Oregon BETC Overhang

Publication February 8, 2016

Oregon is considering how to deal with an overhang of unused BETC tax credits and is also investigating potential wrongdoing in the program.

The state rewarded owners of new renewable energy projects in the state through a business energy tax credit — called BETC. The program ended in 2014.

Developers who were unable to use the credits could sell them. Sales could be arranged through the Oregon Department of Energy or privately. The Department of Energy had a formula for setting the sales price. DOE rules required private sales to be at the same price, but the department decided not to enforce the requirement, and private sales were sometimes at prices that were well below the formula price.

A January 14 hearing before an Oregon house committee disclosed that $44 million in credits are still being held by taxpayers who lack the tax capacity to use them.

The state is considering three options.

One is to change the formula to reduce the floor price. 

Another option is to let holders of the tax credits sell at whatever price they can get in the market. Critics charge that private sales at low prices mean that too little of the intended subsidy ends up with renewable energy companies. The Department of Energy has already proposed amending its rules retroactively to drop the requirement that private sales be at the formula price. 

The last option is to have the state buy them at less than the full tax credit amount. The thought is the state would save money since credits would otherwise reduce tax collections by the full face amount. 

The Oregon secretary of state, a Democrat, has asked the state energy department for records relating to private sales, including notices from developers who were planning private sales. Some Republican state legislators said earlier they “might consider” legislation to take back some of the tax credits sold at low prices. The chairman of the house energy committee says the push for clawbacks is more or less a dead letter. The Oregon secretary of state issued a request for proposals in early February from forensic auditing firms to sample 12,000 BETC applications the state received under the program to look for signs of possible fraud or wrongdoing before undertaking a full-scale review of all the applications.

There have been 43 audits of BETC transactions by the state Department of Revenue. The department found in 20 of the audits that buyers of the tax credits underpaid capital gains taxes when they used the credits.

Five state Republican legislators are calling for a criminal investigation by the state attorney general into whether DOE employees allowed holders of the tax credits to sell them at prices below the state-mandated levels and whether sellers failed to report the sales proceeds as capital gains.

The IRS said in an internal legal memorandum in 2011 that someone who buys a state tax credit has a capital gain, when he uses it, equal to the difference between the state taxes the credit offset and the amount he paid for the credit. Thus, for example, a buyer who pays $70 for a $100 tax credit has a capital gain of $30 when the credit is used. (For earlier coverage, see the May 2012 NewsWire article State Tax Credits.)

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