By Ian Boccaccio – Ryan LLC
A tax expert breaks down the finer points of Inflation Reduction Act incentives for manufacturers.
The Inflation Reduction Act (IRA) of 2022 is proving to be a source of ongoing, significant financial benefits for manufacturing companies advancing solutions to combat climate change. When companies’ financial and tax leaders key into the tax credits, the benefits are proving to be so meaningful that the company’s financial standing, or entire capital stack, can be reimagined
In short, the IRA has revised, updated and extended production tax credits (PTCs) and investment tax credits (ITCs) for U.S. companies that either manufacture or purchase components for renewable energy production, including wind facilities, biodiesel and other biofuel and alternative fuels. Some of the credits have been extended to 2032, with an increased credit percentage.
Importantly, there is no cap on the dollar amount of product tax credits that manufacturers can earn. If a company makes, for instance, photovoltaic wafers for solar energy products, at a cost of $12 per wafer, and if it manufactures half a million of them in a year, the company earns a $6 million credit against its federal tax liability.
What’s more, the company has options when it comes to recognizing the tax credits. In some instances, a manufacturer can apply them directly against tax liabilities – for a five-year period – or it can receive a direct payment for the amount. It could also split them. For instance, in the example above, the same maker of photovoltaic wafers could use the $6 million tax credit to wipe out a $3.5 million tax liability and receive the other $2.5 million as a direct payment. (The direct payments are, of course, not taxable.)