The Board Provides Guidance on Equipment and Machinery Eligible for the Recycling Income Tax Credit Under KRS 141.390
In Bavarian Trucking Co., Inc. v. Dep’t of Revenue, File No. K09-R-16, Order No. K-21008 (KBTA Dec. 9, 2010), on appeal No. 10-CI-3173 (Boone Cir. Ct., Div. I), the Kentucky Board of Tax Appeals (“Board”) provided guidance on the types of recycling and composting equipment that qualify for the income tax credit found in KRS 141.390. According to the Board, the majority of machinery and equipment used in the taxpayer’s plant designed to process, collect, recycle, and distribute methane was eligible for the credit.
Bavarian Trucking Company, Inc., Waste in Place Trust, and Waste on Wheels Trust (collectively “Bavarian”), is a solid waste disposal/landfill company that strives to be “green” by finding innovative ways to recycle its waste. In pursuit of this endeavor, rather than venting methane emitted from the garbage it collects and places in its landfill into the air, Bavarian transformed its landfill into a plant facility to “recycle” the methane. Bavarian’s plant catches the emitted methane and channels it to a generating plant operated by East Kentucky Power Cooperative, which burn the methane and generate electricity used to power homes and facilities throughout the area.
The issue before the Board was whether certain equipment and machinery purchased and used by Bavarian from December 31, 2003 through December 31, 2006 for its methane collection operation were eligible for the income tax credit provided in KRS 141.390.
According to KRS 141.390, a tax credit is granted for certain expenses incurred in a recycling/composting process. This credit specifically applies to equipment purchased and used for recycling or composting “postconsumer waste.” Bavarian applied for the above-referenced tax credit on everything it purchased for use in the methane process. However, the Department of Revenue (“Department”) denied every application Bavarian submitted for the credit. Because KRS 141.390 has been in force for over twenty years and the Department has never promulgated guidelines for its application as it is statutorily mandated to do, the Board took it upon itself to establish such guidelines.
The Board determined that “methane” is considered to be “postconsumer waste” when it is generated in a recycling, collecting scheme such as Bavarian’s plant. Thus, all of the machinery and plant used solely to compost the waste, collect the methane, and generate the electricity or to transport or store the methane is subject to the credit under KRS 141.390. Once the waste arrives at the landfill, the plant and process is subject, in its entirety, to the credit.
However, the Board believed that equipment used for purposes incidental to running a landfill, such as bulldozers, loaders, and trucks which pick up waste and curbside containers, were not subject to the credit unless used exclusively in the composting process. Bavarian has recently appealed the Board’s decision to exclude such items from the recycling credit.