Originally posted at PortlandTribune.com
Read the original post here.

Business energy tax credit lures solar plant, gives retailer windfall

By Christian Gaston

Pamplin Media Group, Apr 9, 2009

Oregon’s signature tax break for renewable energy companies helped bring the nation’s largest solar plant to Hillsboro last year — and a tidy windfall to Wal-Mart.

In October, Gov. Ted Kulongoski giddily announced that SolarWorld, a German manufacturer of photovoltaic solar panels, inked a deal to open a huge solar plant at a Hillsboro semiconductor plant built for Komatsu in the 1990s but never occupied.

The deal could bring 1,000 new jobs to Hillsboro within three years and make Oregon a national center of the burgeoning solar industry. But the deal also wound up providing a multimillion-dollar state tax break to Wal-Mart, the world’s largest corporation in total revenues.

The Arkansas-based retailer has tried to burnish its eco-image in recent years. But it didn’t get an $11 million renewable energy tax credit by reducing electricity use or investing in solar or wind facilities. It simply purchased the tax credit from SolarWorld for a bargain $7.3 million. Wal-Mart can now use the tax credit to offset corporate income taxes on profits earned at 32 locations throughout the state.

Over the course of the five years that Wal-Mart can claim the tax credit, the company will come out ahead $3.7 million — a 51 percent rate of return.

“A lot of people would love that today,” says Chuck Sheketoff, executive director of the Oregon Center for Public Policy, a Silverton-based advocacy group for low-income people. “The stock market isn’t giving that right now.”

Under a longstanding state program that was expanded in 2007, Oregon nonprofits and businesses can apply for a Business Energy Tax Credit to recoup costs of sustainable buildings, renewable energy or a host of other green developments. The tax credit, often called “Betsy” for its acronym of BETC, is awarded for 35 to 50 percent of the total cost, depending on the project, for the first $22 million in project costs.

SolarWorld Vice President Bob Beisner says the company’s move to Oregon was made possible by the tax break.

“It really put us over the edge. It was a key factor,” Beisner says.

The expanded tax credit is meant to spur development of renewable energy and make Oregon an attractive place for companies like SolarWorld to operate.

But over the past four years, the practice of swapping BETCs has exploded, with companies like Wal-Mart, Costco and U.S. Bank buying the credits from companies investing in green projects.

To Sheketoff, SolarWorld’s sale of the tax credit shows that the BETC has become more than a tool to lure renewable energy companies to the state.

“The BETC is a financing scheme for people with money to make money,” Sheketoff says. “There’s this whole industry of lawyers and wealthy individuals that sells the tax credits.”

What frustrates Sheketoff more is why SolarWorld sold its credit. The company pays the minimum Oregon corporate income tax of $10 a year.

Oregon’s corporate income tax is weighted in favor of businesses that invest in Oregon. So companies like SolarWorld, which builds solar panels here that are largely sold out of state, often wind up paying the $10 minimum corporate income tax.

Beisner says the company would like to structure its operations in such a way that it pays more Oregon tax, but since the facility is barely off the ground, it needed to sell its BETC to get any cash out of it.

“A tax credit’s only good for those people who have a tax liability,” says Lou Torres, Oregon Department of Energy spokesman.

The majority of organizations that sell their BETCs, through the state’s “pass-through” program, are nonprofits, which don’t pay corporate income taxes, Torres says. “Primarily what it was really designed for was so nonprofits and schools and churches could take advantage of the tax credit program.”
Agencies benefit

Government agencies also don’t pay corporate taxes, so selling the renewable energy tax credit provides them another incentive to invest in energy-saving projects. The pass-through program helped the city of Gresham make capital improvements and Portland Public Schools invest in energy-efficient upgrades to its buildings.

In addition to SolarWorld’s first $11 million tax credit sold to Wal-Mart, the company applied for two more BETCs for later phases of construction. SolarWorld announced March 19 that it will commence construction on a 210,000-square foot logistics and production building, its first addition to the 480,000-square-foot plant abandoned by Komatsu.

Credits for the second round have been pre-approved by the state and will total $19.4 million. SolarWorld will be able to sell those as well.

Torres says the program is worth it.

Getting SolarWorld to locate a facility in Oregon was a game-changer, he says.

“It was quite a feather in the cap to get them here. It put us on a different playing field.”

Forest Grove and Cornelius are already trying to lure solar component manufacturers to their cities, with the promise of SolarWorld as a potential customer. Hillsboro has pegged its economic development strategy on the growth of the solar and biomedical sectors.

A SolarWorld spokeswoman says the company tries to buy locally whenever possible.

When companies like SolarWorld sell their credit, the state only allows them to recoup part of the credit in cash from the buyer. In this case, SolarWorld collected $7.3 million for its $11 million tax credit. Wal-Mart gets to use the entire tax break purchased at a discount.

Giving companies five years to use the tax credit makes it more likely they can use the full amount and allows businesses with lower tax liabilities to reap the benefits.
Better than feds

Compared to the federal energy tax credit, which rebates 30 percent of a company’s investment, Oregon’s credit is significantly more flexible. The feds require the full credit to be taken in the year it is claimed. And businesses can’t sell the federal credit.

Beisner says the federal credit doesn’t apply to SolarWorld, because it’s geared toward companies that generate renewable energy, not component makers.

As Oregon lawmakers cope with a brutal 2009-11 budget shortfall now estimated at $4 billion, there’s talk of reducing the BETC and other tax breaks. Beisner cautions that losing the BETC would put Oregon at a disadvantage in luring renewable energy companies.

Without the BETC, Beisner says Oregon wouldn’t have compared as well to other states when his company was looking for a site. “It would have made the competition for where we locate a lot tougher.”

Skeptics say no tax breaks were needed to lure SolarWorld, which relocated from a smaller facility in Vancouver, Wash.

Komatsu invested a reported $794 million in the semiconductor plant, but then scrapped plans to use it when the market soured. SolarWorld acquired the plant and 100-acre site for a reported $40 million in 2007. The Hillsboro area also offers a skilled labor force, relatively cheap electricity and clean water, the same factors prized by Intel.

Sheketoff wonders if Oregon could have saved money by offering a simple cash payout.

“We could have said, ‘Let’s give SolarWorld $7.3 million.’ That’s all SolarWorld wanted, but instead we’re spending $11 million because of the tax scheme,” Sheketoff says. “It’s ridiculous.”

Originally posted at PortlandTribune.com
Read the original post here.