by Grant Eve
Tribes could get paid to “go green.” Several federal tax incentives are available to tribal casino operators to encourage the use of energy-friendly systems and materials. Some programs even offer direct pay benefits (also known as elective pay), where the federal government issues a check for the full value of eligible tax credits. Any tribe that is considering an expansion or renovation project should explore available tax credits before breaking ground. Doing the homework first could substantially pay off.
Energy Incentives for Tribes
Two federal incentive programs apply to most tribal casino projects:
- Section 48: Advanced Renewable Energy Tax Credit: Tribal casinos that install renewable energy projects could obtain a tax credit worth 6% of the project costs, or 30% if the system’s net output is less than one megawatt. Additionally, there are three 10% bonuses tribes can add on to the tax credit if the project is located in an energy zone, is located in a low-income community, and uses manufacturing components made in the U.S. The tax credit applies to solar, geothermal, wind, energy storage, biogas, microgrid controllers, and combined heating and power systems. To be eligible for the credit, the tribe must own the renewable energy system.
- Section 30C: Alternative Fuel Vehicle Refueling Property Credit: Section 30C provides a tax credit for alternative fuel charging properties, including electric vehicle charging stations, capped at $100,000 per charging station or installation. The charging property must be used for business or trade purposes. For tribes, that includes parking structures at casinos and community facilities. The tax credit starts at 6% and goes up to 30% if the tribe and its contractors pay workers and their apprentices the prevailing wage for the local area. (You can find the prevailing wage for your locality at SAM.gov.)
How to Qualify
The Internal Revenue Service (IRS) maintains a list of eligible, energy-efficient technologies and refueling properties. Work with a CPA firm that specializes in energy tax credits to make sure the qualifications, filing requirements, and activation timelines are understood. The CPA firm can also work with your general contractor and architect to help ensure the project qualifies. Because credits must be claimed during the tax year a system goes into service, tribes need to carefully coordinate construction and tax planning. Some Section 48 criteria are slated to change in 2025. However, if 5% or more of a project’s costs are incurred before 2025, the project will be “grandfathered” into the current requirements and benefits.
How to Get Paid
Since tribal entities are tax-exempt, they must elect to receive direct payment through the Inflation Reduction Act’s elective payment program. To apply for direct pay for a qualifying project:
- Determine when you must file. Since most tribes do not file tax returns, the filing deadline to claim these energy tax credits is four and a half months after the end of the tribe’s accounting year. If that year-end is December 31, 2024, the filing deadline is May 15, 2025. Note that the filing deadline can be extended if needed.
- Preregister with the IRS. Tribes must register with the IRS before filing for credit or receiving payment. To preregister, submit information about your tribe, the credits you want to earn, and your eligible project in an online portal. Generally, tribes should preregister 120 days before their filing deadline.
- File your tax return by the due date. Most tribes will file Form 990-T to claim the credit since they don’t file a federal tax return. Include the registration number for your qualified project, plus any required documentation. Let the IRS know how you’d like to receive the elective pay.
- Get paid. Tribes generally receive direct payment after the return is successfully filed and after the due date for the return. Payment is sent electronically or by mail, based on your election during the filing.
How to Maximize Tax Credits
The simplest way to increase your tax benefit is to be educated, start early, and be proactive. Include an energy tax expert in design and development conversations to help you find incentives and determine eligibility. With more insight into the project, a tax advisor can recommend architectural and engineering adjustments to maximize your tax advantages.
It is important to estimate how tax credits will affect other financing strategies, such as grants or federal assistance. Double-dipping isn’t allowed in most cases, so you need to determine the most tax-efficient way to pay for energy projects and overall construction expenses. You will also need a list of documentation requirements upfront, so you can build support for your energy credits throughout the construction process.
Plan Your Clean Energy Future
Federal energy tax incentives are a powerful tool for tribes to enhance their gaming facilities and any other tribal construction projects. Make sure you’re considering energy credits in your long-term strategic and facility plans. Most incentives are scheduled to be available through 2033, although eligibility requirements could change and should be monitored.
Invest the time to explore what’s available and integrate energy credits into your construction, tax and financial planning processes. The potential savings could power the future of your gaming facilities and the broader tribal community.
Grant Eve is a CPA, CFE, and a partner at Wipfli, an accounting and consulting firm that works with tribal gaming organizations. He can be reached by calling (406) 727-1798 or email [email protected].