobs is not created at the end of five years, the MDA may revoke the business's health care industry zone certification.

Businesses and health care industry facilities seeking incentives must apply to the MDA for certification as a qualified business. Certification must be obtained prior to beginning construction on the facility or hiring employees for the facility.

Alabama Enacts New Markets Tax Credit

The Alabama Legislature has enacted the Alabama New Markets Development Act, effective August 1, 2012, which allows a tax credit for qualified equity investments to acquire stock in a qualified community development entity. Up to 50% of the investment could be taken as tax credit (over a 7-year period) against the state-distributed portion of the Alabama corporate income tax, personal income tax, insurance premium and retaliatory taxes, financial institution excise tax. The credit is administered by the Alabama Development Office (ADO) and the Department of Revenue. The ADO can certify up to a cumulative amount of qualified equity investments that can result in $20 million of tax credits in any tax year.

Vermont, Alternative Energy Plants

H.B. 679 makes changes to the taxation of renewable energy producing plants. Effective January 1, 2013, any renewable energy plant in Vermont commissioned to generate solar power will be taxed at $4 per kW plant capacity. The tax is paid to the Department of Taxes, and payment and the return are due April 15 of each year. Small renewable solar energy plants, with a capacity equal to or less than 10kW, are exempt. The real and personal property of small plants is also exempt from Vermont property tax, but will remain subject to the education property tax applied to nonresidential properties. However, the small facilities exemptions are scheduled to be repealed on January 1, 2023. Also effective January 1, 2013, the threshold for wind-powered electric generating facilities to qualify for the alternative education property tax rate will decrease from five megawatts to one megawatt. Lastly, the Department is charged with providing municipalities methods to determine the fair market value of the alternative energy plants for municipal tax purposes.

Alabama Extends Tax Abatements, Tourism Destination Attractions

Effective May 15, 2012, a county, municipality or public industrial authority may grant property tax abatements and abatement of construction-related transaction taxes to private users of tourism destination attractions. A tourism destination attraction may also qualify for capital credit, provided all capital cost and new job creation requirements are met.

Tennessee, Film Credit Eliminated

H.B. 3839, effective 07/01/2012, eliminates the credit available to film production companies headquartered in Tennessee for expenses related to movie and film productions in the state. However, the termination of the credit should not affect qualifying taxpayers' ability to realize benefits from the credit for expenses incurred prior to July 1, 2012, provided the taxpayer's production is determined to be in the best interests of the state by the commissioner of revenue and the commissioner of economic and community development.

IRS Notice 2012-35 Updating Reference Prices for 2012 Section 45 Energy Credits

This notice publishes the inflation adjustment factors and reference prices for calendar year 2012 for the renewable electricity production credit, the refined coal production credit, and the Indian coal production credit under section 45 of the Internal Revenue Code. The 2012 inflation adjustment factors and reference prices are used in determining the availability of the credits. The 2012 inflation adjustment factors and reference prices apply to calendar year 2012 sales of kilowatt-hours of electricity produced in the United States or a possession thereof from qualified energy resources and to calendar year 2012 sales of refined coal and Indian coal produced in the United States or a possession thereof.

BACKGROUND

Section 45(a) provides that the renew-able electricity production credit for any tax year is an amount equal to the product of 1.5 cents multiplied by the kilowatt hours of specified electricity produced by the taxpayer and sold to an unrelated per-son during the tax year. This electricity must be produced from qualified energy resources and at a qualified facility during the 10-year period beginning on the date the facility was originally placed in service.

Section 45(b)(1) provides that the amount of the credit determined under section 45(a) is reduced by an amount which bears the same ratio to the amount of the credit as (A) the amount by which the reference price for the calendar year in which the sale occurs exceeds 8 cents, bears to (B) 3 cents. Under section 45(b)(2), the 1.5 cent amount in section 45(a), the 8 cent amount in section 45(b)(1), the $4.375 amount in section 45(e)(8)(A), and in section 45(e)(8)(B)(i), the $2.00 amount in section 45(e)(8)(D)(ii)(I), the reference price of fuel used as feedstock (within the meaning of section 45(c)(7)(A)) in 2002 are each adjusted by multiplying the amount by the inflation adjustment factor for the calendar year in which the sale occurs. If any amount as increased under the preceding sentence is not a multiple of 0.1 cent, the amount is rounded to the nearest multiple of 0.1 cent.

Section 45(c)(1) defines qualified energy resources as wind, closed-loop biomass, open-loop biomass, geothermal energy, solar energy, small irrigation power, municipal solid waste, qualified hydropower production, marine and hydrokinetic renewable energy.

Section 45(d)(1) defines a qualified facility using wind to produce electricity as any facility owned by the taxpayer that is originally placed in service after December 31, 1993, and before January 1, 2013. See section 45(e)(7) for rules relating to the inapplicability of the credit to electricity sold to utilities under certain contracts.

Section 45(d)(2)(A) defines a qualified facility using closed-loop biomass to pro-duce electricity as any facility (i) owned by the taxpayer that is originally placed in service after December 31, 1992, and before January 1, 2014, or (ii) owned by the taxpayer which before January 1, 2014, is originally placed in service and modified to use closed-loop biomass to co-fire with coal, with other biomass, or with both, but only if the modification is approved under the Biomass Power for Rural Development Programs or is part of a pilot project of the Commodity Credit Corporation as described in 65 Fed. Reg. 63052. Section 45(d)(2)(C) provides that in the case of a qualified facility described in section 45(d)(2)(A)(ii), (i) the 10-year period referred to in section 45(a) is treated as be-ginning no earlier than the date of enactment of section 45(d)(2)(B)(i); and (ii) if the owner of the facility is not the producer of the electricity, the person eligible for the credit allowable under section 45(a) is the lessee or the operator of the facility.

Section 45(d)(3)(A) defines a qualified facility using open-loop biomass to produce electricity as any facility owned by the taxpayer which (i) in the case of a facility using agricultural livestock waste nutrients, (I) is originally placed in ser-vice after the date of enactment of section 45(d)(3)(A)(i)(I) and before January 1, 2014, and (II) the nameplate capacity rating of which is not less than 150 kilowatts; and (ii) in the case of any other facility, is originally placed in service before January 1, 2014. In the case of any facility described in section 45(d)(3)(A), if the owner of the facility is not the producer of the electricity, section 45(d)(3)(C) provides that the person eligible for the credit allowable under section 45(a) is the lessee or the operator of the facility.

Section 45(d)(4) defines a qualified facility using geothermal or solar energy to produce electricity as any facility owned by the taxpayer which is originally placed in service after the date of enactment of section 45(d)(4) and before January 1, 2014 (January 1, 2006, in the case of a facility using solar energy). A qualified facility using geothermal or solar energy does not include any property described in section 48(a)(3) the basis of which is taken into account by the taxpayer for purposes of determining the energy credit under section 48.

Section 45(d)(5) defines a qualified facility using small irrigation power to pro-duce electricity as any facility owned by the taxpayer which is originally placed in service after the date of enactment of section 45(d)(5) and before October 3, 2008.

Section 45(d)(6) defines a qualified facility using gas derived from the biodegradation of municipal solid waste to produce electricity as any facility owned by the tax-payer which is originally placed in service after the date of enactment of section 45(d)(6) and before January 1, 2014.

Section 45(d)(7) defines a qualified facility (other than a facility described in paragraph (6)) that burns municipal solid waste to produce electricity as any facility owned by the taxpayer which is originally placed in service after the date of enactment of section 45(d)(7) and before January 1, 2014. A qualified facility burning municipal solid waste includes a new unit placed in service in connection with a facility placed in service on or before the date of enactment of section 45(d)(7), but only to the extent of the increased amount of electricity produced at the facility by reason of such new unit.

Section 45(d)(8) provides in the case of a facility that produces refined coal, the term “refined coal production facility” means (i) with respect to a facility producing steel industry fuel, any facility (or any modification to a facility) which is placed in service before January 1, 2010, and (ii) with respect to any other facility producing refined coal, and facility placed in service after the date of the enactment of the American Jobs Creation Act of 2004 and before January 1, 2012.

Section 45(d)(9) defines a qualified facility producing qualified hydroelectric production described in section 45(c)(8) as (A) any facility producing incremental hydropower production, but only to the extent of its incremental hydropower production attributable to efficiency improvements or additions to capacity de-scribed in section 45(c)(8)(B) placed in service after the date of enactment of section 45(d)(9) and before January 1, 2014, and (B) any other facility placed in service after the date of enactment of section 45(d)(9) and before January 1, 2014. Section 45(d)(9)(C) provides that in the case of a qualified facility described in section 45(d)(9)(A), the 10-year period referred to in section 45(a) is treated as beginning on the date the efficiency improvements or additions to capacity are placed in service.

Section 45(d)(10) provides in the case of a facility that produces Indian coal, the term “Indian coal production facility” means a facility which is placed in service before January 1, 2009.

Section 45(d)(11) provides in the case of a facility producing electricity from marine and hydrokinetic renewable energy, the term “qualified facility” means any facility owned by the taxpayer which (i) has a nameplate capacity rating of at least 150 kilowatts, and (ii) which is originally placed in service on or after the date of the enactment of this paragraph and before January 1, 2012.

Section 45(e)(8)(A) provides that the refined coal production credit is an amount equal to $4.375 per ton of qualified re-fined coal (i) produced by the taxpayer at a refined coal production facility during the 10-year period beginning on the date the facility was originally placed in service, and (ii) sold by the taxpayer (I) to an unrelated person and (II) during the 10-year period and the tax year. Section 45(e)(8)(B) provides that the amount of credit deter-mined under section 45(e)(8)(A) is reduced by an amount which bears the same ratio to the amount of the increase as (i) the amount by which the reference price of fuel used as feedstock (within the meaning of section 45(c)(7)(A)) for the calendar year in which the sale occurs exceeds an amount equal to 1.7 multiplied by the reference price for such fuel in 2002, bears to (ii) $8.75. Section 45(e)(8)(D)(ii)(I) provides that in the case of a taxpayer who produces steel industry fuel, subparagraph (A) shall be applied by substituting “2.00 per barrel-of-oil equivalent” for $4.375 per ton.” Section 45(e)(8)(D)(ii)(II) pro-vides that in lieu of the 10-year period referred to in clauses (i) and (ii)(II) of sub-paragraph (A), the credit period shall be the period beginning in the later of the date such facility was originally placed-in-service, or October 1, 2008, and ending on the later of December 31, 2009, or the date which is 1 year after the date such facility or the modifications described in clause (iii) were placed in service. Section 45(e)(8)(D)(ii)(III) provides that subparagraph (B) (dealing with the phaseout of the credit) will not apply.

Section 45(e)(10)(A) provides in the case of a producer of Indian coal, the credit determined under section 45 for any tax-able year shall be increased by an amount equal to the applicable dollar amount per ton of Indian coal (i) produced by the tax-payer at an Indian coal production facility during the 7-year period beginning on January 1, 2006, and (ii) sold by the taxpayer (I) to an unrelated person, and (II) during such 7-year period and such taxable year.

Section 45(e)(10)(B)(i) defines “applicable dollar amount” for any taxable year as (I) $1.50 in the case of calendar years 2006 through 2009, and (II) $2.00 in the case of calendar years beginning after 2009.

Section 45(e)(2)(A) requires the Secretary to determine and publish in the Federal Register each calendar year the inflation adjustment factor and the reference price for the calendar year. The inflation adjustment factors and the reference prices for the 2012 calendar year were published in the Federal Register on April 11, 2012 (77 Fed. Reg. 21835). Corrections were published on April 30, 2012 (77 Fed. Reg. 25538).

Section 45(e)(2)(B) defines the inflation adjustment factor for a calendar year as the fraction the numerator of which is the GDP implicit price deflator for the pre-ceding calendar year and the denominator of which is the GDP implicit price deflator for the calendar year 1992. The term “GDP implicit price deflator” means the most recent revision of the implicit price deflator for the gross domestic product as computed and published by the Department of Commerce before March 15 of the calendar year.

Section 45(e)(2)(C) provides that the reference price is the Secretary's determination of the annual average contract price per kilowatt hour of electricity generated from the same qualified energy resource and sold in the previous year in the United States. Only contracts entered into after December 31, 1989, are taken into account.

Under section 45(e)(8)(C), the determination of the reference price for fuel used as feedstock within the meaning of section 45(c)(7)(A) is made according to rules similar to the rules under section 45(e)(2)(C).

Under section 45(e)(10)(B)(ii), in the case of any calendar year after 2006, each of the dollar amounts under section 45(e)(10)(B)(i) shall be equal to the product of such dollar amount and the inflation adjustment factor determined under section 45(e)(2)(B) for the calendar year, except that section 45(e)(2)(B) shall be applied by substituting 2005 for 1992.

INFLATION ADJUSTMENT FACTORS AND REFERENCE PRICES

The inflation adjustment factor for calendar year 2012 for qualified energy resources and refined coal is 1.4799. The inflation adjustment factor for Indian coal is 1.1336. The reference price for calendar year 2012 for facilities producing electricity from wind (based upon information provided by the Department of Energy) is 5.31 cents per kilowatt hour. The reference prices for fuel used as feedstock within the meaning of section 45(c)(7)(A), relating to refined coal production (based upon information provided by the Department of Energy) are $31.90 per ton for calendar year 2002 and $58.49 per ton for calendar year 2012. The reference prices for facilities producing electricity from closed-loop biomass, open-loop biomass, geothermal energy, solar energy, small irrigation power, municipal solid waste, qualified hydropower production, marine and hydrokinetic energy have not been determined for calendar year 2012.

PHASE-OUT CALCULATION

Because the 2012 reference price for electricity produced from wind does not exceed 8 cents multiplied by the inflation adjustment factor, the phaseout of the credit provided in section 45(b)(1) does not apply to such electricity sold during calendar year 2012. Because the 2012 reference price of fuel used as feedstock for refined coal does not exceed the $31.90 reference price of such fuel in 2002 multiplied by the inflation adjustment factor and 1.7, the phaseout of credit provided in section 45(e)(8)(B) does not apply to re-fined coal sold during calendar year 2012. Further, for electricity produced from closed-loop biomass, open-loop biomass, geothermal energy, solar energy, small irrigation power, municipal solid waste, qualified hydropower production, marine and hydrokinetic energy, the phaseout of credit provided in section 45(b)(1) does not apply to such electricity sold during calendar year 2012.

CREDIT AMOUNT BY QUALIFIED ENERGY RESOURCE AND FACILITY, REFINED COAL, AND INDIAN COAL

As required by section 45(b)(2), the 1.5 cent amount in section 45(a)(1), the 8 cent amount in section 45(b)(1), the $4.375 amount in section 45(e)(8)(A) and the $2.00 amount in section 45(e)(8)(D) are each adjusted by multiplying such amount by the inflation adjustment factor for the calendar year in which the sale occurs. If any amount as increased under the preceding sentence is not a multiple of 0.1 cent, such amount is rounded to the nearest multiple of 0.1 cent. In the case of electricity produced in open-loop biomass facilities, small irrigation power facilities, landfill gas facilities, trash combustion facilities, qualified hydropower facilities, marine and hydrokinetic renew-able energy, section 45(b)(4)(A) requires the amount in effect under section 45(a)(1) (before rounding to the nearest 0.1 cent) to be reduced by one-half. Under the calculation required by section 45(b)(2), the credit for renewable electricity production for calendar year 2012 under section 45(a) is 2.2 cents per kilowatt hour on the sale of electricity produced from the qualified energy resources of wind, closed-loop biomass, geothermal energy, and solar energy, and 1.1 cent per kilowatt hour on the sale of electricity produced in open-loop biomass facilities, small irrigation power facilities, landfill gas facilities, trash combustion facilities, qualified hydropower facilities, marine and hydrokinetic energy facilities. Under the calculation required by section 45(b)(2), the credit for refined coal production for calendar year 2012 under section 45(e)(8)(A) is $6.475 per ton on the sale of qualified refined coal. The credit for Indian coal production for calendar year 2012 under section 45(e)(10)(B) is $2.267 per ton on the sale of Indian coal.

Wisconsin Biodiesel Fuel Production Credit

For taxable years beginning after December 31, 2011, and before January 1, 2015, a biodiesel fuel production credit can be claimed by persons engaged in the business of producing biodiesel fuel in Wisconsin. To qualify for the credit, the business must produce at least 2.5 million gallons of biodiesel fuel in Wisconsin in the taxable year. The credit is equal to the number of gallons of biodiesel fuel produced in Wisconsin in the taxable year multiplied by 10¢, with a maximum credit of $1 million per claimant allowable in a taxable year. “Biodiesel fuel” means a fuel that is comprised of monoalkyl esters of long chain fatty acids derived from vegetable oils or animal fats. The fuel must: (1) be registered as a biodiesel fuel by the manufacturer under 40 CFR Part 79; (2) be pure biodiesel fuel, be identified as such with the alphanumeric B100, and not contain any petroleum product, additive, or other foreign material; and (3) meet all of the applicable American Society for Testing and Materials (ASTM) requirements. Though the biodiesel fuel production credit is nonrefundable, any unused credit can be carried forward and offset against tax for up to 15 years. The credit cannot be claimed by partnerships, LLCs treated as partnerships, and tax-option (S) corporations, but the credit flows through to the partners, members, or shareholders based on their ownership interests.

Illinois Circuit Court Declares “Amazon Tax” Legislation Unconstitutional

A Cook County circuit court judge has issued an order ruling that Illinois' 2011 “Amazon tax” legislation is unconstitutional. In rendering its decision, the court found that the legislation (L. 2011, H3659 (P.A. 96-1544)), fails the “substantial nexus” requirement for state use tax collection and reporting obligations under the Commerce Clause of the U.S. Constitution, and that the legislation is preempted under the Supremacy Clause of the U.S. Constitution by virtue of the federal moratorium against discriminatory state taxes on electronic commerce. Performance Marketing Association, Inc. v. Hamer, Ill. Cir. Ct. (Cook County)

Tennessee Green Energy Tax Credit

Tennessee provides tax credits to industries in the green energy supply chain that invest more than $250 million into the state. The Department of Revenue, Department of Economic and Community Development as well as the Department of Environment and Conservation are authorized to certify “green energy supply chain manufacturers” as eligible for the Green Energy Tax Credit. The $1.5 million maximum credit is applied to a company's Franchise and Excise Tax liability.

In addition to the Green Energy Tax Credit, the Carbon Tax Credit is available. This is the only carbon tax credit in the United States and it provides "certified green energy supply chain manufacturers" with financial protection against any potential price that may be placed on carbon emissions by future legislation.

Mississippi Energy Investment Loan Program

Mississippi offers low-interest loans for renewable energy and energy efficiency projects. Eligible renewable energy technologies include solar thermal, solar space heat, solar process heat, photovoltaics (PV), alternative fuels, geothermal, biomass, landfill gas and hydropower. All projects must demonstrate that they will reduce a facility's energy costs. The interest rate is 3% below the prime rate, with a maximum loan term of seven years. Loans range from $15,000 to $300,000. This program is supported by a revolving loan fund of $7 million, established through federal oil overcharge funds. Applications are provided to interested parties by request. Contact the Mississippi Development Authority for more information.

Tennessee Commercial Energy Efficiency Loan Program

Based on a U.S. Department of Energy Industrial Loan program, Pathway Lending's Energy Efficiency Loan Program provides Tennessee business and non-profit entities with below-market loans for energy efficiency and renewable energy improvements. The shared savings option allows organizations to pay off the loan over a 10-year period with 50% of the money going to renewable energy and energy efficiency projects, while retaining the remaining 50% through energy savings to pay off the loan (most common for projects with a two-year simple payback and a four-year loan term). All costs related to the efficiency measures may be financed, including loan fees, assessments, design, equipment and installation. The amount of savings achieved monthly through energy use reduction determines the monthly payments for the loan as long as payments do not exceed 10 years.

Mississippi Clean Energy Initiative

This program provides an incentive for companies that manufacture systems or components used to generate renewable energy, including biomass, solar, wind and hydro generation. Alternative energy manufacturers, including manufacturers of components used in nuclear power plants, are also eligible for this incentive. This program allows the Mississippi Development Authority (MDA) to certify these manufacturers for a tax exemption.

Eligible manufacturers are offered a 10-year exemption from state income and franchise taxes as well as a sales and use tax exemption to establish a plant or expand an existing production facility. To qualify, a business entity must have a minimum investment of $50 million and create 250 full-time jobs.

Upon issuance of the certification, the entity shall be exempt from state taxes for a period of 10 years subject to certain performance requirements set out in the agreement. The entity must enter into an agreement with the MDA detailing the performance requirements of the approved business enterprise during the term of the exemption and provisions for recapture of all or a portion of the taxes exempted if the performance requirements are not met. Upon certifying an entity as eligible for the exemptions, the MDA will pass the information to the Department of Revenue so that the exemptions can be implemented.

Wind Turbine Installations in Q1 Jump 50% from Q1 in 2011

The U.S. wind power industry posted one of its busiest quarters ever in the first quarter of 2012, according to the American Wind Energy Association (AWEA). The United States saw 1,695 megawatts (MW) of wind capacity installed in that period, with 788 new turbines producing power in 17 states. No other first quarter has been as strong for the American wind power industry, AWEA reported. The wind energy industry installed 52% more MW in the first quarter than it did in the same quarter last year.

During the first quarter, California (370 MW), Oregon (308 MW) and Texas (254 MW) led all states for adding the most wind power. Rounding out the top five were Washington (127 MW) and Pennsylvania (121 MW). One notable trend, previously highlighted in AWEA's 2011 annual market report, is that with ever-improving technology, wind power is accessing wind resources in geographic areas considered to have inadequate wind resource just a few years ago. Topping that category of states formerly considered to have inadequate wind resources is New Hampshire with 388% growth.

University Regional Clean Energy Business Winners Named

The Energy Department on May 4 announced the regional winners of its National Clean Energy Business Plan Competition. The event inspires university teams across the country to create new businesses and commercialize promising energy technologies developed at U.S. universities and DOE's national laboratories. The regional finalists, Northwestern University, University of Utah, University of Central Florida, Massachusetts Institute of Technology (MIT), Stanford University, and Columbia University, will go on to compete in the first national competition in Washington, D.C., June 12 to 13.

The competition aims to promote entrepreneurship in clean energy technologies that will boost U.S. competitiveness, bring cutting-edge clean energy solutions to the market, and strengthen the nation's economic prosperity. Each team of students identified a promising clean energy technology from a university or national lab and created a business plan around the technology that detailed how they could help bring it to market. For example, MIT teamed with SolidEnergy to leverage its battery technology innovation, which improves the safety and energy density of rechargeable lithium batteries and is intended to accelerate the deployment of electric vehicles. The contest includes financing, product design, scaling up production and marketing. Each of the six regional competitions across the country was run by a nonprofit or university that worked with teams over the last three years. Each of the winning regional teams has already received $100,000 in prizes to continue plans to commercialize the products.

Energy Department Announces $2.5 Million for Fuel Cell Baggage Vehicles

The Energy Department announced on April 25 up to $2.5 million in funding is available this year to demonstrate and deploy fuel cell electric vehicles for transporting passenger baggage at major U.S. airports. Up to three projects selected for funding will demonstrate first-generation, fuel cell-powered baggage-towing tractors under real-world operating conditions, and will collect and analyze data to test their performance and cost-effectiveness. The funding will help industry bring advanced fuel cell technologies into emerging markets. It will also provide airlines and airports with new choices for ground support operations that cut energy costs, air pollution, and petroleum use.

The Energy Department seeks applicants to demonstrate and test the performance and economic viability of advanced fuel cell systems for up to three years. The 50% cost-shared projects will supply both information on fuel cell system operation and data on the economics of these vehicles to the Hydrogen Secure Data Center at the DOE's National Renewable Energy Laboratory for analysis and comparison. Data will be collected from actual airport operations so that engineers and economic analysts can assess the technology's performance, durability, and cost-effectiveness under the real-world conditions of commercial airports. Conclusions will be drawn from the data to evaluate the commercial viability of this fuel cell application, and the data will be shared with fuel cell manufacturers, helping to improve their designs and optimize overall performance and costs.

Energy Department Offers $5 Million to Spur EV and Alt Fuels Adoption

The Energy Department on May 8 announced that up to $5 million in funding is available this year to help expand the use of alternative fuel vehicles, including electric vehicles (EVs), in cities and towns across the country. The funding will help cut through red tape for homeowners and businesses, provide training for mechanics and first responders, and support community planning to expand fueling infrastructure. The Energy Department anticipates awarding 10 to 20 projects this year to be completed within two years. The support of alternative fuel vehicles is part of a strategy to increase energy security in the United States, reduce emissions, and help drivers save money.

This initiative will help communities streamline and quicken permitting processes, and coordinate alternative fuel vehicle and EV infrastructure deployment across state, regional, and local governments. Selected projects will also help communities build workforces with the skills to facilitate these vehicles and infrastructure by training first responders and mechanics. In addition, they will provide resources, such as educational materials and tools, to help consumers understand the economic and environmental benefits of alternative fuel vehicles, and to choose the right vehicle for their needs.

The Energy Department seeks proposals that address barriers to the adoption of these vehicles, provide safety training, coordinate initiatives, and drive market development and transformation to make alternative fuel vehicles and fueling infrastructure widely available. Proposed projects should cover each of these areas. This funding opportunity does not provide for the purchase or installation of vehicles or infrastructure. DOE strongly encourages organizations to form teams that include one or more active, designated Clean Cities coalition as well as other partners with relevant experience and expertise.

Mississippi State and Local Tax Update

Income Tax

H.B. 1519, effective January 1, 2012, provides that, with respect to the distributing corporation in the distribution of stock or securities of a controlled corporation, no gain will be recognized from such distribution provided the distribution is a part of a transaction that qualifies for tax-free treatment under IRC §355 or IRC §368(a)(1)(D) ; or if the distribution is pursuant to an overall plan to facilitate an ultimate distribution that qualifies for tax-free treatment under IRC §355 or IRC §368(a)(1)(D).

Sales and Use Tax

The Mississippi Supreme Court held that the Chancery Court was without appellate jurisdiction to hear the appeal of a store owner relating to sales tax assessments because the owner did not comply with the mandatory requirements of perfecting the appeal which are to either pay the delinquent tax or post a bond within 30 days from the date of assessment. The owner's subsequent payment, a week later and more than 30 days from date of assessment, of most of the assessed tax did not cure the defect because the statute requires payment of the entire tax ordered to be paid at the time the appeal is filed. Having no appellate jurisdiction over the appeal, the Chancery Court should have granted the Department of Revenue's motion for summary judgment and dismissal instead of hearing the merits of the case.  Khurana d/b/a VK Quick Mart and VK's Wine & Liquor v. Dept. of Rev.

Property Tax

The Mississippi Attorney General has issued an opinion clarifying that the notice to lien holders of lands being sold for unpaid taxes should be sent by certified mail, not by registered mail. The notice should be sent by certified mail with return receipt requested, as provided in Miss. Code Ann.§ 27-43-5 which more expressly addresses the matter, and is the better indicator of the legislative intent on how the notice should be mailed. The opinion noted that provisions in Miss. Code Ann.§ 27-43-9 requiring the clerk to enter “the date of mailing by registered mail the notice to the lienors” upon the tax sale book are for notation purposes only and are not controlling on the matter. (Attorney General Opinions, 2011-00518, 01/20/2012.)

The Mississippi Court of Appeals held that a property tax sale was correctly set aside as void because the statutory redemption notice requirements were not met. Under Miss. Code Ann.§ 27-43-3, notice of tax sale must be given by personal service as summons issued by the courts are served, by mail, and by publication in a newspaper in the county where the land is located. All three requirements must be met for the redemption notice to be complete. The property owner received actual notice in the form of a certified letter, but the municipal clerk failed to publish the redemption notice in the county newspaper 45 days before the redemption period expired, thus failing to satisfy the mandatory notice requirements and rendering the tax sale void.  City of Bruce v. Borrego Springs Bank, N.A.

In determining whether the owner of a private airport hangar at a publicly-owned airport was exempt from all ad valorem taxes, the Mississippi Attorney General has issued an opinion interpreting the phrase “commercial purpose” to mean engaging in business, or for the purpose of buying or selling goods, products or property. But whether the owner was using the hangar for a “commercial purpose” was a factual determination to be made by the governing authorities. (Attorney General Opinion, 2012-00024, 02/21/2012.)

The Mississippi Attorney General has issued an opinion that the property tax exemption for any privately owned new structure or a renovation of, or improvement to, an existing structure situated on a historic landmark site or located in a historic preservation or central business district may be claimed by any subsequent owner during the 7-year statutory period. Ad valorem taxes apply to the property, not to the owner, and similarly, any exemption applies to the property, not to the owner. (Attorney General Opinion, 2012-00094, 03/20/2012.)

Economic Development

S.B. 2613, effective April 17, 2012, extends the repeal date, from December 31, 2012 to December 31, 2016, on the tax credit for export cargo charges for using port facilities; and extends the repeal date, from July 1, 2012 to July 1, 2016, on the tax credit for import and export cargo charges paid by users of airports.

Effective, July 1, 2012, S.B. 2656 extends the repeal date, from January 1, 2013 to January 1, 2016, on the job tax credit for each full-time employee employed in a new cut and sew job by enterprises that own or operate an upholstered household furniture manufacturing facility.

H.B. 968, effective July 1, 2012, extends the period that a business improvement district may exist before it must be reauthorized from five years to 10 years. The bill also decreases the approval percentage needed to adopt, implement or reauthorize a business improvement district or modify the boundaries of a business improvement district from 70% of the eligible property owners to 60% of the eligible property owners.

Effective retroactive to January 1, 2012, S.B. 2342 provides that manufacturers of personal property that maintain separate facilities for temporary storage and handling of such personal property pending transit to a final destination outside of Mississippi are eligible for licensing as a “free port warehouse” and that personal property manufactured in Mississippi and stored in such facilities pending transit to a final destination outside the state is eligible for exemption from property taxation.

H. B. 1255 allows the board of supervisors of a county or the governing authorities of a municipality to enter into agreements with an economic development project: (1) to provide water, sewer, and other county or municipal services; and/or (2) providing that the board of supervisors or governing authorities will agree in advance to approve any request for exemption for ad valorem taxes in the manner provided by law and that any such exemption must be for a period of 10 years. Such agreements may be for a period of not more than 20 years.

S.B. 2609 extends from July 1, 2012 to July 1, 2016, the repeal date on the provision of law that provides an income tax credit for certain employers sponsoring skills training for employees.

Effective July 1, 2012, H.B. 1257 authorizes public entities to create public benefit corporations for the purpose of entering into financing agreements and engaging in new markets tax credit transactions which include arrangements to plan, acquire, renovate, construct, lease, sublease, manage, operate and or improve new or existing public property or facilities located within the boundaries or service area of the public entity. The law also extends, from 30 to 60 days, the time within which a qualified community development entity allocated a qualified equity investment tax credit must issue the qualified equity investment for which the credit was allocated.

California Can't Redefine Malt Beverages to Increase Tax Rate, Court Says

The State Board of Equalization exceeded its authority when it adopted regulations in 2008 to tax flavored malt beverages as distilled spirits instead of beer to increase the tax rate, a state appellate court rules. The California Court of Appeals reverses a February 2009 trial court ruling in favor of SBOE upholding the regulations. The reversal is a win for the Flavored Malt Beverage Coalition and Diageo-Guinness USA Inc., which filed a lawsuit challenging the regulations in 2008, immediately after they became final.

White House Endorses Tighter Tax Rules for S Corps in Student Loan Bill

Senate Democrats' plan to use tighter payroll tax rules for S corporations to pay for a one-year extension of the 3.4 percent interest rate on federal student loans has the support of the White House, according to a Statement of Administration Policy. The bill's (S. 2343) provision would raise $5.9 billion over 10 years by requiring shareholders in certain closely held partnerships or S corporations to pay payroll taxes on their pro rata earnings if their income exceeds $200,000 for unmarried individuals or $250,000 for joint filers.

EPA Awards $1 Million to Colleges for Environmental Solutions

The U.S. Environmental Protection Agency (EPA) announced on April 25 that it has awarded more than $1 million in grants to 15 university and college teams. The awards went to teams from across the country that participated in the eighth Annual National Sustainable Design Expo on the National Mall in Washington, D.C., for their innovative environmental solutions. EPA's People, Prosperity and the Planet (P3) award competition was held at the expo and featured more than 300 college innovators showcasing their sustainable projects designed to protect the environment, encourage economic growth, and use natural resources more efficiently.

The P3 team projects include a new process that uses spinach to capture and convert the sun's energy to electricity, as well as a partnership with a local landfill to design a process that uses waste heat and drainage to grow algae for biodiesel production. Following an initial peer review process, this year's winners were selected from 45 competing teams after two days of judging by a panel of national experts convened to provide recommendations to the American Association for the Advancement of Science. Each P3 award-winning team will receive a grant of up to $90,000 to further develop its design, apply it to real-world applications or move it to the marketplace. Previous P3 award winners have started successful businesses, and they are marketing technologies in the United States and around the world.

Limited Global Progress on Renewable Energy: IEA Report

The International Energy Agency (IEA) on April 25 released an annual progress report highlighting the rapid progress made in some renewable energy technologies. The report, Tracking Clean Energy Progress, noted the gains are due to solar photovoltaic (PV) panels being easily installed by households and businesses as well as gains in onshore wind technologies. IEA said that onshore wind has seen 27% average annual growth over the past decade, and solar PV has grown at 42%, albeit from a small base. Even more impressive is the 75% reduction in system costs for solar PV in as little as three years in some countries.

According to the IEA, estimated energy use and carbon dioxide emissions would increase by a third by 2020 and almost double by 2050. The report notes that many technologies with great potential for energy and emissions savings are making halting progress at best. Vehicle fuel-efficiency improvement is slow, and significant untapped energy-efficiency potential remains in the building and industry sectors.

Full Report

Energy Department Boosts Initiative for Women in Clean Energy

The Energy Department announced on April 26 a three-part plan to help implement the Clean Energy Education and Empowerment (C3E) Women's Initiative aimed at attracting more women to clean energy careers and advancing their leadership positions. The new program, in partnership with the Massachusetts Institute of Technology (MIT) Energy Initiative, is designed to translate the goals of C3E into action in the United States.

The new components of the U.S. C3E action plan were announced at the Clean Energy Ministerial, a global forum of the energy ministers and leaders promoting clean energy technology and the transition to a global clean energy economy. Australia, Denmark, Mexico, Norway, South Africa, Sweden, the United Arab Emirates, the United Kingdom, and the United States each committed to undertake meaningful activities to advance women in clean energy. The U.S. C3E plan includes drawing together ambassadors, a cohort of distinguished senior professionals sharing an interest in broadening the recruitment, retention, and advancement of highly qualified women in the field of clean energy. Also, the DOE C3E Awards program will recognize mid-career individuals who advance the leadership and accomplishments of women in clean energy by offering six awards, including a cash prize of $10,000. Finally, an invitation-only symposium will be held on September 28, 2012, bringing together women and men to help build a strong national and international community of professionals who support women in clean energy.

Restricted Stock and the Code Sec. 83(b) Election

The value of stock that your employer transfers to you as compensation for your services is includible in your gross income either in the first tax year in which you are not subject to a substantial risk of forfeiture, or when you can transfer the stock free of the substantial forfeiture risk, whichever occurs earlier.

By way of example, you will be entitled to 1,000 shares of stock if you complete two years of employment following the date on which this restricted stock is granted. Under the tax rules, you can either defer the income attributable to the grant of this restricted stock until your rights in the stock become vested, or elect, by making a Code Sec. 83(b) election, to recognize income at the time the stock is granted.

A Code Sec. 83(b) election must be made within 30 days of the grant of restricted stock. The amount of the income recognized as a result of the election is based on the fair market value (FMV) of the shares on the date of grant. The stock's FMV isn't reduced to reflect the restrictions on the stock, unless there is a permanent limitation on the transfer of the stock that would require you to resell the stock to your employer at a price determined under a formula.

The advantage of accelerating income through a Code Sec. 83(b) election is that you won't be taxed on any future appreciation in the stock until you sell the stock, at which time it will be taxed at capital-gain rates.

If you don't make the Code Sec. 83(b) election, you will be treated as receiving taxable income equal to the stock's FMV on the date the restrictions lapse.

Here's an example of how a making Code Sec. 83(b) election can be advantageous. Assume that: you are granted 1,000 shares of restricted stock in Year 1 when their value is $100 per share. The restrictions on the stock lapse in Year 2 when the stock is worth $160 per share. You sell the shares in Year 3 for $200 per share. In that case:

If you don't make a Code Sec. 83(b) election, you will be taxed on $160,000 of ordinary compensation income in Year 2 and $40,000 of capital gain in Year 3.

If you make the Code Sec. 83(b) election, you will be taxed on $100,000 of ordinary compensation income in Year 1, and on $100,000 of capital gain in Year 3.

The benefit of the Code Sec. 83(b) election to you, on the above assumed facts, is the postponement of tax on the $100,000 post-election increase in the value of the stock until Year 3, and the taxation of the entire $100,000 of appreciation at capital gain rates, rather than only $40,000 if no election were made.

Remember, however, that you will forfeit your rights to the stock if you fail to remain with your employer for two years after the grant. If that happens, you won't be entitled to a refund of the tax you paid upon making the Code Sec. 83(b) election. However, you will be able to treat the forfeiture as a sale of the stock at a loss.

Generally, the deferred compensation rules under Code Sec. 409A, which include certain deferred compensation in income to the extent not subject to a “substantial risk of forfeiture”, don't apply to property not includible in income in the year of receipt under Code Sec. 83 because the property is nontransferable and subject to a substantial risk of forfeiture, or to property includible in income solely because of a valid Code Sec. 83(b) election.

House Bill Seeks Tax Credit for Chemicals Made From Renewable Feedstocks

Legislation that would provide a tax credit for chemicals made from renewable biomass was introduced April 27 by Reps. Bill Pascrell Jr. (D-N.J.) and Brian Bilbray (R-Calif.).

The Qualifying Renewable Chemical Production Tax Credit Act of 2012 (H.R. 4953) would provide a tax credit of 15 cents per pound of chemical produced from eligible biomass, which would include corn, soybeans, and algae.

The tax credit would be in effect for five years or until it has provided $500 million of credit.

Chemicals qualifying for the credit would have to have at least 25 percent biobased content.

Pennsylvania, Community Development Corporation Credit

The Philadelphia Department of Revenue has released a new application to be used by taxpayers claiming the credit against Philadelphia business privilege tax for contributions made to Community Development Corporations and Nonprofit Intermediaries. Philadelphia Bill No. 110561 of 2011 (see State & Local Taxes Weekly , Vol. 22, No. 50, 12/12/2011) amended Philadelphia City Code §19-2604 to increase the number of qualifying organizations that can participate in the Business Privilege Tax Credit Program for Contributions to Community Development Corporations and Nonprofit Intermediaries to 35 (including up to three Nonprofit Intermediaries) from 30. The bill also reduced the annual contribution amount for these new agreements to $85,000 from $100,000. The Department will accept new applications for the 2012 tax year starting May 14, 2012. (Philadelphia Department of Revenue, 04/25/2012.)

Why a Partner Reports More Income Than He Receives in Cash

The answers lies in the way partnerships and partners are taxed. Unlike a regular corporation, a partnership isn't subject to income tax. Rather, each partner is taxed on the partnership's earnings, whether or not they are distributed. Similarly, if a partnership has a loss, the loss is passed through to the partners. (Various rules, however, may prevent a partner from currently using his share of a partnership's loss to offset other income.)

While a partnership isn't subject to income tax, it's treated as a separate entity for purposes of determining its income, gains, losses, deductions and credits. This makes it possible to pass through to partners their share of these items.

A partnership must file an information return (Form 1065). On Schedule K of this form, the partnership separately identifies many items of income, deduction, credits, etc. This is so that each partner can properly treat items that are subject to limits or other rules that could affect their correct treatment at the partner's level. Examples of such items include capital gains and losses, charitable contributions, and interest expense on investment debts. Each partner gets a Schedule K-1 showing his share of partnership items.

Basis and distribution rules ensure that partners aren't taxed twice. A partner's initial basis in his partnership interest (the determination of which varies depending on how the interest was acquired) is increased by his share of partnership taxable income. When that income is paid out to partners in cash, they aren't taxed on the cash if they have sufficient basis. Rather, partners merely reduce their basis by the amount of the distribution. If a cash distribution exceeds a partner's basis, then the excess is taxed to the partner as a gain, which often is a capital gain.

Example: Smith and Jones each contribute $10,000 to form a partnership. The partnership has $80,000 of taxable income in Year 1, during which it makes no cash distributions to Smith or Jones. Smith and Jones each picks up $40,000 of taxable income from the partnership as shown on their K-1s. Each has a starting basis of $10,000, which is increased by $40,000 to $50,000. In Year 2, the partnership breaks even (has zero taxable income) and distributes $40,000 to Smith and a like amount to Jones. The cash distributed to them is received tax-free. Each of them, however, must reduce the basis in his partnership interest from $50,000 to $10,000.

The discussion above is an overview and, therefore, does not touch on all the rules. For example, many other events require basis adjustments and there are a host of special rules covering noncash distributions, distributions of securities, liquidating distributions, and other matters.

Deductibility of Job-Search Expenses

Qualifying expenses are deductible even if they don't result in a new position being offered or accepted.

What are job hunting expenses. Expenses of seeking new employment can encompass a broad range of items. Some of the more common expenses for which deductions have been allowed are: the cost of resumes, including postage for sending them to prospective employers; job counseling and referral fees; employment agency fees; telephone charges related to seeking new employment; and local as well as out-of-town travel for interviews, to the extent not reimbursed by the prospective employer.

Nondeductible items include a loss incurred on forfeiture of a deposit for a home in an area where a new job was anticipated, and a real estate broker's commission on the sale of a home in connection with a move to a new job location.

For job-search expenses to be deductible, you must be looking for employment in the same trade or business in which you are engaged. For this purpose, a corporation's secretary-treasurer seeking a position as assistant to the vice president of finance at another corporation was seeking employment in the same trade or business. But an artist seeking work in the business end of the art field was held to be looking for a job in a new trade or business. And IRS says any job in the private sector is a new trade or business for a retired military officer.

Accepting temporary employment in another line of work won't affect your deduction for expenses in searching for permanent employment in your regular line of work. But job hunting costs aren't deductible if you are looking for a job in a new trade or business, even if you find employment as a result of the search.

First time job seekers. IRS says that job hunting expenses incurred in seeking employment for the first time are not deductible. This rule can be tough on students and others entering the job market for the first time. But it may be possible to avoid the impact of this rule through an internship or other employment during the student's senior year. In addition to looking good on a resume, this type of work experience can be a trade or business in which the student is engaged (thus avoiding the first time job seeking rule).

Reentry into job market. If an individual is temporarily unemployed, expenses of seeking employment in the field in which he or she was previously employed are deductible. But IRS takes the position that if there is a substantial time break between earlier employment and the current search, you cannot deduct the expenses of looking for a job. Thus, if there has been a gap of several years since the last employment, for example, to take care of small children or to return to school to pursue post-graduate studies, the cost of seeking employment is not deductible.

Other limitations on deductibility. Deductible expenses in seeking employment are claimed as miscellaneous itemized deductions. As a result, individuals who take the standard deduction cannot claim such expenses. In addition, miscellaneous itemized deductions are deductible only to the extent that, in the aggregate, they exceed 2% of your adjusted gross income. Thus, unless your job hunting costs are large or you have other significant miscellaneous deductions, you may not be able to derive any tax benefit from these expenses.

Alabama, Exemption for Materials Used as Fill

A provision in the uniform severance tax (Ala. Code § 40-13-53(b)(2)) exempting “materials when severed and used for fill by an operator, producer or any other person” applies to all materials that are severed and used for fill, whether or not the user severed the materials. The taxpayer must keep records showing that its sales were exempt. Though the taxpayer kept records of its sales during the audit period (October 2004 through December 2007), it had not kept records verifying that the purchasers intended to use the severed materials as fill. The Department of Revenue notice sent to the taxpayer's owner on July 19, 2004 stated that the severance tax did not apply to severed materials used for fill, and the taxpayer's attorney wrote a letter to the taxpayer confirming that the taxpayer was not subject to tax. Given these facts, it is understandable that the taxpayer did not keep records showing what materials it sold were used as fill. Thus, the taxpayer was allowed to gather affidavits, potential witnesses, or other evidence verifying that the severed materials were used as fill. The administrative law judge rejected the Department's claims that “[a]nyone can get someone to sign an affidavit” and that there is no way to challenge the affidavits. The affidavits were sworn and attested to by a notary public and the affiants knew that the taxpayer was involved in a dispute with the Department. It is doubtful that the affiants would falsely attest to something under oath in writing that the Department could later investigate as to its truthfulness. In addition, the Department could contact the affiants in person or by phone to verify the accuracy of the affidavits. The affidavits, however, do not indicate the amount of materials used, just that all materials purchased were used for fill. The taxpayer must notify the Administrative Law Division by April 13, 2012 if it has records, information, or other evidence establishing the amounts purchased, so that the sales qualifying for exemption during the audit period can be determined. (L&J Dirt, Inc. v. Ala. Dept. Rev., Admin. Law Div., Dkt. No. MISC. 10-823, 03/15/2012 (preliminary order).

CDFI Fund Releases Updated NMTC Program Eligibility Criteria

The Community Development Financial Institutions Fund (CDFI Fund) has completed the first stage of its transition to updated program eligibility for the New Markets Tax Credit Program (NMTC Program) based on new census data.

The updated census tract eligibility data are based upon the 2006-2010 American Community Survey (ACS). Community Development Entities (CDEs) will be able to use the 2006-2010 ACS data to determine if Qualified Low Income Community Investments (QLICIs) are located in NMTC-eligible 2010 census tracts.

The Community Development Financial Institutions Program, Native American CDFI Assistance Program, and Bank Enterprise Award Program will also be updated based upon the American Community Survey later this year.

“The transition to the 2006-2010 American Community Survey will enable community and economic developers across the country to better target their investments in the low-income communities that need them most,” said CDFI Fund Director Donna J. Gambrell. “The updated census tract data will help the CDFI Fund and its awardees focus on the neighborhoods currently struggling as a result of the recent recession to be at the forefront of future investment activity.”

The CDFI Fund recognizes that CDEs may have already begun to structure potential QLICIs based on the 2000 census data. As a result, the CDFI Fund will allow current NMTC allocatees to use either 2000 census data or 2006-2010 ACS data applied to the 2010 census tracts to qualify QLICIs closed between May 1, 2012 and June 30, 2013.

Limited Liability Company Creating a New Class of Equity

By way of example, you and three other persons own equal shares in a limited liability company (LLC) that is taxed as a partnership and that has only one class of shares outstanding (Class A). You and the other members of the LLC would like to create three new classes in addition to the currently outstanding Class A shares. These would be Class B, C and D, each of which will have rights, preferences, privileges and restrictions that differ from each other and from Class A shares. In addition, you and the other members will be permitted to convert, on a one-to-one basis, A shares into B, C or D shares, B shares into D shares, C shares into B or D shares, and D shares into B shares. You would like to know the tax consequences of these proposed changes.

Assuming that no member's proportionate share of the LLC's capital will be changed by any of the proposed conversions, and that each member's share of the LLC's liabilities will stay the same, no taxable exchange will result and no gain or loss will have to be recognized. Also, no termination of the LLC will result.

However, in setting up an LLC with more than one membership class, there are some important practical limitations that must be kept in mind. If, for example, the difference between LLC ownership classes amounts to a disproportionate allocation of an LLC item (gain, loss, deduction, income, etc.), the allocation will be disregarded unless it stands up under some complicated rules that IRS calls "the substantial economic effect test." Therefore, in order to determine the effects of the conversion, it is necessary to carefully review all of the proposed terms of Classes A, B, C and D to make sure that their differing rights, preferences, privileges and restrictions will stand up under the substantial economic effect test.