While some 100 environmental rules and guidelines were withdrawn or changed during the business-minded Trump administration, President Biden has made clear his intention to reintroduce many of the Obama-era environmental protection measures that have been weakened or eliminated over the past four years. In his first few hours in office, President Biden executive ordered the Environmental Protection Agency (EPA) to review several of its rules and regulations. This is in addition to other environmental efforts, such as the United States’ renewed commitment to the Paris Agreement. With the main focus on reducing greenhouse gas emissions and other various air, water and soil pollutants, many industries should expect increased requirements and an environmental impact review in the course of the Biden administration.
As some companies may consider buying new equipment or changing their existing business model with new or tightened environmental regulations, it is important to note that several states are providing tax exemptions for various emission control devices that could facilitate this transition.
In Kentucky, the state offered both a sales tax exemption for purchasing environmental protection equipment and an income tax break through 2018; However, both were eliminated during the state’s comprehensive tax reform legislation in 2018. Kentucky continues to offer significant property tax benefits on equipment primarily used for “pollution control” purposes. KRS 132.200 (8) provides that physical personal property certified as a “pollution control facility” is exempt from all local taxes (ie, county, city, school) and is only subject to Kentucky state tax at a reduced rate.
While the law uses the term “environmental protection facilities”, the exception is broad. Not only can buildings qualify, but a wide range of devices, components, and appliances in a wide variety of industries, as long as the devices are used to prevent, control, or reduce air, water, noise, or waste pollution.
Kentucky Administrative Code 103 KAR 30: 260[1] provides guidance on the process and implications of applying for a pollution control exemption. To qualify for the tax exemption, the taxpayer must file an application with the Kentucky Department of Revenue and submit various records relating to the equipment and pollution it is designed to remove or control (e.g. air, water, noise, and waste) .
Once all of the above has been submitted, the department will review the present application and may also request additional information / documentation before making a decision. In the case of approval, the exemption comes into force on the day the application is submitted to the department, not when the certificate is issued by the department and, above all, not retrospectively to the purchase date if it was made before the application was submitted. Therefore, the taxpayer can benefit effectively from the time of application and will not be penalized if the ministry’s application review period becomes longer.[2]
Kentucky is not an outlier in this area of tax law. Other states have introduced similar tax exemptions for pollution control equipment. While many differ in terms of the types of pollution control equipment that may be eligible for an exemption and the type of tax they are exempt from, several states have legislative language similar to that of Kentucky.
Ohio offers similar property tax exemptions for air pollution control plants, energy conversion devices that convert electricity from natural gas to alternative fuel, noise control devices, devices for solid waste energy conversion, thermal efficiency improvement devices, and water conservation devices.[3] In addition, Ohio protects the transfer of emission control devices from sales tax as well. According to Ohio Rev. Code Ann. Section 5709.25, the transfer of personal items to a holder of an exempted pollution control system certificate is not recognized as a sale if the transferred property is incorporated into the pollution control system. As in Kentucky, a taxpayer must apply to the Ohio Department of Taxation for a Pollution Exemption Certificate in order to take advantage of the tax benefits.
Tennessee is similar to Kentucky in terms of its environmental equipment property tax breaks in that it still taxes the property; however, it offers a reduced state rate.[4] Unlike Kentucky, Tennessee offers sales tax exemption for all “chemicals and supplies” used for air pollution control purposes in an air or water pollution facility.[5] Depending on what a company classifies as an environmental protection facility, this exception can apply to a large number of deliveries.
Indiana offers broader exemptions from both property tax and gross retail tax on pollution equipment. Under Indiana’s law, if the taxpayer is manufacturing, processing, refining, mining, recycling, or farming and acquires property that is incorporated into or consumed by an environmental protection facility / facility that is required to comply with state, local or federal environmental quality laws, regulations, or standards may deduct 100% of the sale price from the taxpayer’s gross retail and use tax liability.[6] Indiana also offers property tax exemption for an “industrial waste control facility,” which is personal property used by a manufacturing or coal mining operation that is used to prevent, reduce, or eliminate water pollution, or is used to meet federal recovery standards for. to meet a coal mining company.[7]
Texas is another state that offers both sales tax and property tax breaks on various environmental protection equipment. With respect to sales and use tax, the work incurred to repair, remodel, maintain or restore tangible personal property is exempt if the repair / remodeling is by law, ordinance, ordinance, rule or ordinance for the protection of the environment or for the Save energy.[8] However, the workload must be shown separately, as the devices themselves are still subject to sales tax. Texas also offers fairly extensive property tax exemptions for both real estate and tangible property when used in whole or in part as a device, device, or method to control air, water, or land pollution.[9]
As the industry could potentially face new or revamped environmental regulations in the coming years, it is important to review state and local tax exemptions to ensure that various tax benefits are available for new equipment purchases.