A tax credit introduced in the Inflation Reduction Act remains a compelling opportunity for tribes hoping to stand up renewable energy projects, even amid shifting priorities in a new administration.
That’s according to Joel Laubenstein, principal at tax and assurance firm Baker Tilly’s development and community advisory practice. Laubenstein has worked on tax credit issues with tribes for more than 12 years, and looking ahead, he believes the recent change in administration shouldn’t stop tribes from securing important funding under the IRA’s tax credit provision.
That provision allows tribes to claim and receive tax refunds on costs associated with renewable energy projects. Prior Tribal Business News reporting has referred to the provision as a “game-changer,” even amid widespread confusion and a comparatively slow uptake on the credit in Indian Country.
Laubenstein says Baker Tilly is engaged with “three or four hundred” entities interested in claiming the credit. Of those, fewer than 10 are tribal entities with projects either actively in construction, or in service, ready to claim the credit. As it stands, tribes could be missing out on an opportunity to drastically lower project costs and attract private capital to the appropriate stack.
“What we’ve told clients is (that) however long this credit lasts, it’s not going to happen again, so let’s take advantage of it,” Laubenstein said. “Make it a priority. Tribes need to move, and they need to move at an aggressive pace to make sure they’re in line when and if changes happen.”
Laubenstein spoke with Tribal Business News to look ahead at potential changes to the IRA and share insights on how the act might change - and the tax credit provision along with it. This interview has been edited for clarity and brevity.
Let’s get to the point with this first question: What do you think happens to a renewable energy tax credit provision under the Trump administration?
I don't think we're going to see direct pay taken out. Everybody's speculating - you will see tweaks, you may see sunsets of certain credits.
What happens if the credits are sunsetted?
I can tell you historically anytime there's been a sunset, there never has been historically "you've met the criteria, you started your investment, we're taking the credit away." If the past is prologue, it's "we're going to sunset this credit, those of you who started taking action, you're good. For those of you considering action, you had better get moving or you won't be eligible."
But you believe it’s more likely that there’s small changes, as opposed to bigger ones?
The Trump tax cuts of 2017 are coming up for expiration here very soon, and regardless of who’s in the White House, everything gets looked at when big tax legislation is up for expiration or change.
Obviously this administration is going to try to put its own stamp on that direction, but I think the clear observation if we look to read the tea leaves is that the amount of investment under the IRA that went into Republican states and districts - north of 65, 70 percent of funding out of the IRA went to red states or red districts.
You’re saying there may be pushback on just outright eliminating some of those provisions.
I’m not being a prognosticator, but as someone who can understand how the universe works in Washington, the buzz is that there have been and will be calls from Republican representatives to use a scalpel, not a sledgehammer.
You mentioned that your firm has served relatively few tribes actually pursuing the credit and expecting payment — what’s been the hold up?
When the IRA was signed, it kind of snuck up on everybody, not just tribes, because the legislation - particularly the direct pay provisions - were not something a lot saw coming. For everybody there was this big tax education period that continues to be ongoing.
You had tribes faced with this problem of, “now I’ve got to file a tax return, what information do I have to share?” And at a lot of tribal governments, there was no one at a desk who didn’t already have a day job who could take this all on.
This is still something tribes should pursue?
No question. There’s no reason not to move now - tax credits are law, they're not going anywhere. It's not like these are just for tribes and would be easy to turn off. Any changes reverberate deep across party lines, and in those situations, tweaks are often minor vs. major, and take a lot of time to figure out and put into practice.
