State governments realize the economic benefit of spending billions of dollars on tax credits. Are your clients taking advantage of this? Many are not due to low tax liability. Nonprofit organizations or start up businesses that generate very little income are among them.
Some states have found a solution. They have created a secondary market by enticing these types of businesses with transferable or sellable tax credits. The secondary market incentives are sophisticated and growing at a steady pace.
Business Energy Tax Credit
The Business Energy Tax Credit (BETC), or “Betsy” is one such incentive. Hailing from Oregon, the state encourages businesses by asking them to invest in renewable energy or energy conservation, and in exchange they’ll get the BETC tax credit.
Brilliant idea, right?
The story begins at an economic hub, the Port of Portland, which relies on the Dredge Oregon for clear navigation channels along the Columbia River.
The Columbia River is one of the world’s most important trade routes for grain. In the eyes of the shipping industry, it has never been deep enough.
As far back as 1878, the channel was dug to 20 feet. By the 1960s, it was dug to 40 feet. But in the late 1980s, oceangoing vessels grew even larger. They needed to carry more cargo.
The Dredge was getting old, so the Port decided to overhaul its engine, pump and generators to the tune of $20 million dollars. Since it was also environmentally antiquated the project was expected to reduce the dredge’s greenhouse gas emissions by 40 percent.
Who’s Picking up The Check?
To help pay for the overhaul, the Port relied on a BETC from the state. There was only one problem: because the Port is a government entity, it could not use the tax credit. It doesn’t pay taxes.
So a tax credit would be pretty much worthless unless it can be monetized, which means sold.
Enter Betsy (BETC).
The Port was able to offer the tax credit for sale at a discount, and the company that bought it was able to apply the full credit to its state tax bill.
Online Tax Credit Exchange
The hope is that more tax credit business will be done online. A platform called The Online Incentives Exchange also hosts a new public exchange. Just as with every industry, it’s critical to modernize the tax credit market. Online business continues to grow at a rapid pace, and it’s just a matter of time before the business community latches onto this way of transferring tax credits.
Tax credit selling works because it’s a win-win situation between businesses that can use the revenue and businesses that can benefit by the tax credit at a lower price.
Contact us to learn more about how you can help your clients achieve the same goals with their businesses.