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.
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One rationale for extending the tax credit to donors to non-profits includes the intent to enfranchise all taxpayers with the opportunity to take the tax credit by investing in a renewable energy project within their community, at an affordable financial level. If non-profits succeed in installing systems, not only will they be transitioning their energy utilization to resilient and sustainable sources, but they will function as a catalyst to an emerging industry and enhance the visibility of the technologies at the local level, potentially further catalyzing that emerging industry. It is hoped that soliciting wide participation from taxpayers will present a "multiplying effect" in awareness and ultimately, business. This scenario is certainly more likely with "many local projects" than with relatively few "remote large scale projects". The desire, indeed the need, is for the technology to be ubiquitous.
Charitable donations have long been deductible on the taxpayer's Federal and State Tax returns, at least for those who itemized their deductions and had enough deductions to exceed the standard deduction. Deductions can reduce one's taxes by reducing taxpayer's "taxable income". Determining how much one's taxes will be reduced by the deduction depends on a variety of factors, so the tax reduction remains largely unknown until taxes are calculated. This is in contrast with "tax credits".
Tax credits reduce one's taxes by being subtracted from the taxes due. Thus, tax credits have a more easily quantifiable number for the reduction in tax. 35% of $1000.00 is $350.00. In the case of a 35% tax credit for the purchase of some type of property, a $1000.00 purchase will allow one to subtract $350.00 from their taxes due.
North Carolina's extension of a tax credit to one type of charitable donation is rather unique and deserves consideration. After the donation is made, the system installed and the tax credit is taken, the donor has provided the non-profit with $1.00 worth of value for every $0.65 of contribution. This represents significant financial leverage potential, but only if the donations equal the system costs. When donations exceed the system cost, then each $1.00 of value costs the donor more than $0.65.
With respect to the 35% NC Renewable Energy Tax Credit, the non-profit is responsible for all accounting of donations and the calculation of each donor's tax credit. Fundraisers should be mindful that they set donors expectations appropriately. Some donors may contribute a certain amount while fully expecting to take the 35% off their taxes. They may not be happily suprised if this is not the result.
In many ways, a non-profit renewable energy project is simply a building project similar to an addition or renovation. In cases where the design and installation costs are known, a common fundraising technique can be deployed to allow affordable financial access to all potential donor\investors, prevent project over-funding and simplify accounting.
Simply divide the project cost by a number equal to the minimum dollar increment that donors can afford, for instance $100.00. The quotient (result of division) becomes the number of "tickets" or "shares" available to investors. Then allow donors to buy as many "tickets" as they desire. This is similar to buying tickets to a fundraising dinner that has limited seating. As long as the choice of "minimum dollar increment" results in plenty of tickets, then all potential donors have equal opportunity to invest.
$50000.00 system cost example:
($50000.00/$100.00) = 500 = number of tickets available for investors
$100.00 per ticket. Selling 500 tickets funds the project.
G.S. 105 129.16H clearly states how to handle cases where donations exceed project cost:
"If the donations made for the renewable energy property exceed the cost of the property, the nonprofit organization must prorate each taxpayer's share of the credit."
Prorating donations is not a complicated calculation. Accountants should be familiar with the technique. The importance of the prorating is the effect it can have on all donors tax credit. For example, if a system is designed that costs $100000.00 and through fundraising, $200000.00 is raised (twice the actual system cost) then all donors tax credit percentage will be reduced by half, from 35% to 17.5%. Clearly, this could be quite a different tax reality than the donor was expecting.
On the other hand, open ended fundraising offers the potential to fund a scalable system design. That is, PV systems in particular can be designed with a "minimum core" capacity, and then relatively easily enlarged by added capacity. If the system design is broken down into "minimum core" components and then incremental addons, fundraisers could seek donations for the minimum core, and if surpassed could continue towards each "incremental" addon. This provides donors with some influence on just how far they wish to go with the project. Generally speaking, with the current interconnect standards, the maximum practical target for grid tied systems would be to achieve "net-zero". That is, producing as much energy from the renewable energy system onto the grid, as the structures\facilities use from the grid over a one-year period of time. "Incremental addons" beyond a "net-zero" system that additional funds could be used towards could include [additional] battery backup storage.
tbc