The annotated statute
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SECTION 13.(a) Article 3B of Chapter 105 of the General Statutes is amended by adding a new section to read:
"§ 105 129.16G. Credit for donating funds to a nonprofit organization to enable the nonprofit to acquire renewable energy property.
(a) Credit. - A taxpayer who donates money to a tax exempt nonprofit organization for the purpose of providing funds for the organization to construct, purchase, or lease renewable energy property is allowed a credit under this section if the nonprofit organization uses the donation for its intended purpose. A tax exempt nonprofit organization is an organization that is exempt from tax under section 501(c)(3) of the Code.
The amount of the credit allowed in this section is the taxpayer's share of the credit the nonprofit organization could claim under G.S. 105 129.16A if the nonprofit organization were subject to tax.
There are two types of property defined in G.S. 105-129.16A, Residential and Nonresidential. Normally, "Organizations" (i.e., commercial businesses and nonprofits) fall under the Nonresidential property category, therefore, the maximum credit amount "ceiling" for "Nonresidential Property" equals $2.5 million dollars, which equates to a total project cost of $7.1 million dollars. (2500000/0.35 = 7142857.14). NOTE:There may be some circumstances where a non-profit installs a system on a residential property (owned by the non-profit). This may result in the residential credit caps applying in that installation case. Clarification is pending.
From G.S. 105 129.16A(c):
"(c) (Effective for taxable years beginning on or after January 1, 2006) Ceilings. - The credit allowed by this section may not exceed the applicable ceilings provided in this subsection.
(1) Nonresidential Property. - A ceiling of two million five hundred thousand dollars ($2,500,000) per installation applies to renewable energy property placed in service for any purpose other than residential."
The taxpayer's share of the credit is calculated by dividing the taxpayer's donation by the cost of the renewable energy property constructed, purchased, or leased by the nonprofit organization and placed in service during the taxable year and then multiplying this percentage by the amount of the credit the nonprofit organization could claim if it were subject to tax.
Example using a $1000.00 donation to a $150000.00 solar PV project:
1) Donation divided by project cost: 1000/150000 = 0.00666 = taxpayer's percentage
2) Claimable nonprofit credit (i.e., 35% of project cost): $150000 x 0.35 = $52500.00
3) Multiplying taxpayers percentage by nonprofit credit: 0.00666 x $52500.00 = $349.65 = taxpayers credit (note that rounding error on the 0.00666 number resulted in the credit being less than $350.00. 1000/150000 actually equals 0.0066666666666666666666666666666667, which would produce the expected $350.00).
A taxpayer must take the credit allowed by this section in the year in which the property is placed in service.
The credit cannot be taken simply in the year the donation was made, but instead in the year that the project is completed. Donors should be mindful of this!
The installment requirements in G.S. 105 129.16A for nonresidential property do not apply to the credit allowed in this section.
Commercial businesses are required to qualify the credit over 5 years, starting in the year the property was placed in service…
From G.S. 105-129.16A(a):
"For all other renewable energy property [Nonresidential property sic], the entire credit may not be taken for the taxable year in which the property is placed in service but must be taken in five equal installments beginning with the taxable year in which the property is placed in service."
Assuming that there will be numerous donations (of smaller denominations) to the nonprofit project, it is unnecessary that it be compulsory to qualify the credit over a number of years. It has been clarified by the NC Department of Revenue that a taxpayer can qualify any unqualified credit amounts over a maximum of five years if the tax credit amount from donation to a nonprofit renewable energy project exceeds the taxpayer's 50% per-year right off cap.. Nevertheless, donors should consider that they are only allowed to reduce their state taxes due (all credits combined) by 50% in any one year. Therefore, consideration should be given as to whether the donor desires to limit their donation to a amount that will be "qualifiable" in one year, or whether they are comfortable qualifying the credit over multiple years.
(b) Records. - A nonprofit organization must keep a record of all donations it receives for the purpose of providing funds for the organization to construct, purchase, or lease renewable energy property and of the amount of the donations used for this purpose.
Specifying a distinct project name for the renewable energy project could make donations unambiguous and easier to track\account for if donors specified the project name in writing along with the donation (as a comment on a check, or in a letter accompanying donation).
If a nonprofit organization places renewable energy property in service that is purchased in whole or in part from donations made for this purpose, the nonprofit organization must give each taxpayer who made a donation a statement setting out the amount of the credit for which the taxpayer qualifies under this section. The statement must describe the renewable energy property placed in service and state the cost of the property, the amount of the credit the nonprofit organization could claim under G.S. 105 129.16A if it were subject to tax, and the taxpayer's share of the credit allowed in this section.
The nonprofit is responsible for all accounting regarding the project type, costs and donor credits. Furthermore, it is the nonprofit's responsibility to inform each donor in writing of the financials and specifics concerning the project, and must include: type of renewable property installed (e.g., solar thermal, PV, wind, micro-hydro, etc..); total project cost; project completion date; total dollar amount of qualifying credit (i.e., "project cost (less than $7.1 million)" x "tax credit percentage (35%)"; taxpayer's qualifying credit (formula detailed in 105 129.16G (a), above).
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.
It could be desirable to avoid this circumstance because it complicates calculations and may reduce all donor's qualifiable tax credit amount below the amount they were expecting (i.e. 35%). Tax accountants should have no problem accounting for this circumstance if it occurs, but there is the potential that donors could be unpleasantly surprised and\or disappointed.
One fundraising strategy for avoiding this complication is explored here.
The sum of the credits allowed under this section to taxpayers who make donations to a nonprofit organization may not exceed the amount of the credit the nonprofit organization could claim under G.S. 105 129.16A if it were subject to tax.
From G.S. 105 129.16A(c):
"(c) (Effective for taxable years beginning on or after January 1, 2006) Ceilings. - The credit allowed by this section may not exceed the applicable ceilings provided in this subsection.
(1) Nonresidential Property. - A ceiling of two million five hundred thousand dollars ($2,500,000) per installation applies to renewable energy property placed in service for any purpose other than residential."
Maximum credit amount for "Nonresidential Property" equals $2.5 million dollars, which equates to a total project cost of $7.1 million dollars (2500000/0.35 = 7142857.14). When project costs and donations exceed $7.1 million the need to prorate all donations will kick in, and begin reducing all individual donor's credit amount to less than 35%.
(c) No Double Benefit. - A taxpayer who claims a credit under this section based on a donation to a nonprofit organization is not allowed to deduct this donation as a charitable contribution."
SECTION 13.(b) G.S. 105 130.5(a) is amended by adding a new subdivision to read:
"(a) The following additions to federal taxable income shall be made in determining State net income:
…
(19) The amount of a donation made to a nonprofit organization for which a credit is claimed under G.S. 1105 129.16G."
The taxpayer's contribution to a 501(c)(3) nonprofit towards a renewable energy project is fully deductible on the Federal Tax Return the same as any charitable contribution. However, for those taxpayers who itemize their deductions (including this charitable contribution) on their Federal Tax Return, the amount donated to the nonprofit's renewable energy project will have to be "added back" as taxable income on the state tax return in order to qualify the generous 35% state tax credit. Professional tax accountants and preparers will likely be familiar with the details and procedures for "add backs" (i.e. additions to federal taxable income). It's not a big complication, but an important detail when filing taxes.
SECTION 13.(c) G.S. 105 134.6(c) is amended by adding a new subdivision to read:
"(c) Additions. - The following additions to taxable income shall be made in calculating North Carolina taxable income, to the extent each item is not included in taxable income:
…
(5b) The amount of a donation made to a nonprofit organization for which a credit is claimed under G.S. 105 129.16G."
This is another place in the tax code [G.S. 105 134.6(c)] that is being amended to accommodate this credit. It says the same thing as 13.(b) above. The same comments apply.
SECTION 13.(d) G.S. 105 259(b) is amended by adding a new section to read:
"(b) Disclosure Prohibited. - An officer, an employee, or an agent of the State who has access to tax information in the course of service to or employment by the State may not disclose the information to any other person unless the disclosure is made for one of the following purposes:
…
(38) To verify with a nonprofit organization information relating to eligibility for a credit under G.S. 105 129.16G."
State employees are prohibited from disclosing information regarding donations and projects except under limited and specific situations.
SECTION 13.(e) This section is effective for taxable years beginning on or after 1 January 2008.
G.S. 105 129.16G is a reference to the new area within the legislative statutes that this bill will amend. There are a couple of other areas elsewhere in the statutes that will be amended. They are referenced later in this page. G.S. 105 129.16 is where most of the details regarding renewable energy credits are cited.
The 501(C)(3) non-profit must complete the project.
02-25-08 NOTE: It appears that there are conflicts in cited chapter numbers for the statutes at the NC Legislature's website. The amended law is not accessible by its' chapter reference or by browsing within the Chapter 105. Currently, this amendment is listed as § 105-129.16H on that page. This link returns the citation lacking some of the language and details commented on in this page.