The annotated statute
The information and comments included in these pages are are not from a professional attorney or tax accountant and are not given as, nor should they be used as, tax or legal advice.
5/4/08: Started the resources page and added some clarifications and revisions in other pages. Also, read that Intersolar, Europe's largest solar expo, is coming to the US in July.
4/19/08: Happy Earth Day!
4/18/08: Some clarifications on language have been obtained and more are pending. Existing and new pages of this website will updated appropriately.
~2/1/08: Site development suffered a major set back due to a hard-drive crash in early January. Recovery has been slow, but progress is being made.
With regrets,
webmaster_[at]_ncretc.org
Until now, from a practical point-of-view, most North Carolina taxpayers have not taken advantage the generous 35% renewable energy tax credit because: their residence is restricted or isn't well sited; or they cannot afford the costs; or both. Extending the current tax credit to donors to non-profits empowers all informed taxpayers with equal opportunity to reduce their tax bill while investing in local renewable energy projects under their management and at financial level they can afford - all while benefitting their community, environment and economy.
Unlike residential renewable energy property, the State of North Carolina makes no distinction between equipment and technology types and the amount of tax credit for which the installation qualifies for non-residential property. All technologies (solar, wind, hydro, biomass) qualify for up to $2.5 million in tax credits, which equates to $7.1 million total project cost per installation for non-residential property.
Many non-profits maintain building structures and provide services to individuals and communities that make them as worthy a candidate for hosting renewable energy systems as the best sited homes or businesses. Furthermore, due to the functions that these buildings perform for their communities, some of these structures may be among the best places to host renewable energy systems - for a variety of reasons.
Collective funding is one key reason for extending the tax credit to non-profit donors. One of the obstacles to individual residential investment in systems is the costs. Because energy production capacity is being purchased "up front", the capital outlay is significant. Dividing the "up front" costs across a number of investors avoids sole investor financial limitations.
Energy resilience could be useful to some non-profit facilities that provide assisted living, long-term care and medical care to their community. Additionally, in many communities, houses-of-worship also function as a community center and might benefit the community by providing a source of energy resilience. Properly designed, renewable energy systems can supply and sustain critical electrical loads independent of an outside delivery infrastructure. This could provide energy for refridgeration, lighting, communications and climate control needs during times of sporadic delivery, disruption or natural disaster. Furthermore, unlike other "backup" energy strategies, this generation source can be productive on a daily basis regardless of its' "energy resilience use" during times of need.
Return-on-investment (ROI) timelines can be longer for investments in facilities whose expected useful life is considered in terms of decades. Residences and businesses may face a difficult justification for investments that take more than 5-7 years to provide their return. This limitation ceases to remain a major factor for those facilites that have a longer intended lifetime. Additionally, ROI economics is often based on current pricing. In the case of energy, as of 2008, it is generally predicted that prices for energy are likely to rise in the future. Since the cost of renewable energy systems can be considered as an upfront purchase of energy at a known cost, any future increases in commodity energy prices will just shorten the timeline for ROI of the purchased renewable energy system. _link-to-roi-scenarios_
Self-hosted energy is practical for some well sited and well designed structures. New construction can take advantage of more efficient design, new materials and self-host the structure's energy needs, perhaps even being a "net producer" of energy. With respect to electricity generation from renewable technologies, an ambitious but more practical goal would be for a structure's electrical energy use profile to achieve a "net-zero" annual use from the grid, i.e. producing as much electricity onto the grid as it pulls from the grid over a one-year period of time.
Optimum annual performance of solar technology installations in North Carolina begins when solar collecting components face south and are pitched at latitude (≈36 degrees). Additionally, optimum performance would require that the installation have an unobstructed "view" of the sky from ≈9am through ≈3pm (referred to as "solar window"). Deviation from this ideal will reduce overall annual performance to some degree, but in many cases, performance will still be satisfactory within some deviation from the optimum. Additional collecting capacity can offset losses due to non-optimum orientation for some installations.
In the case of solar thermal technologies (hot water\air), optimizing performance for the winter season may be desirable. In the case solar electric, orienting the array towards the southwest can optimize performance to best match the late afternoon summertime peak energy demand from air conditioning systems. Sophisticated computer software modeling provides the ability to predict monthly and annual performance of a system given any regional insolation levels, spacial orientation, and solar window conditions. Some software extends the performance analysis into economic and environmental analysis. Design analysis and system performance predictions can be integral to system design.
For most individual donors, contributions to non-profit renewable energy projects will be as easy as making a "directed giving" donation, i.e. named project, to a non-profit and having some form of documentation that the donation was to be used for that project. A simple memo note written on a check or a written memo accompanying the donation specifying that the donation is to be used for the renewable energy project should suffice. All accounting and reporting details are the responsibility of the non-profit. They are required to provide the taxpayer a written accounting of the specific details of the project, the donor's contribution and the donor's qualifying credit amount. Non-profit accouting details are documented on the Non-profit accounting page. The only remaining detail for donors is with filing the Federal and State tax returns.
One important consideration for contributors has to do with the 50% rule that is mentioned on the Residential Property page. Since the State of North Carolina permits a taxpayer to reduce their taxes due, all credits combined, by a maximum of 50% in a any one year, non-profit contributors could use this factor as a guideline for donations to non-profit renewable energy projects. In simple terms, by limiting one's donation amount (to the project) to a maximum of one-half of their state taxes due, they ensure that they will be able fully qualify the credit in a single year. The North Carolina Department of Revenue has clarified that taxpayers whose donations to NC non-profit renewable energy projects exceed 50% of their tax liability may carry forward any unqualified credit amount for up to five years.
Another important fact regarding donating to, and investing in the non-profit project is that donors may not be able to recieve the full 35% credit. This will occur when either of the following is true: if total donations to the project exceed project costs; or if donations and total project costs exceed $7,142,857.00. At least one common fundraising method can be utilized by non-profits to avoid the case where donations exceed project costs. In the circumstance where donations exceed costs the law requires that all donations be prorated. That is, the credit percentage will be reduced from 35% to the same percentage for all donors. The amount of percentage reduction will depend on the dollar amount of contributions over the project cost - the greater the excess amount, the greater the percentage reduction. The details are on the Non-profit accounting page.
Regarding the matter of the $7.1 million limit, this limit is a per installation limit. Larger projects could be divided across multiple "installations".
From a Federal Tax perspective, making a donation to a non-profit's renewable energy project is no different from contributing to any non-profit building or fundraising campaign. The donation remains fully deductible on the Federal Tax return for those who can itemize deductions. However, the state tax credit amount may be federally taxable as "subsidized energy financing" in the tax year(s) that the the state tax credit is qualified. Check with your tax professional.
It is anticipated that qualifying the State Credit for a non-profit donation requires the same tax filing process as an individual would use when filing for a credit for a system installed on their residence, with the following exceptions:
1) For those who itemize deductions on their Federal Tax return, the State Tax code requires adding back the donation amount to the State Taxable Income before calculating the State Taxes due.
This prevents a "double benefit" condition on the State Tax return. "Double benefit" would occur because, initially, one reduces their taxable income by the donation amount on the Federal return when the donation is listed as an itemized deduction, which passes on to the State return as the taxable income basis. Afterwhich, one also claims the 35% credit. That's "double benefit".
Thus, for those who itemize on the Federal return, the process is:
2) For those who take deductions on the State return that they couldn't take on the Federal return, they cannot list the non-profit renewable energy donation as both a deduction and a credit on the state tax return. Simply claim the 35% tax credit for the donation amount on the State Tax return. NOTE: This 35% may be federally taxable for the current year! (explanation)