Update: Senate Republicans passed their overhaul tax bill on a 51-49 vote in the early hours of Saturday morning. Sources have since confirmed that the BEAT provision is included. The bill will now undergo reconciliation with the House bill. This story has been updated to reflect the latest developments.
On Friday night, renewable trade organizations scrambled to turn around a provision in the Senate tax bill that would create a tax on equity investments for renewable energy projects.
Gil Jenkins, a spokesman with the American Council On Renewable Energy, said groups were still working hard on outreach to Senators. According to a letter the Solar Energy Industries Association sent to members Friday, Republican Senators Heller, Grassley, Portman, and Gardner have been collaborating on a fix that would exempt the Production Tax Credit (PTC) and Investment Tax Credit (ITC) from the provision, called the Base Erosion Anti-Abuse Tax (BEAT). But their efforts did not prove to be successful.
Senate Republicans passed their overhaul tax bill on a 51-49 vote in the early hours of Saturday morning. Sources say the BEAT provision is still included in the text (pages 450-469). Language on the corporate Alternative Minimum Tax (AMT) also passed, which will negatively impact corporations that use the PTC. The Senate bill will now undergo reconciliation with the House version.
Renewable energy policy watchers warned that the BEAT provision seemed likely to pass.
“Because the text isn't out, we have to operate as if the BEAT provision is still included within the bill,” said Isaac Brown, managing partner at 38 North Solutions, in a Friday interview. “We certainly haven't heard anything to the contrary from Republican staffers or Senators.”
Republican Senators continued attempts to push through the bill late into the night, negotiating through both nitty-gritty details and sweeping problems, and ultimately picking up the needed votes.
In the last days of negotiating, tensions rose over how much economic growth the cuts would actually bring, and whether Senators could find the appropriate cuts to chip away at the deficit. Democrats tried to send the bill back to committee, but were foiled. On Friday, both Twitter and the Senate floor were awash with complaints from Democratic lawmakers that the bill was being negotiated behind closed doors and legislators hadn’t even gotten a chance to read it.
The final text of the bill was not known until shortly before the vote. Implications of the legislation, including the actual impact of the BEAT provision for investors, remain uncertain.
“I can’t emphasize enough that I don’t know for a fact who would be affected, apart from four banks that have told us they would be,” said Keith Martin, a lawyer that specializes in tax and project finance at Norton Rose Fulbright, via email. “I am not at liberty to share their names.”
After Greentech Media reached out, several of the biggest tax equity players in the market, including Citi and US Bank, declined to comment on how the legislation might impact their strategies surrounding tax equity in the renewables market. A Wells Fargo spokesperson said its team was “still assessing potential impacts.”
The BEAT provision is an opaque and obscure portion of the Senate’s tax bill that would require companies that make cross-border payments to add those amounts back to their taxable income before calculating the ten percent it owes to the government. Companies must also calculate their tax liability while subtracting any tax credits — including from the PTC and the ITC. If the two numbers are different, the company has to pay the balance. And the more tax credits a company has, the lower the second number will be.
That complexity could lead tax equity investors, who make up the majority of funding for renewables projects, to exit the market altogether. According to a report from CohnReznick Capital, tax equity raised $11 billion for renewables projects in 2016 and $13 billion in 2015.
Uncertainty has dogged all negotations of the tax bill, which Senators are hoping to pass on an extremely shortened schedule. Much of the angst surrounding the BEAT provision stems from an inability to determine how much it could change clean energy investment.
“The provision was inserted without a hearing, there hasn't been time for it to be vetted appropriately by stakeholders,” said Brown. “At the eleventh hour, to see this provision inserted without giving the community time to fully analyze what the impact wcould be, I think understandably is causing a lot of concern and frustration.”
Apart from potentially costing the renewables industry billions of dollars in project finance, the Senate’s tax plan would add an estimate of at least $1 trillion to the nation’s deficit, according to an analysis from the Joint Committee on Taxation. The Congressional Budget Office calculated a figure of $1.44 trillion on a previous version of the legislation and the Tax Policy Center estimated $1.2 trillion over a decade.
The Congressional Budget Office has not scored the current bill, which is still in flux. Senators are expected to vote Friday night.
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