For other versions of this document, see http://wikileaks.org/wiki/CRS-RL34674 ------------------------------------------------------------------------------ Order Code RL34674 Side-by-Side Comparison of Energy Tax Provisions of H.R. 6899 and S. 3478 September 18, 2008 Salvatore Lazzari Specialist in Energy and Environmental Economics Resources, Science, and Industry Division Side-by-Side Comparison of the Energy Tax Provisions in H.R. 6899 and S. 3478 Summary The Comprehensive American Energy Security and Consumer Protection Act, H.R. 6899, was introduced on September 15, 2008, and approved by the House on September 16, 2008. This plan allows oil and gas drilling in the Outer Continental Shelf (OCS), and it incorporates most of the energy tax provisions from an energy tax bill, H.R. 5351, and some of H.R. 6049, both of which were previously approved by the House of Representatives but failed to be taken up by the Senate. In the Senate, legislative efforts on energy tax incentives and energy tax extenders center around S. 3478, the $40 billion energy tax bill offered by Finance Committee Chairman Max Baucus and ranking Republican Charles Grassley, and supported by Senate Democratic leadership. In the Senate, controversy over tax increases on the oil and gas industry, particularly over proposed repeal of the tax code's §199 deduction for the major integrated oil companies, continues; it remains unclear whether an energy tax bill with this provision will pass a cloture vote to limit debate, and thus be taken up. This report is a side-by-side comparison of energy tax bills H.R. 6899 and S. 3478. Contents Energy Tax Provisions in H.R. 6899 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 S. 3478 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 List of Tables Table 1. Side-by-Side Comparison of S. 3478 and the Energy Tax Provisions of H.R. 6899 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Side-by-Side Comparison of the Energy Tax Provisions in H.R. 6899 and S. 3478 The idea of using the tax code to achieve energy policy goals and other national objectives is not new but, historically, U.S. federal energy tax policy promoted the exploration and development -- the supply of -- oil and gas. The 1970s witnessed (1) a significant cutback in the oil and gas industry's tax preferences, (2) the imposition of new excise taxes on oil (some of which were subsequently repealed or expired), and (3) the introduction of numerous tax preferences for energy conservation, the development of alternative fuels, and the commercialization of the technologies for producing these fuels (renewables such as solar, wind, and biomass, and nonconventional fossil fuels such as shale oil and coalbed methane). Comprehensive energy policy legislation containing numerous tax incentives, and some tax increases on the oil industry, was signed on August 8, 2005 (P.L. 109- 58). The law, the Energy Policy Act of 2005, contained about $15 billion in energy tax incentives over 11 years, including numerous tax incentives for the supply of conventional fuels, as well as for energy efficiency, and for several types of alternative and renewable resources, such as solar and geothermal. The Tax Relief and Health Care Act of 2006 (P.L. 109-432), enacted in December 2006, provided for one-year extensions of some of these provisions. But some of these energy tax incentives expired on January 1, 2008, while others are about to expire at the end of 2008. In early December 2007, it appeared that congressional conferees had reached agreement on another comprehensive energy bill, the Energy Independence and Security Act (H.R. 6), and particularly on the controversial energy tax provisions. The Democratic leadership in the 110th Congress proposed to eliminate or reduce tax subsidies for oil and gas and use the additional revenues to increase funding for their energy policy priorities: energy efficiency and alternative and renewable fuels, that is, reducing fossil fuel demand rather than increasing energy (oil and gas) supply. In addition, congressional leaders wanted to extend many of the energy efficiency and renewable fuels tax incentives that either had expired or were about to expire. The compromise on the energy tax title in H.R. 6 proposed to raise taxes by about $21 billion to fund extensions and liberalization of existing energy tax incentives. However, the Senate on December 13, 2007, stripped the controversial tax title from its version of the comprehensive energy bill (H.R. 6) and then passed the bill, 86-8, leading to the President's signing of the Energy Independence and Security Act of 2007 (P.L. 110-140), on December 19, 2007. The only tax-related provisions that survived were (1) an extension of the Federal Unemployment Tax Act surtax for one year, raising about $1.5 billion; (2) higher penalties for failure to file partnership returns, increasing revenues by $655 million; and (3) an extension of the amortization period for geological and geophysical expenditures from five to seven CRS-2 years, raising $103 million in revenues. The latter provision was the only tax increase on the oil and gas industry in the final bill. Those three provisions would offset the $2.1 billion in lost excise tax revenues going into the federal Highway Trust Fund as a result of the implementation of the revised Corporate Average Fuel Economy standards. The decision to strip the much larger $21 billion tax title stemmed from a White House veto threat and the Senate's inability to get the votes required to end debate on the bill earlier in the day. Senate Majority Leader Harry Reid's (D-Nev.) effort to invoke cloture fell short by one vote, in a 59-40 tally. Since then, the Congress has tried several times to pass energy tax legislation, and thus avoid the impending expiration of several popular energy tax incentives, such as the "wind" energy tax credit under Internal Revenue Code (IRC) §45, which, since its enactment in 1992, has lapsed three times only to be reinstated.1 Several energy tax bills have passed the House but not the Senate, where on several occasions, the failure to invoke cloture failed to bring up the legislation for consideration. Senate Republicans objected to the idea of raising taxes to offset extension of expiring energy tax provisions, which they consider to be an extension of current tax policy rather than new tax policy. In addition, Senate Republicans objected to raising taxes on the oil and gas industry, such as by repealing the (IRC) §199 deduction, and by streamlining the foreign tax credit for oil companies.2 The Bush Administration repeatedly threatened to veto these types of energy tax bills, in part because of their proposed increased taxes on the oil and gas industry. Frustrated with the lack of action on energy tax legislation over the last two years, House Democrats introduced and approved several such bills, such as H.R. 5351, which was approved by the House on February 27, 2008. House Speaker Pelosi and other Democrats sent President Bush a letter February 28, 2008, urging him to reconsider his opposition to the Democratic renewable energy plan, arguing that their energy tax plan would "correct an imbalance in the tax code."3 At this writing, a renewed legislative effort is being made to enact energy tax legislation, although the two chambers were moving in different directions on how 1 See. U.S. Library of Congress. Congressional Research Service. Extension of Expiring Energy Tax Provisions. CRS Report RL32265 by Salvatore Lazzari. 2 Enacted in 2004 as an export tax incentive, this provision allows a deduction, as a business expense, for a specified percentage of the qualified production activity's income (or profit) subject to a limit of 50% of the wages paid that are allocable to the domestic production during the taxable year. The deduction was 3% of income for 2006, is currently 6%, and is scheduled to increase to 9% when fully phased in by 2010. 3 Several times the House has approved energy tax legislation, and several times in the Senate such legislation failed a cloture vote and thus could not be brought to the floor for debate. The latest was H.R. 6049, the House tax extenders bill, which was approved by the House on May 21, 2008, but failed three cloture votes in the Senate. Several times recently, the Senate has been prevented from taking action on energy tax legislation due to the failure to invoke cloture on the motion to proceed to the House energy tax extenders bills. The first was June 10, when the motion failed by a vote of 50-44; the second was on June 17, when the motion failed by a vote of 52-44; the third was July 29, when the cloture motion failed by a vote of 53 to 43. In addition, on July 30 the Senate rejected by a vote of 51 to 43 a motion to invoke cloture on a motion to proceed to debate S. 3335, Senator Baucus' energy tax bill. CRS-3 to bring the legislation to the floor. In the House, energy tax provisions are part of H.R. 6899, House Democratic leadership's latest draft of broad-based energy policy legislation, the Comprehensive American Energy Security and Consumer Protection Act. Passed on September 16, 2008, the bill would expand oil and gas drilling offshore by allowing oil and gas exploration and production in areas of the outer continental shelf that are currently off limits, except for waters in the Gulf of Mexico off the Florida coast. Under the bill, states could allow such drilling between 50 and 100 miles offshore, while the federal government could permit drilling from 100 to 200 miles offshore.4 Revenue from the new offshore leases would be used to assist the development of alternative energy, and would not be shared by the adjacent coastal states. The bill would also repeal the current ban on leasing federal lands for oil shale production if states enact laws providing for such leases and production. H.R. 6899 also would enact a renewable portfolio standard, a requirement that power companies generate 15% of their energy from renewable sources by 2020. Energy Tax Provisions in H.R. 6899 The energy tax provisions in H.R. 6899 (Title XIII, the Energy Tax Incentives Act of 2008) are largely the same as those in H.R. 5351, an approximately $18 billion energy tax package that was approved by the House on February 27, 2008. They also include some of the measures in H.R. 6049, another energy tax bill that was also approved by the House.5 H.R. 5351 is, in turn, a smaller version of the energy tax title that was dropped from H.R. 3221 in December 2007, but larger than the $16 billion bill approved by the Ways and Means Committee in 2007 (H.R. 2776). However, because H.R. 6899 incorporates some of the incentives of H.R. 6049, its total cost is higher than the cost of H.R. 5351: about $19 billion over 10 years, instead of $18 billion. 4 The House Democratic leadership's energy proposal is centered around opening the Outer Continental Shelf to oil and gas development. The OCS areas -- the Atlantic OCS, Gulf of Mexico (GOM) OCS, Pacific OCS, and Alaska OCS -- are the offshore lands under the jurisdiction of the U.S. government. Federal law allows or confirms state boundaries and jurisdiction over the continental shelf areas up to 3 nautical miles from the coastline, except that (in the GOM) Texas and Florida offshore boundaries extend up to 9 nautical miles from the coastline. Exclusive federal jurisdiction over resources of the shelf applies from state boundaries out to 200 miles from the U.S. coastline. For a more detailed definition of the OCS and various governmental jurisdictions see U.S. Library of Congress. Congressional Research Service. Offshore Oil and Gas Development: Legal Framework. CRS Report RL33404, by Adam Vann. May 3, 2006. For a comparison of different proposals see U. S. Library of Congress. Congressional Research Service. Outer Continental Shelf Leasing: Side-by-Side Comparison of Five Legislative Proposals. CRS Report RL34667 by Marc Humphries. September 15, 2008 5 As noted, the House has approved several energy tax bills over the last two years, only to have them stall in the Senate. H.R. 6049, for instance, was approved by the House on May 21, 2008 only to fail several cloture votes in the Senate (see footnote #3). CRS-4 H.R. 6899 includes several tax incentives for renewable energy that would reduce revenue by an estimated $19 billion over 10 years.6 At a cost of $6.9 billion over 10 years, it extends a renewable energy production tax credit, covering wind facilities for one additional year, through 2009, and certain other renewable energy production for three years, through 2011, while capping credits for facilities that come into service after 2009. The bill extends for eight years, through 2016, a credit for investing in solar energy and fuel cells, at a cost of $1.8 billion. It also extends the energy-efficient commercial building deduction for five years, the credit for efficiency improvements to existing homes for one year, and a credit for energy-efficient appliances for three years. The measure provides for the allocation of $2.625 billion in energy conservation bonds, $1.75 billion in clean renewable energy bonds, and $1.75 billion in energy security bonds to finance the installation of natural gas pumps at gas stations; all would be tax-credit bonds, which provide a tax credit in lieu of interest, and projects financed through the bonds would have to comply with Davis-Bacon requirements. It also creates a new tax credit for plug-in electric vehicles, an accelerated recovery period for smart electric meters and grid systems, and provides $1.1 billion in tax credits for carbon capture and sequestration projects. The tax title also includes one non-energy tax subsidy: a $1.1 billion provision to restructure the New York Liberty Zone tax incentives to allow for new transportation projects. H.R. 6899 is fully offset, raising $19 billion in taxes, including many of the same energy tax increases on oil companies also previously approved by the House. The energy tax provisions in H.R. 6899 are entirely offset, mainly by denying the IRC §199 manufacturing deduction to certain major integrated oil companies (including oil companies controlled by foreign governments -- including CITGO ) and freezing the deduction for all other oil and gas producers at the current rate of 6%.7 Earlier §199 repeal proposals had been criticized for seeking to end the deduction only for U.S.-based major companies, while exempting Venezuelan-controlled CITGO because, not being a crude oil producer, it does not meet the definition of a "major integrated oil and gas producer." The entire provision would raise $13.9 billion over 10 years. Additional revenue -- about $4.0 billion over 10 years -- would come from a provision to streamline the tax treatment of 6 U.S. Congress. Joint Committee on Taxation. Estimated Revenue Effects of Title VIII of H.R. 6899, The "Energy Tax Incentives Act of 2008," as Passed by the House of Representatives on September 16, 2008. JCX-68-08. September 17, 2008. 7 First enacted in 2004, this provision allows a deduction, as a business expense, for a specified percentage of the qualified production activity's income subject to a limit of 50% of the wages paid that are allocable to the domestic production during the taxable year. The deduction was 3% of income for 2006, is currently 6%, and is scheduled to increase to 9% when fully phased in by 2010. For the domestic oil and gas industry, the deduction applies to oil and gas or any primary product thereof, provided that such product was "manufactured, produced, or extracted in whole or in significant part in the United States." Note that extraction is considered to be manufacturing for purposes of this deduction, which means that domestic firms in the business of extracting oil and gas qualify for the deduction. This deduction was enacted under the American Jobs Creation Act of 2004 (P.L. 108-357, also known as the "JOBS" bill). CRS-5 foreign oil-related income so it is treated the same as foreign oil and gas extraction income. In addition to the H.R. 6899, the Republican leadership in the House has introduced its own energy tax bill, H.R. 6566, which also extends and expands some of the energy tax incentives and contains no tax increases (offsets). The energy tax provisions in this bill are, however, smaller and somewhat narrower than those in H.R. 6899. S. 3478 In the Senate, legislative efforts on energy tax incentives and energy tax extenders center around S. 3478, the Energy Independence and Investment Act of 2008, a $40 billion energy tax bill offered by Finance Committee Chairman Max Baucus and ranking Republican Charles Grassley. Senate Majority Leader Harry Reid said on September 12 that S. 3478 is "must-pass" legislation. Reid told reporters the energy tax package, which includes extensions of tax incentives for renewable energy, should be prioritized even ahead of the broader energy policy bills being considered, and the rest of the non-energy tax extenders package. Reid said he hopes to bring the bill to the floor during the week of September 15, but noted that the schedule depends on whether Senate Republicans will agree to move to the legislation.8 While most of the tax incentives in the bill are extensions of existing policy and are not controversial, the legislation would need to be paid for through new sources of revenue. One proposed offset -- which has been previously blocked by Republicans -- would repeal the IRC §199 manufacturing deduction for the five major oil and gas producers, raising $13.9 billion over 10 years. The bill also would be paid for through a new 13% excise tax on oil and natural gas pumped from the Outer Continental Shelf, a proposal to eliminate the distinction between foreign oil and gas extraction income and foreign oil-related income, and an extension and increase in the oil spill tax through the end of 2017. In total, tax increases on the oil and gas industry would account for $31 billion of the $40 billion total cost of the legislation. The final major offset would come from a requirement on securities brokers to report on the cost basis for transactions they handle to the Internal Revenue Service, a provision expected to raise about $8 billion in new revenues over 10 years. The tax offsets, or tax increases in S. 3478 are not without controversy, however, particularly the repeal of the IRC §199 manufacturing deduction for the five major oil and gas producers, as discussed previously. Several times the House has approved energy tax legislation, and several times in the Senate such legislation failed a cloture vote and thus could not be brought to the floor for debate. As noted above, Republicans have in the past objected to the idea of raising taxes to offset extension of expiring energy tax provisions, which they consider to be 8 Bureau of National Affairs. Daily Tax Report. "Reid Says `Must Pass' Energy Legislation Should be Handled Before Tax Extenders." September 15, 2008. P. G-5. CRS-6 an extension of current tax policy rather than new tax policy. In addition, some Senate Republicans have objected to raising taxes on the oil and gas industry, particularly by repealing the IRC §199 deduction. The Bush Administration threatened to also veto any energy tax bill that would increase taxes on the oil and gas industry. At this writing, it appears that inclusion of the §199 deduction repeal as an offset might preclude the energy tax bill from coming to the Senate floor -- some believe that it would fail another cloture vote -- so this provision might not survive the process.9 Finally, the debate in the Senate over energy tax incentives and energy tax extenders is seen as potentially involving three other separate proposals: (1) The Gang of 20 proposal or "New Energy Reform Act of 2008"(this has not yet been introduced); (2) A Bingaman/Baucus bill (also not formally introduced); and (3) the Republican "Gas Price Reduction Act" (introduced by Senator McConnell as Senate Amendment 5108). A side-by-side comparison of H.R. 6899 and S. 3478 is in Table 1.10 Revenue estimates were generated by the Joint Committee on Taxation. 9 Bureau of National Affairs. Daily Tax Report. "Plan to Bring Tax Extenders to Floor Scraps Section 199 Deduction Repeal for Oil Firms." September 17, 2008. P. G-13. 10 A side-by-side comparison of H.R. 6049 and S. 3478 is in CRS Report RL34669, by Salvatore Lazzari, September 16, 2008. CRS-7 Table 1. Side-by-Side Comparison of S. 3478 and the Energy Tax Provisions of H.R. 6899 Provision Current Law Senate Bill S. 3478 House Bill H.R. 6899 Comments Fossil Fuels Supply Percentage Depletion for Independent producers can claim a higher Sec. 213. The proposal extends for No provision. Marginal Oil and Gas depletion rate(up to 25%, rather than the three years (through December 31, Wells normal 15%) for up to 15 barrels per day of oil 2010) the suspension on the taxable (or the equivalent amount of gas) from income limit for purposes of marginal wells ( "stripper" oil/gas and heavy depreciating a marginal oil or gas oil). The percentage depletion allowance is well. The estimated cost of this limited to 100% of taxable income from each proposal is $364 million over 10 property, but this limitation is suspended years. through December 31, 2007 for marginal oil and gas. The percentage depletion allowance is also limited to 65% of taxable income from all properties [IRC§613A(c)(6); [IRC§613A(c)(6)(H); [IRC§ 613A(d)]. Petroleum Refineries Assets used in petroleum refining are generally Sec. 212. This bill extends the No provision. This is one of the several depreciated over 10 years. But, a temporary refinery expensing contract tax incentives for the oil provision allows the expensing of refinery requirement and the industry created by The property which either increases total capacity placed-in-service requirement for Energy Policy Act of by 5% or which processes nonconventional two years. The proposal also 2005(EPACT05, P.L. feedstocks at a rate equal or greater to 25% of qualifies refineries directly 109-58). the total throughput of the refinery processing shale or tar sands. The [IRC§168(e)(3)]. estimated cost of this proposal is $894 million over 10 years. CRS-8 Provision Current Law Senate Bill S. 3478 House Bill H.R. 6899 Comments Carbon Mitigation and Coal Credit for Investment in A 15% investment credit is provided for Sec. 111 & 112. The bill provides Sec. 811 & 812. Similar to S. This tax credit was also Clean Coal Facilities advanced coal projects and a 20% credit is $2.5 billion in new total tax credits 3478, except that the total one of the several energy provided for qualified coal gasification for the creation of advanced coal credits are only $1.1 billion: tax incentives created by projects, respectively. The credit is for coal electricity projects and certain coal $950 million for advanced coal EPACT05. gasification projects which must use an gasification projects that projects, and $150 million for integrated gasification combined cycle (IGCC) demonstrate the greatest potential coal gasification projects. This technology. The total credits available for for carbon capture and sequestration proposal is estimated to cost qualifying advanced coal projects is limited to (CCS) technology. Of these $2.5 $1.044 billion over 10 years. $1.3 billion, with $800 million allocated to billion of total incentives, $2 billion IGCC projects and the remaining $500 million would be earmarked for advanced to projects using other advanced coal-based coal electricity projects and $500 generation technologies [IRC §48A and IRC million for coal gasification §48B]. projects. These tax credits will be awarded by Treasury through an application process, with applicants that demonstrate the greatest CO2 sequestration percentage receiving the highest priority. Projects must capture and sequester at least 65% of the facility's CO2 emissions or their coal gasification project must capture and sequester at least 75% of the facility's CO2 emissions. The estimated cost of this proposal is $2.373 billion over 10 years. CO2 Capture Tax Credit No provision. Sec. 115. The proposal provides a No provision. $10 credit per ton for the first 75 million metric tons of CO2 captured and transported from an industrial source for use in enhanced oil recovery and $20 credit per ton for CO2 captured and transported from an industrial source for permanent storage in a geologic formation. Qualifying facilities must capture at least 500,000 metric tons of CO2 per year. The credit applies to CO2 CRS-9 Provision Current Law Senate Bill S. 3478 House Bill H.R. 6899 Comments stored or used in the United States. The estimated cost of this proposal is $1.119 billion over 10 years. Carbon Audit of Tax Code No provision. Sec. 116. The bill directs the Sec. 815. Identical to S. 3478. Secretary of the Treasury to request that the National Academy of Sciences undertake a comprehensive review of the tax code to identify the types of specific tax provisions that have the largest effects on carbon and other greenhouse gas emissions and to estimate the magnitude of those effects. Authorizes $1.5 million for the study. This proposal has no revenue effect. Other Coal Tax Provisions Black-Lung Excise Tax An excise tax is imposed on coal mined Sec. 113. The bill would enact the Sec. 813. The House bill in See CRS Report domestically and sold by the producer, at the President's FY2009 proposal to identical to the Senate bill. The RS21935. rate of $1.10 per ton for coal from bring the Black Lung Disability proposal is estimated to raise underground mines and $0.55 per ton for coal Trust Fund out of debt. The $1.287 billion over 10 years. from surface mines (the aggregate tax per ton is President's Budget proposes that the capped at 4.4% of the amount sold by the current excise tax rate should producer). Reduced tax rates apply after the continue to apply beyond 2013 until earlier of December 31, 2013 or the date on all amounts borrowed from the which the Black Lung Disability Trust Fund general fund of the Treasury have has repaid, with interest, all amounts borrowed been repaid with interest. After from the general fund of the Treasury. Tax repayment, the reduced excise tax receipts are deposited in the Black Lung rates of $0.50 per ton for coal from Disability Trust Fund, and used to pay underground mines and $0.25 per compensation, medical and survivor benefits to ton for coal from surface mines eligible miners and their survivors and to cover would apply (aggregate tax per ton costs of program administration. The Trust capped at 2% of the amount sold by Fund is permitted to borrow from the General the producer). Rates are extended Fund any amounts necessary to make through 2018. The proposal is authorized expenditures if excise tax receipts estimated to raise $1.287 billion do not provide sufficient funding [IRC§4121]. over 10 years. CRS-10 Provision Current Law Senate Bill S. 3478 House Bill H.R. 6899 Comments Black-Lung Excise Tax on Since 2000 (which is when the IRS issued Sec. 114. The bill creates a new Sec. 814. This provision is See CRS Report Exported Coal Notice 2000-28), the black lung excise tax has procedure under which certain coal identical to that in the Senate RS22881. not been imposed on exported coal (i.e., producers and exporters may claim bill. The estimated cost of this domestically produced coal sold and destined a refund of these excise taxes that proposal is $199 million over for export). The courts have determined that the were imposed on coal exported 10 years. Export Clause of the U.S. Constitution prevents from the United States. Under this the imposition of the coal excise tax on procedure, coal producers or exported coal and, therefore, any taxes exporters that exported coal during collected on such exported coal in the past are the period beginning on or after subject to a claim for refund. [IRC§4121. October 1, 1990 and ending on or before the date of enactment of the bill, may obtain a refund from the Treasury of excise taxes paid on such exported coal and any interest accrued from the date of overpayment. The estimated cost of this proposal is $199 million over 10 years. Electricity Restructuring Provisions Sale or Disposition of Under present tax law, the sale of electricity Sec. 401. The bill extends the Sec. 805. Identical to the Senate The eight-year Transmission Assets transmission or distribution facilities is present-law eight-year deferral of bill. This proposal is revenue recognition rule was generally considered to be an involuntary gain on sales of transmission neutral over 10 years. introduced by EPACT05. conversion, and gain from the sale or property by vertically integrated disposition of such assets is recognized over electric utilities to FERC-approved eight years, rather than taxed all at once in the independent transmission year of the sale [IRC §§451, 1033, 1245, 1250]. companies. The rule applies to sales before January 1, 2010. This proposal is revenue neutral over 10 years. CRS-11 Provision Current Law Senate Bill S. 3478 House Bill H.R. 6899 Comments Renewable and Alternative Fuels Electricity from Renewable Electricity producers may claim a tax credit of Sec. 101 &102. The Senate bill Sec. 801 &802. The House bill Current tax credit is Fuels 1.5˘/kWh (in 1992 dollars; generally 2.0˘ in extends the placed-in-service date also has a three-year extension generally available for current dollars) for electricity produced from by three years, through December of the placed-in-service date 10 years after placed-in- wind energy, "closed-loop," and open-loop 31, 2011. The bill expands the types through December 31, 2011, service, but new biomass, and other renewable resources as well of facilities qualifying for the credit but for wind, the extension is equipment has to be as for refined coal. Placed-in-service date is to new biomass facilities and those for only one year through 12- placed-in-service by 12- December 31, 2008 [IRC§45]. that generate electricity from marine 31-2009. It also adds marine 31-2008. So this tax renewables (e.g., waves and tides). renewables (e.g., waves and credit would not be The bill updates the definition of an tides) and hydrokinetic energy available on new open-loop biomass facility, the as a qualified resource. The bill investments after 12-31- definition of a trash combustion would repeal the current phase- 2008, unless it is facility, and the definition of a out mechanism, replacing it extended. non-hydroelectric dam. The bill also with a cap on the present value extends the refined coal credit, of the credits, which cannot while removing the market value exceed 35% of the facility's test and increasing coal emissions cost. The bill clarifies the standards. The estimated cost of this availability of the production proposal is $15.414 billion over 10 tax credit with respect to certain years. sales of electricity to regulated public utilities and updates the definition of an open-loop biomass facility, trash combustion facility, and nonhydroelectric dam. This proposal is estimated to cost $6.893 billion over 10 years. Business Solar, A permanent 10% tax credit is provided for Sec. 103 & 107. S. 3478 extends Sec.803. This provision is Under current law, Geothermal, Fuels Cells, investments in solar and geothermal equipment the 30% investment tax credit for similar to the Senate's. This energy-related income and Other Renewable used to generate electricity (including solar energy property and qualified proposal is estimated to cost tax credits, and many of Technologies photovoltaic systems), or solar equipment used fuel cell property, as well as the $1.765 billion over 10 years. the non-energy tax to heat or cool a structure, and for process heat. 10% investment tax credit for micro credits, are aggregated The 30% credit for solar, fuel cells and the 10% turbines, for eight years (through and claimed as one credit for micro-turbines is available through 12-31-2016). The bill adds small general business credit, 12-31-2009. Geothermal energy reservoirs also commercial wind, geothermal heat which is also subject to qualify for a 15% percentage depletion pumps, and combined heat and several limitations, allowance. Depreciation recovery period for power systems (at a 10% credit rate) including the alternative renewable technologies is five years. Fuel cells as a category of qualified minimum tax limitation. CRS-12 Provision Current Law Senate Bill S. 3478 House Bill H.R. 6899 Comments do not qualify for tax subsidies [IRC§45,46,48, investment. The bill also increases [IRC§38] 613(e)]. the $500 per half kilowatt of capacity cap for qualified fuel cells to $1,500 per half kilowatt and allows these credits to be used to offset the alternative minimum tax (AMT). The estimated cost of this proposal is $1.919 billion over 10 years. Residential Solar and A 30% tax credit is provided for residential Sec. 104. The bill extends the credit Sec.804. This provision is the The payment of the Other Renewables Used in applications of solar generated electricity for residential solar property for same as in the Senate bill. This AMT may substantially Residences (photovoltaics) as well for solar water heating. eight years (through 2016), and proposal is estimated to cost reduce, or even This credit is available through 12-31-2008 doubles it from $2,000 to $4,000. approximately $907 million eliminate, this (as well as (IRC§25D). The bill adds residential small wind over 10 years. other) energy tax credits. investment, capped at $4,000, and geothermal heat pumps, capped at $2,000, as qualifying property. The bill also allows the credit to be used to offset the AMT. The estimated cost of this proposal is $907 million over 10 years. Clean Renewable Energy State and local governments may issue clean Sec. 105. The Senate bill increases Sec. 806. The House bill is Bonds renewable energy bonds ("CREBS") in order to the maximum authorized amount of similar to the Senate bill, but finance renewable projects (wind, closed-loop CREBS issues to $2 billion to the national limitation is $1.75 biomass, open-loop biomass, geothermal, small finance facilities that generate billion instead of $2.0 billion. irrigation, qualified hydro-power, landfill gas, electricity from renewables. This $2 This proposal is estimated to marine renewable and trash combustion billion authorization is subdivided cost $497 million over 10 facilities). Unlike other state and local bonds, into thirds: 1/3 for qualifying years. which are exempt from federal taxation, these projects of state/local/tribal bonds provide a tax credit to the holding governments; 1/3 for qualifying taxpayer. Only $1.2 billion of such bonds may projects of public power providers; be issued nationally; $0.75 billion by and 1/3 for qualifying projects of governmental bodies. CREBS must be issued electric cooperatives. The bill also before 12-31-2008 [IRC §54]. provides an additional year for current allocations to issue bonds. The estimated cost of this proposal is $551 million over 10 years. CRS-13 Provision Current Law Senate Bill S. 3478 House Bill H.R. 6899 Comments Nuclear Electricity A taxpayer producing electricity at a qualifying Sec. 402. This proposal increases No provision. A qualifying advanced Production Tax Credit advanced nuclear power facility can claim a the maximum allocation amount to nuclear facility is one for credit equal to 1.8˘/kilowatt hour of electricity 8,000 megawatts. Public-private which the taxpayer has produced for the eight-year period starting partnerships will also be allowed to received an allocation of when the facility is placed in service. The utilize the credit. This proposal has megawatt capacity from aggregate amount of credit that a taxpayer may no revenue effect. the Secretary of the claim in any year during the eight-year period Treasury, in consultation is subject to limitation based on allocated with the Secretary of capacity and an annual limitation. A qualifying Energy. See CRS Report advanced nuclear facility is one that is placed in RL33558. service before January 1, 2021. The Secretary of Treasury may allocate up to 6,000 megawatts of capacity [IRC§45I]. Energy Conservation and Energy Efficiency Business Sector Energy Efficiency in The tax code provides a formula-based tax Sec. 303. The bill extends the Sec. 843. Same as the Senate Qualifying property must Commercial Buildings deduction, subject to a limit equal to $1.80 per energy-efficient commercial bill. The estimated cost of this be installed as part of: sq.ft. of the building, for all or part of the cost buildings deduction for five years, proposal is $891 million over (1) the interior lighting of energy efficient commercial building through December 31, 2013. The 10 years. system, (2) the heating, property (i.e., certain major energy-savings estimated cost of this proposal is cooling, ventilation and improvements made to domestic commercial $891 million over 10 years. hot water systems, or (3) buildings) placed in service after December 31, the building envelope, 2005 and before January 1, 2009 [IRC §179D]. and it must reduce total annual energy and power costs of the building by 50% or more in comparison to a reference building that meets the minimum requirements of building standards by the society of engineers. Bonds for Green Buildings State and local governments have the authority Sec. 307. The bill extends the Sec. 846. Identical to the and Sustainable Design to issue tax-exempt bonds for green buildings authority to issue qualified green Senate provision. The estimated Projects and sustainable design projects [IRC§142]. building and sustainable design cost of this proposal is $45 project bonds through the end of million over 10 years. 2012. The bill also clarifies the CRS-14 Provision Current Law Senate Bill S. 3478 House Bill H.R. 6899 Comments application of the reserve account rules to multiple bond issuances. The estimated cost of this proposal is $45 million over 10 years. Energy Management Current law provides no special tax incentives Sec. 306. The bill provides Sec. 845. Similar to the Senate Devices for meters, thermostats, and other energy accelerated depreciation for smart bill except that the recovery management devices that allow utilities or electric meters and smart electric period would 10 years instead consumers to monitor, control energy use; such grid systems, allowing taxpayers to of seven years. The estimated property is depreciable over 20 years if used in recover the cost of this property cost of this proposal is $921 a business [IRC §168]. over seven years. The estimated cost million over 10 years. of this proposal is $1.716 billion over 10 years. Residential Sector Energy-Efficiency Retrofits There is a 10% credit, up to a $500 maximum Sec. 302. The bill retroactively Sec. 842. The bill retroactively This credit was enacted to Existing Homes lifetime credit,- for energy efficiency extends the tax credits for extends the tax credits for as part of EPACT05, but improvements in the building envelope of energy-efficient retrofits to existing energy-efficient existing homes it expired at the end of existing homes and for the purchase of homes for 2009, 2010 and 2011, for two years (through 2007. high-efficiency heating, cooling, and water and includes energy-efficient December 31, 2009) and heating equipment. Efficiency improvements biomass fuel stoves as a new class includes energy-efficient and/or equipment must be placed in service of energy-efficient property eligible biomass fuel stoves as a new before December 31, 2007. Selected energy for a consumer tax credit of $300. class of energy-efficient efficiency equipment and items qualify for The proposal also clarifies the property eligible for a specific tax credits ranging from $50-$300 efficiency standard for water consumer tax credit of $300. [IRC §25C]. heaters. The estimated cost of this This proposal is estimated to proposal is $2.509 billion over 10 cost $1.067 billion over 10 years. years. Construction of Energy- A tax credit as high as $2,000 is available to Sec. 304. The bill extends the new No provision. Efficient New Homes eligible contractors for the construction of energy efficient home tax credit for qualified new energy-efficient homes if the three years, through December 31, homes achieve an energy savings of 50% over 2011. The estimated cost of the the 2003 International Energy Conservation proposal is $143 million over 10 Code (IECC). The amount of the new energy- years. efficient home credit depends on the energy savings achieved by the home relative to that of a 2003 IECC compliant comparable dwelling unit. The credit expires at the end of 2008. [IRC §45L] CRS-15 Provision Current Law Senate Bill S. 3478 House Bill H.R. 6899 Comments Manufacture of Energy- A credit is available for the eligible production Sec. 305. The bill modifies the Sec. 844. This provision is The maximum amount Efficient Home Appliances (manufacture) of certain energy-efficient existing energy-efficient appliance identical to that in S. 3478. The of the new credit dishwashers, clothes washers, and refrigerators. credit and extend this credit for estimated cost of this proposal allowable to a taxpayer The total credit amount is equal to the sum of three years, through the end of is $322 million over 10 years. is capped at $75 million the credit amount separately calculated for each 2010. The estimated cost of this per tax year for all of the three types of qualified energy-efficient proposal is $322 million over 10 qualifying appliances appliance. The credit for dishwasher is $3 years. manufactured during that multiplied by the percentage by which the year . In each subsequent efficiency of the 2007 standards (not yet year the cap is reduced known) exceeds that of the 2005 standards (the by the amount (if any) of credit may not exceed $100 per dishwasher). the credit used in any The credit for clothes washers is $100 for prior tax year. Of that clothes washers that meet the requirements of $75 million (or reduced) the Energy Star program in effect for clothes cap, no more than $20 washers in 2007. The credit for refrigerators million of credit amount ranges from $75-$175 each [IRC §45M]. in a single tax year may result from the manufacture of refrigerators to which the $75 applicable amount applies (i.e., refrigerators which are at least 15 percent but no more than 20 percent below 2001 energy conservation standards). In addition to the $75 million cap on the credit allowed, the overall credit amount claimed for a particular tax year may not exceed 2% of the taxpayer's average annual gross receipts for the preceding three tax years. Qualified Energy No provision. Sec. 301. The bill creates a new Sec. 841. The provision is Conservation Bonds category of tax credit bonds to similar to that in S. 3478, finance state and local government except that the national initiatives designed to reduce limitation is $2.625 billion. CRS-16 Provision Current Law Senate Bill S. 3478 House Bill H.R. 6899 Comments greenhouse emissions. There is a This proposal is estimated to national limitation of $3 billion, cost $895 billion over 10 years. allocated to states, municipalities and tribal governments. The estimated cost of this proposal is $1.025 billion over 10 years. Transportation Sector Advanced Technology Vehicles New Plug-In Hybrid The Energy Policy Act of 2005 (P.L. 109-58) Sec. 204 & 205. The Senate bill Sec. 824. The bill establishes a Toyota reached its limit Vehicles created a new system of tax credits for four establishes a new credit for qualified new credit for each qualified in 2006; Honda in 2007. types of advanced-technology vehicles (ATVs): plug-in electric drive vehicles. The plug-in electric drive vehicle Thus, purchasers of hybrid vehicles, fuel cell vehicles, advanced base amount of the credit is $2,500. placed in service during each hybrid vehicles from lean-burn vehicles, and other alternative fuel If the qualified vehicle draws taxable year by a taxpayer. The these manufacturers no vehicles. The credit for hybrids range from propulsion from a battery with at base amount of the credit is longer qualify for the tax $250 to $3,400 per vehicle and are available least 6 kW hours of capacity, the $3,000. If the qualified vehicle credits. The two bills through December 31, 2009, but each credit amount is increased by $400, draws propulsion from a battery essentially add plug-in manufacturer has a 60,000 lifetime vehicle plus another $400 for each kW hour with at least 5 kilowatt hours of hybrid vehicles as a new limit. [IRC §30B]. of battery capacity in excess of 6 capacity, the credit amount is technology to the kWhours. Taxpayers may claim the increased by $200, plus another existing system of tax full amount of the allowable credit $200 for each kilowatt hour of credits, but with their up to the end of the first calendar batter/capacity in excess of 5 own separate tax credit quarter after the quarter in which the kilowatt hours up to 15 kilowatt structure. total number of qualified plug-in hours. Taxpayers may claim the electric drive vehicles sold in the full amount of the allowable U.S. is at least 250,000. The credit credit up to the end of the first is available against the alternative calendar quarter after the minimum tax (AMT). The estimated quarter in which the cost of this proposal is $755 million manufacturer records 60,000 over 10 years. sales. The credit is reduced in following calendar quarters. The credit is available against the alternative minimum tax (AMT). This proposal is estimated to cost $1.056 billion over 10 years. Other Alternative The tax credits for advanced lean-burn vehicles Sec. 205. The bill extends the lean No provision. Technology Vehicles is the same as for hybrids; the credit for fuel burn, heavy hybrid, and alternative CRS-17 Provision Current Law Senate Bill S. 3478 House Bill H.R. 6899 Comments cell vehicles may be as high as $4,000 for cars, fuel vehicle tax credit through and $40,000 for heavy-duty trucks; the credit 2011,and reduces the fuel cell credit for advanced alternative fuel vehicles is up to to $7,500 at the end of 2009. The 80% of marginal costs, limited to $32,000. credit is available against the [IRC §30B] alternative minimum tax (AMT). The estimated cost of this proposal is $527 million over 10 years. Alternative-Fuel Refueling A tax credit is provided equal to 30% of the Sec. 208. The bill extends the 30% Sec. 828. The provision in H.R. The credit provides a tax Stations cost of any qualified alternative fuel vehicle alternative refueling property credit 6899 is similar to the provision credit to businesses (e.g., refueling property installed to be used in a trade (capped at $30,000) for three years, in S. 3478. The bill increases gas stations) that install or business or at the taxpayer's principal through 2012. The provision the 30% alternative refueling alternative fuel pumps, residence. The credit would be limited to provides a tax credit to businesses property credit (capped at such as fuel pumps that $30,000 for retail clean-fuel vehicle refueling (e.g., gas stations) that install $30,000) to 50% (capped at dispense E85 fuel. property, and $1,000 for residential clean-fuel alternative fuel pumps, such as fuel $50,000). The bill also extends vehicle refueling property. The property must pumps that dispense fuels such as this credit through the end of be placed in service before1-1-2010 (1-1-2015 E85, compressed natural gas and 2010, 2017 for certain natural for hydrogen property) [IRC§30C.] hydrogen. The bill also adds electric gas type fuels. The estimated vehicle recharging property to the cost of this proposal is $226 definition of alternative refueling million over 10 years. property. The estimated cost of this proposal is $256 million over 10 years. Energy Security Bonds No provision No provision. Sec. 828. The bill creates a new type of tax-credit bond known as "energy security" bonds and provides for the allocation of $1.75 billion in bonding authority. The bill requires 100% of the available project proceeds to be used for "qualfied purposes," which would include the making of grants and low-interest loans for natural gas refueling properties at retail gas stations. The bill stipulates that a loan could be no more than $200,000 for a property located CRS-18 Provision Current Law Senate Bill S. 3478 House Bill H.R. 6899 Comments at any one retail gas station and stipulates that loans could not cover more than 50% of the cost of the property and its installation. Allocations would be made by the Treasury Department among qualified issuers, including states and political subdivisions or instrumentalities thereof. The bill requires that 50% of the limitation be allocated only for loans for natural gas refueling property in metropolitan statistical areas. The measure also directs the department to attempt to ensure that at least 10% of the motor fuel stations receive loans from the proceeds of the bonds. The measure's provisions would apply to bonds issued by Dec. 31, 2017. It also coordinates the energy security tax-credit bonds with the refueling credit. This proposal is estimated to cost $76 million over ten years. Biofuels Cellulosic Fuel Alcohol Alcohol fuels qualify for production and Sec. 201. The bill makes this benefit Sec. 821. The House bill Production blending tax credits (either income or excise tax available for the production of other provision is identical to that in credits) and refunds. The credit for ethanol is cellulosic biofuels in addition to the Senate bill. $0.51per gallon. In addition, there is an ethanol cellulosic ethanol. This proposal is small producer credit of $0.10 per gallon, up to estimated to be revenue neutral over 15 million gallons annually. Facilities that 10 years. produce cellulosic ethanol are also allowed the CRS-19 Provision Current Law Senate Bill S. 3478 House Bill H.R. 6899 Comments 50% bonus depreciation if such facilities are placed in service before January 1, 2013. The farm bill (P.L. 110-246) also included a new, temporary cellulosic bio-fuels production tax credit for up to $1.01 per gallon, available through December 31, 2012 [IRC §168]. Alternative Fuels Excise The tax code imposes excise taxes on motor Sec. 207. The bill extends the No provision. Tax Credits fuels at varying rates, but also provides tax alternative fuel excise tax credit credits (at varying amounts) against these taxes through December 31, 2011 for all for various types of alternative fuels; it also fuels except for hydrogen (which provides small producer tax credits for some of maintains its current-law expiration the fuels such as ethanol and bio-diesel. The date of September 30, 2014). Upon credits generally expire at the end of 2008 [IRC date of enactment, for liquid fuel §6426, §6427]. derived from coal through the Fischer-Tropsch process ("coal-to-liquids"), to qualify as an alterative fuel, the fuel must be produced at a facility that separates and sequesters at least 50% of its CO2 emissions. The sequestration requirement increases to 75% on December 31, 2011. This 75% standard may be implemented prior to December 31, 2011, subject to certification of feasibility. The proposal further provides that biomass gas versions of liquefied petroleum gas and liquefied or compressed natural gas, and aviation fuels qualify for the credit. The proposal is estimated to cost $569 million over 10 years. Volumetric Excise Tax Fuel ethanol qualifies for excise tax credits (or Sec. 210. This bill extends VEETC, No provision. Credit (VEETC) for Fuel refunds), at the rate of $0.51/gallon of ethanol; including the 10˘/gallon small Ethanol and a small producer tax credit of $0.10/gallon. producer credit, through The excise tax credit was established in the 12/31/2011. The estimated cost of American Jobs Creation Act of 2004. Per the this proposal is $4.978 billion over 2008 farm bill, starting the year after which 7.5 10 years. CRS-20 Provision Current Law Senate Bill S. 3478 House Bill H.R. 6899 Comments billion gallons of ethanol are produced and/or imported in the United States, the value of the credit is reduced to $0.45/gallon. The credit is currently authorized through December 31, 2010 [IRC§40, 6426, §6427]]. Small Producer Tax Credit As noted above, in the case of ethanol, the tax Sec. 211. S. 3478 creates a new No provision. for Fuel Ethanol code also provides a small producer tax credit small producer alcohol credit of 10 of $0.10/gallon, up to 15 million gallons [IRC cents per gallon for facilities that §40A]. produce ethanol through a process that does not use a fossil-based resource. The credit is available through December 31, 2011. The estimated cost of this proposal is $210 million over 10 years. Biodiesel Blender's Tax Refundable income tax credits and excise tax Sec. 202 & 203.The bill extends for Sec. 822 & 823. The bill Credit and Small Biodiesel credits are available for the blending and three years (through December 31, extends for one year (through Producer Credit production of biodiesel. The basic credit is 2011) the $1.00 per gallon December 31, 2009) the $0.50/gallon ($1.00/gallon for virgin or "agri" production tax credits for biodiesel $1.00/gallon production tax biodiesel) and is also provided on a volumetric and the small biodiesel producer credits for biodiesel and the basis. Production of biodiesel by a small credit of 10˘ per gallon. The bill small biodiesel producer credit producer qualifies for a $0.10/gallon credit up extends the $1.00 tax credit for of 10 ˘/ gallon, but does not to 15 million gallons. These credits expire at virgin biodiesel to recycled eliminate the current-law the end of 2008 [IRC §40A, 6426, and 6427]. biodiesel. Biodiesel that is imported disparity in credit for biodiesel and sold for export will not be and agri-biodiesel. The bill eligible for the credit effective May also clarifies that certain 15, 2008. The combined cost of the fuel-related tax credits are biodiesel proposal and the designed to provide an renewable diesel provision (please incentive for U.S. production, see the next item) is $2.256 billion which would apply to claims over 10 years. for credit or payment made after May 15. The combined cost of this proposal and the renewable diesel proposal (discussed in the next item below) is estimated be $401 million over 10 years. CRS-21 Provision Current Law Senate Bill S. 3478 House Bill H.R. 6899 Comments Renewable Diesel Refundable income tax credits and excise tax Sec. 202. The Senate bill extends for Sec. 822. The bill extends for Some oil companies are Production Tax Credit credits are available for the blending and three years (through December 31, one year (through December adding animal fat or production of renewable biodiesel. The basic 2011) the $1.00 per gallon 31, 2009) the $1.00 per gallon vegetable (soybean) oil credit is $1.00/gallon. Renewable diesel is production tax credit for diesel fuel production tax credit for diesel as feedstocks along with diesel fuel derived from biomass using a created from biomass. It eliminates fuel created from biomass. It crude oil in a "thermal depolymerization process"(TDP). the requirement that renewable also eliminates the requirement conventional refinery to TDP is a new technology that uses heat and diesel fuel must be produced using a that renewable diesel fuel must produce such fuels. pressure to change the molecular structure of thermal depolymerization process. be produced using a thermal Unlike biodiesel which wastes, plastics, and food wastes such as As a result, the credit will be depolymerization process. As a blends the soybean oil poultry carcasses and offal, and turn it into a available for any diesel fuel created result, the credit will be ester after the diesel is boiler fuel. In order to qualify for the from biomass without regard to the available for any diesel fuel made, the oil is added $1.00/gallon tax credits, the fuel must meet process used so long as the fuel is created from biomass without before as a feedstock. EPA's requirements for fuels and fuels usable as home heating oil, as a fuel regard to the process used so The resulting "co- additives under §211 of the Clean Air Act, and in vehicles, or as aviation jet fuel. long as the fuel is usable as produced fuel" comes the requirements of the ASTM D975 and D396. The bill caps the $1 per gallon home heating oil, as a fuel in out of the refinery as part These credits expire at the end of 2008 [IRC production credit for renewable vehicles, or as aviation jet fuel. of the regular diesel fuel §40A, 6426, and 6427]. diesel for facilities that co-process The bill also clarifies that the mix, distributed through with petroleum to the first 60 $1 per gallon production credit pipelines (unlike million gallons per facility. The for renewable diesel is limited biodiesel), and sold as estimated cost of the combined to diesel fuel that is produced regular diesel fuel. biodiesel proposal (previous item) solely from biomass. Diesel and this proposal is $2.256 billion fuel that is created by over 10 years. co-processing biomass with other feedstocks (e.g., petroleum) will be eligible for the 50˘/gallon tax credit for alternative fuels. This provision is estimated to raise $77 million over 10 years. Tax Shelters for Under current tax law, publicly traded Sec. 209. The bill allows publicly Sec. 830. This provision The measure ensures that Alternative Fuels partnerships are treated as corporations for tax traded partnerships to treat income appears to be the same as the income derived from purposes, unless they have passive income derived from the transportation and Senate bill's provision. The those fuels would receive (dividend, rents, etc.) and income from certain storage of certain alternative fuels as estimated cost of this proposal treatment similar to mineral exploration and production, timber, and "qualifying income" for income is $76 million over 10 years. income from oil and gas. other activities [IRC §7704]. tests used to determine whether an entity qualifies as a publicly traded partnership. Currently, 90% of the income of a publicly traded partnership must be qualifying CRS-22 Provision Current Law Senate Bill S. 3478 House Bill H.R. 6899 Comments income, or the entity is taxed as a corporation, to which higher rates apply. The bill covers fuels such as alcohol fuels and mixtures, biodiesel fuels and mixtures, and alternative fuels and mixtures. The bill applies to taxable years that begin after the measure is enacted. The estimated cost of this proposal is $78 million over 10 years. Miscellaneous Transportation and Energy Provisions Truck Idling Units and A 12% tax is imposed on the sale price of the Sec. 206. The bill provides an Sec. 825. This provision is Advanced Insulation first retail sale of (1) truck bodies and chassis exemption from the heavy vehicle identical to that in S. 3478. suitable for use with a vehicle having a gross excise tax for the cost of idling vehicle weight of over 33,000 pounds, (2) truck reduction units, such as auxiliary trailer and semitrailer bodies and chassis power units (APUs), which are suitable for use with a vehicle having a gross designed to eliminate the need for vehicle weight over 26,000 pounds, and (3) truck engine idling (e.g., to provide tractors of the kind chiefly used for highway heating, air conditioning, or transportation in combination with a trailer or electricity) at vehicle rest stops or semitrailer. The retail tax also generally applies other temporary parking locations. to the price and installation of parts or The bill also exempts the accessories sold on or in connection with, or installation of advanced insulation, with the sale of, a taxable vehicle [IRC §4051]. which can reduce the need for energy consumption by transportation vehicles carrying refrigerated cargo. Both of these exemptions are intended to reduce carbon emissions in the transportation sector. The estimated cost of this proposal is $95 million over 10 years. Transportation Fringe Gross income includes any income from No provision. Sec. 827. The bill allows Benefits whatever source, including income in kind, employers to provide such as fringe benefits, unless specifically employees that commute to excluded. Certain employer-provided work using a bicycle limited transportation fringe benefits are excluded up to fringe benefits to offset the certain amounts: up to $220/month for parking costs of such commuting (e.g., CRS-23 Provision Current Law Senate Bill S. 3478 House Bill H.R. 6899 Comments and van pool benefits, and up to $115/month of bicycle storage). This proposal transit passes [IRC §132]. is estimated to cost $10 million over 10 years. Recycling Property Investments in recycling property receive no Sec. 308. S. 3478 allows recycling No Provision. Under the Crude Oil special tax incentives and are generally treated property to qualify for the 50% Windfall Profits Tax of the same as other assets under the Modified special depreciation allowance, 1980 (P.L. 96-223, Accelerated Depreciation System, which allows basically equivalent to expensing of recycling equipment for shortened recovery periods, bonus 1/2 of the investment in such qualified for a 10% depreciation, and expensing under certain property. The estimated cost of this investment tax credit, but conditions [IRC §168, 179]. proposal is $162 million over 10 these generally expired years. at the end of 1982. Tax Increases (Offsets) and Other Provisions Domestic Activities Beginning on 1-1-2005, qualified Sec. 501. The bill repeals the IRC Sec. 851. The provision in H.R. The inclusion of state- Manufacturing Deduction "manufacturing" businesses in the United §199 manufacturing deduction for 5351 is identical to that in S. owned companies is under the Corporate States can claim a deduction for a certain major integrated and state-owned oil 3478. The proposal is intended to extend the Income Tax percentage of their taxable incomes, subject to and gas companies, beginning on 1- estimated to raise $13.904 denial of the §199 certain limits. The deduction was initially 3%, 1-2009. It maintains the 6% billion over 10 years. deduction to foreign is now 6%, and is scheduled to increase to 9% deduction rate for other oil and gas owned oil companies in 2010. The definition of a domestic companies. The proposal is (such as CITGO, which manufacturing activity is very broad and estimated to raise $13.904 billion is owned by the generally includes all energy market activities over 10 years. government of except for the transmission and distribution of Venezuela). Such electricity and natural gas. In particular, it companies are large but includes oil and gas extraction and production are not "integrated" oil [IRC §199]. companies -- they do not produce sufficient amounts of crude oil -- and thus would otherwise continue to receive the deduction. Excise Taxes on Oil and At the federal level there is no excise tax on Sec. 502. The proposal establishes a No provision. A type of windfall profit Natural Gas domestic (or imported) oil and natural gas, 13% excise tax on the removal tax on domestic crude oil including oil and gas produced from the Outer price of any taxable crude oil or production was in effect Continental Shelf. Oil and gas companies are natural gas produced from federal from April 1980 to assessed excise taxes on oil purchased for submerged lands on the OCS in the August 1988. This tax, refining (a 5˘/barrel tax that funds the Oil Spill Gulf of Mexico pursuant to a federal which was actually an Liability Trust Fund), and motor fuels excise OCS lease. The removal price is excise tax, not a profits CRS-24 Provision Current Law Senate Bill S. 3478 House Bill H.R. 6899 Comments taxes on refined petroleum products that fund defined as the amount for which the or income tax, was part various transportation and environmental trust barrel of taxable crude oil or of a compromise funds. In addition, oil companies pay barrel-of-oil equivalent of natural between the Carter severance taxes to some states where they gas is sold by the taxpayer. In the Administration and the extract minerals, and pay royalties (which are case of sales between related parties, Congress over the factor payments, not taxes) to landowners the removal price is the constructive decontrol of crude oil including the federal government [IRC §4041, sales price of the oil or natural gas. prices. It is discussed and §4081, §4611]. The proposal allows as a credit analyzed in detail in CRS against the excise tax an amount Report RL33305. equal to royalties paid under federal law with respect to taxable crude oil or natural gas, with the credit not to exceed the tax paid. The excise tax would apply to crude oil or natural gas removed after the date of enactment. The proposal is estimated to raise $11.663 billion over 10 years. Foreign Tax Credits on Oil United States businesses operating abroad Sec. 503. The proposal eliminates Sec. 852. The House bill, which Multinational oil Companies generally pay taxes to foreign governments as the distinction between FOGEI and is broader than the Senate bill) companies currently well as United States taxes, which are generally FORI. FOGEI relates to upstream makes two specific changes to allocate their income assessed on worldwide income. A tax credit is production to the point the oil leaves the calculation of such income. between FOGEI and allowed, subject to various limitations, against the wellhead. FORI is defined as all It bars the use of two FORI, which are subject U.S. taxes for the amounts of these foreign downstream processes once the oil methodologies established to different taxation taxes. Domestic oil companies operating leaves the wellhead (i.e., under a 2004 IRS field directive rules. abroad are also subject to additional limitation transportation, refining). Currently, for calculating FOGEI and on their foreign oil and gas extraction income FOGEI and FORI have separate FORI, and would instead ("FOGEI") and foreign oil related income foreign tax credit limitations. This require companies to use an ("FORI") [IRC §§901-907]. proposal combines FOGEI and "arm's length" price by using FORI into one foreign oil basket the independent market value at and applies the existing FOGEI the point nearest to the well at limitation. The proposal is estimated which an independent market to raise $2.23 billion over 10 years. exists when calculating such income. The bill also requires companies, when they pay foreign taxes that are limited to oil and gas companies, to treat the entire amount of their taxes CRS-25 Provision Current Law Senate Bill S. 3478 House Bill H.R. 6899 Comments on oil and gas extraction as applying to their FOGEI, rather than dividing the taxes between their FOGEI and their FORI. Because this provision would subject such income to the FOGEI limitation for foreign-tax credits, it would limit the credits claimed, and thus increase the revenue raised. This provision is effective for tax years that begin after the measure's enactment date. These changes would raise an estimated $3.84 billion over 10 years. Oil Spill Liability Trust A 5˘-per-barrel excise tax is imposed on Sec. 505. The proposal extends the No provision. Although the tax had Fund Excise Tax domestic and imported crude oil and petroleum oil spill tax through December 31, expired at the end of products. The revenues from this tax go into the 2017, increases the per barrel tax 1994, Congress Oil Spill Liability Trust Fund and are used to from 5 cents to 12 cents, and repeals reinstated the 5˘ per clean up offshore oil spills [IRC §4611]. the requirement that the tax be barrel tax effective on suspended when the unobligated April 1, 2006 balance exceeds $2.7 billion. The (EPACT05, P.L. proposal is estimated to raise $3.4 109-58). The tax will billion over 10 years. remain in effect from this date until the Oil Spill Liability Trust Fund reaches an unobligated balance of $2.7 billion. Thereafter, the oil spill tax will be reinstated 30 days after the last day of any calendar quarter for which the IRS estimates that, as of the close of that quarter, the unobligated balance of the Oil Spill Liability CRS-26 Provision Current Law Senate Bill S. 3478 House Bill H.R. 6899 Comments Trust Fund is less than $2 billion. The oil spill tax will cease to apply after December 31, 2014, regardless of the Oil Spill Trust Fund balance. Estimated Corporate Tax Under current law, corporations with assets of No provision. Sec. 853. The bill further These provisions are Payments at least $1 billion are required to adjust their increases the payments due in generally used to shift quarterly estimated corporate tax payments for July, August, or September anticipated revenue from certain quarters, including for July, August, and 2013 by an additional 40 one quarter to another in September of 2013, which is the last quarter of percentage points, but only for order to make measures FY2013. Affected firms reduce their payments companies that had any comply with the in the following quarter by a corresponding significant income for the pay-as-you-go budget amount. preceding taxable year from the rule. extraction, production, processing, refining, transportation, distribution, or retail sale of fuel or electricity. Income Received as Sec. 403. The bill would allow No provision. Damages from the Exxon- commercial fishermen and other Valdez Litigation individuals whose livelihoods were negatively impacted by the 1989 Exxon Valdez oil spill to average any settlement or judgment-related income that they receive in connection with pending litigation in the federal courts over three years for federal tax purposes. The bill would also allow these individuals to use these funds to make contributions to retirement accounts. The estimated cost of this proposal is $49 million over 10 years. ------------------------------------------------------------------------------ For other versions of this document, see http://wikileaks.org/wiki/CRS-RL34674