HB2576 - 492R

Be it enacted by the Legislature of the State of Arizona:

Section 1. Title 41, chapter 10, article 1, Arizona Revised Statutes, is amended by adding section 41-1511.01, to read:

START_STATUTE41-1511.01. Combined heat and power production incentives; definitions

A. The department of commerce shall establish a procedure for identifying combined heat and power equipment or systems that qualify for the purposes of the energy production tax credits under sections 43-1083.02 and 43‑1177.

B. To qualify for the tax credits, an individual, a business, or an entity that is exempt from tax pursuant to title 43, chapter 12, must apply to the department, on a form prescribed by the department, for certification of the equipment or system. The department shall receive applications beginning from and after November 1, 2010 through December 31, 2016. The application must include:

1. The name, address, telephone number and taxpayer identification number of the applicant.

2. The name, address and telephone number of a contact person for the applicant.

3. The date that the combined heat and power equipment or system is expected to begin operation.

4. The site where the equipment or system is located.

5. The type of equipment or system as described in this section.

6. Any additional information that the department may require.

C. Beginning January 1, 2011, an individual, a business, or an entity that is exempt from tax pursuant to title 43, chapter 12, that produces or uses electrical or mechanical energy in this state from equipment or a system that has been certified under subsection D of this section may file a claim for a credit under section 43-1083.02 or 43-1177 based on the energy produced by the equipment or system during the calendar year. The claim shall be on a form prescribed by the department and shall include:

1. A certification of the date the equipment or system was purchased and the date the equipment or system was first used by the taxpayer to produce power in this state.

2. For combined heat and power equipment or systems that are installed and operated for the sole benefit of the applicant or for the purpose of selling excess electricity to a utility, all of the following:

(a) Total kilowatt hours of electricity produced or total horsepower hours of power during the taxable year produced by the taxpayer from qualified energy sources.

(b) Equipment or system certification or thermal energy output data.

(c) An affidavit confirming that the combined heat and power equipment or system complies with all applicable federal, state and local environmental laws, rules and regulations.

(d) Any additional information or documentation the department may require.

3. For combined heat and power equipment or systems that are built for the purpose of selling excess electricity produced to a utility company, all of the following:

(a) Evidence of a contract entered into between the applicant and a utility company.

(b) Evidence that the equipment or system meets an institute of electrical and electronics engineers interconnection standards as modified by the utility company's interconnect standards, rules, regulations and applicable tariff provisions.

4. For an entity that is exempt from tax pursuant to title 43, chapter 12, designation of the recipient of the credit. Only the taxpayer that financed, installed or developed the qualified energy resources for the tax exempt entity may be designated as the recipient of the credit.

D. The department shall review each claim for credit under subsection C of this section and either certify the equipment or system as qualifying for purposes of the energy production tax credits with the amount of credit that is authorized, or provide reasons for its denial, within sixty days after receiving a complete application. The department of commerce shall send copies of the certifications to the department of revenue. The certification shall include:

1. A unique identifying number for each certified installation.

2. The amount of the credit authorized.

3. The calendar year for which the credit is authorized.

4. The name and address of the taxpayer that will be allowed to claim the credit.

E. Subject to subsection F of this section, the amount of the credit is equal to the total kilowatt hours of electricity produced by the taxpayer during the calendar year from qualified energy sources multiplied by two cents, or the total horsepower hours of power produced by the taxpayer during the calendar year from qualified energy sources multiplied by one and one‑half cents, but the credit shall not exceed one hundred thousand dollars annually for a single installation.

F. The department shall not allow tax credits under sections 43‑1083.02 and 43-1177 that exceed a total of one million dollars in any calendar year. This limit shall be applied as follows:

1. Qualifying claims in a calendar year shall not be allowed until the department of revenue determines that state general fund revenue exceeds appropriations in the preceding fiscal year.

2. If qualifying claims in a calendar year exceed one million dollars, the department shall authorize the credits in the order of the date that the claims are received. If a claim is received that, if approved, would exceed the one million dollar limit, the department shall grant only the remaining credit amount under the limit. After reaching the one million dollar limit, the department shall deny any subsequent claims it receives for that calendar year.

3. If qualifying claims in a calendar year do not exceed one million dollars, the unused amount under the limit shall be carried forward to the following calendar year, and the department may authorize credits in the additional amount that is carried forward from the previous year.

G. Information that is submitted to the department under this section is confidential and is not subject to disclosure under title 39 for eighteen months after the date of the application, except that the taxpayer identification number shall be redacted from any released application.

H. The department of commerce and the department of revenue shall collaborate in adopting rules that are necessary to accomplish the intent and purposes of this section.

I. For the purposes of this section:

1. "Combined heat and power" means the simultaneous or sequential generation of electrical or mechanical energy and useful thermal energy using the same unit of fuel, with a total fuel efficiency of sixty per cent or greater on a lower heating value basis. The equipment or system must demonstrate, or be certified to be capable of, at least sixty per cent total fuel efficiency capability during at least one mode of operation.

2. "Lower heating value basis" means subtracting the latent heat of vaporization of water vapor formed by combustion of fuel from its higher heating value.

3. "Total fuel efficiency" means the sum of electrical or mechanical and thermal energy outputs divided by the energy input and then multiplied by one hundred per cent. END_STATUTE

Sec. 2. Section 43-222, Arizona Revised Statutes, is amended to read:

START_STATUTE43-222. Income tax credit review schedule

The joint legislative income tax credit review committee shall review the following income tax credits:

1. For years ending in 0 and 5, sections 43‑1075, 43‑1075.01, 43‑1079.01, 43‑1087, 43‑1088, 43‑1090.01, 43‑1163, 43‑1163.01, 43‑1167.01, 43‑1175 and 43‑1182.

2. For years ending in 1 and 6, sections 43‑1074.02, 43‑1083, 43‑1083.02, 43‑1085, 43‑1164, 43-1177 and 43‑1183.

3. For years ending in 2 and 7, sections 43‑1073, 43‑1079, 43‑1080, 43‑1086, 43‑1089, 43‑1089.01, 43‑1089.02, 43‑1090, 43‑1167, 43‑1169, 43‑1176 and 43‑1181.

4. For years ending in 3 and 8, sections 43‑1074.01, 43‑1081, 43‑1168, 43‑1170 and 43‑1178.

5. For years ending in 4 and 9, sections 43‑1076, 43‑1081.01, 43‑1083.01, 43‑1084, 43‑1162, 43‑1164.01, and 43‑1170.01 and 43‑1184. END_STATUTE

Sec. 3. Title 43, chapter 10, article 5, Arizona Revised Statutes, is amended by adding section 43-1083.02, to read:

START_STATUTE43-1083.02. Credit for energy production from qualified energy resources; definition

A. For taxable years beginning from and after December 31, 2010 through December 31, 2016, a credit is allowed against the taxes imposed by this title for a resident taxpayer who either:

1. Produces and uses electrical or mechanical energy in this state from qualified energy resources placed in operation after December 31, 2010.

2. Is designated as the recipient of the credit under section 41‑1511.01, subsection c, paragraph 4 by an entity that is exempt from tax pursuant to title 43, chapter 12 if the tax exempt entity produces and uses electrical or mechanical energy in this state from qualified energy resources placed in operation after December 31, 2010. Only the taxpayer who financed, installed or developed the qualified energy resources for the tax exempt entity may be designated as the recipient of the credit.

B. To qualify for a credit under this section, the credit must be certified by the department of commerce under section 41-1511.01, subsection D. The amount of the credit is equal to the total kilowatt hours of electricity produced by the taxpayer during the calendar year from qualified energy sources multiplied by two cents, or the total horsepower hours of power produced by the taxpayer during the calendar year from qualified energy sources multiplied by one and one-half cents, but the credit shall not exceed one hundred thousand dollars annually for a single installation. The amount of the credit allowed is limited to the amount certified by the department of commerce under section 41-1511.01, subsection D. The total credits allowed under this section and section 43‑1177 shall not exceed the amounts specified in section 41-1511.01, subsection F.

C. The credit allowed under this section must be claimed in the taxable year in which December 31 of the authorized calendar year falls. The authorized calendar year is the year authorized in the certification issued by the department of commerce under section 41-1511.01, subsection D.

D. If a taxpayer's allowable credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the amount of the claim not used to offset taxes under this title may be carried forward for not more than five consecutive taxable years as a credit against subsequent years' income tax liability.

E. Co-owners of a business, including partners in a partnership and shareholders of an s corporation as defined in section 1361 of the internal revenue code, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest. The total of the credits allowed all such owners may not exceed the amount that would have been allowed a sole owner.

F. The department of revenue and the department of commerce shall collaborate in adopting rules that are necessary to accomplish the intent and purposes of this section.

G. For the purposes of this section, "qualified energy resources" means combined heat and power as defined in section 41-1511.01. END_STATUTE

Sec. 4. Title 43, chapter 11, article 6, Arizona Revised Statutes, is amended by adding section 43-1177, to read:

START_STATUTE43-1177. Credit for energy production from qualified energy resources; definition

A. For taxable years beginning from and after December 31, 2010 through December 31, 2016, a credit is allowed against the taxes imposed by this title for a taxpayer that either:

1. Produces and uses electrical or mechanical energy in this state from qualified energy resources placed in operation after December 31, 2010.

2. Is designated as the recipient of the credit under section 41‑1511.01, subsection c, paragraph 4 by an entity that is exempt from tax pursuant to title 43, chapter 12 if the tax exempt entity produces and uses electrical or mechanical energy in this state from qualified energy resources placed in operation after December 31, 2010. Only the taxpayer that financed, installed or developed the qualified energy resources for the tax exempt entity may be designated as the recipient of the credit.

B. To qualify for a credit under this section, the credit must be certified by the department of commerce under section 41-1511.01, subsection D. The amount of the credit is equal to the total kilowatt hours of electricity produced by the taxpayer during the calendar year from qualified energy sources multiplied by two cents, or the total horsepower hours of power produced by the taxpayer during the calendar year from qualified energy sources multiplied by one and one-half cents, but the credit shall not exceed one hundred thousand dollars annually for a single installation. The amount of the credit allowed is limited to the amount certified by the department of commerce under section 41-1511.01, subsection D. The total credits allowed under this section and section 43-1083.02 shall not exceed the amounts specified in section 41-1511.01, subsection F.

E. Co-owners of a business, including corporate partners in a partnership, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest. The total of the credits allowed all such owners may not exceed the amount that would have been allowed a sole owner.

F. The department of revenue and the department of commerce shall collaborate in adopting rules that are necessary to accomplish the intent and purposes of this section.

G. For the purposes of this section, "qualified energy resources" means combined heat and power as defined in section 41-1511.01. END_STATUTE

Sec. 5. Purpose

Pursuant to section 43-223, Arizona Revised Statutes, the income tax credits enacted in sections 43-1083.02 and 43-1177, Arizona Revised Statutes, as added by this act, are intended to encourage the development of processes for producing useable electrical, mechanical and thermal energy from the same units of fuel.