Green Tax Incentives Available to Kentucky Businesses
By Mark A. Loyd, Attorney, Bingham Greenebaum Doll LLP
The Commonwealth of Kentucky provides many tax incentives for businesses to go green. Exemptions exist for income taxes, sales and use taxes, and property taxes.
Tax Benefits for Pollution Control Equipment
Kentucky provides a sales and use tax exemption for property that has been certified as a pollution control facility. Qualifying equipment includes equipment that: reduces or eliminates air pollution; water pollution or noise pollution; converts waste into an item of economic value; converts hazardous waste to nonhazardous waste; and, removes certain substances from raw materials that would have a deleterious effect on the environment when the finished product was utilized. Note that certain pollution control equipment may also qualify for the sales and use tax exemption for machinery for new and expanded industry.
Pollution control equipment that has been certified as such also receives favorable property tax treatment. This equipment is subject to a reduced state property tax rate of $0.15/$100 versus the default rate tax for tangible personal property of $0.45/$100. Moreover, it is not subject to local property tax.
Favorable treatment for pollution control equipment for sales and use tax and property tax purposes is available only for property that is certified as such. The taxpayer must file an Application for Pollution Control Tax Exemption Certificate, Form 51A216, with the Kentucky Department of Revenue prior to purchasing pollution control equipment.
Sales and use tax and property tax benefits for pollution control equipment are available to many different industries. Nonrefundable income tax and LLET credits, however, are available to an electric power company (or a parent that wholly owns such a company) that owns or operates a clean coal facility in the amount of $2 per ton of eligible coal purchased and used to generate power. (See KRS 141.428.) To qualify, the clean coal facility must be certified by the Kentucky Energy and Environment Cabinet as reducing emissions of pollutants released during the generation of electricity through the use of clean coal equipment and technologies.
Credits for Turning Brownfields Green
A taxpayer may receive a credit for expenditures made at a qualifying voluntary environmental remediation property in order to correct the effect of a release of hazardous substances, pollutants, contaminants, petroleum or petroleum products on the property consistent with a corrective action plan approved by the Energy and Environment Cabinet, provided that the cleanup was not publicly financed. (See KRS 141.418.) The amount of the credit, however, is limited to $150,000 and cannot be taken until after the taxpayer submits receipts to the Cabinet and the Cabinet approves the amount of the credit.
Tax Benefits for Recycling Equipment
Recycling equipment receives favorable sales and use tax treatment. A business, industry or organization’s purchase or lease of machinery or equipment used primarily for recycling purposes is exempt from sales and use tax. In addition, a taxpayer can receive a credit against the income tax or LLET for 50 percent of the cost of equipment purchased for use exclusively within Kentucky for recycling or composting postconsumer waste. The amount of the credit in a tax year cannot exceed 10 percent of the total credit allowable or 25 percent of the taxpayer’s tax liability.
A major recycling project, i.e., one requiring an investment of more than $10 million in recycling or composting equipment by an employer of more than 750 qualified employees with plant and equipment of more than $500 million, is, however, limited to the lesser of $2.5 million or 50 percent of the excess of the taxpayer’s tax liability over its baseline tax liability. Note that the credit is potentially subject to recapture if the equipment is sold. To be eligible for the credit, a taxpayer must apply for it prior to the first day of the seventh month following the close of the taxpayer’s tax year, which is July 1 for calendar year taxpayers.