Inflation Reduction Act tax credits for the distribution, transportation and logistics industries

The Inflation Reduction Act (IRA) was signed into law on Aug. 16, 2022, and with $738 billion in funding, it has proved to be extremely influential to a wide variety of taxpayers. $270 billion of that funding is dedicated to energy incentives that cover 70 separate energy property types that span a wide range from basics like solar and geothermal to more specific semiconductor manufacturing.

IRA tax credit energy projects

• Wind, solar and hydroelectric – These are projects many taxpayers can easily take advantage of simply by putting solar panels on the roof of their facility or on a spare acre of land on their property.
• Electric vehicles (EV) and charging stations – Electric vehicles are becoming increasingly prominent for personal use, but they are also becoming equally popular in municipalities. School districts are using electric buses and electric vehicles are being used for delivery services around communities. This can also be used by distribution companies looking to convert from diesel powered vehicles to electric vehicles. While there is a greater cost upfront, there is greater longevity and dependability on an electric vehicle from a maintenance perspective.
• Biomass, combined heat and power and geothermal – Manufacturers and distributors are also pivoting towards geothermal power, an IRA credit that will last well into the 2030s. With geothermal power, an organization can tap into the earth’s natural heating and cooling system that stays at a constant 55 degrees just eight feet underground. In most parts of the country, geothermal works year-round to heat and cool.
• Renewable and low-carbon fuels – These incentives make it more attractive for logistics companies to adopt clean energy solutions. By transitioning to low-carbon fuels, logistics companies can reduce their carbon footprint and contribute to environmental sustainability.
• Energy storage and carbon capture – Energy storage often goes hand in hand with solar or wind power. With wind production, an excess of energy might be produced during the day, but wind dies down over night, so having a storage system to use the energy produced during the day balances it out.

Tax credit calculations

The IRA tax credit works on a system of “base credit” plus “bonus criteria” that can be stacked on top of each other.

• Base credit - Energy property projects start with a base credit of 6%, though if the project began before Jan. 29, 2023, that is automatically bumped up to a 30% credit.
• Prevailing wage and apprenticeship (PW&A) - The 30% base credit can also be achieved by complying with prevailing wage and apprenticeship labor laws. PW&A is a set of rules around how you pay, hire and use apprentices on your projects.
• Domestic content bonus credit - In addition, there is the opportunity to receive a domestic content bonus credit with a 2% base credit, but if the project complies with prevailing wage and apprenticeship requirements, that credit can increase up to 10%. To qualify for the domestic content bonus credit, at least 40% of direct labor and direct materials must be sourced from the U.S.
• Energy community – An additional 2% credit is based on a mapping of the United States of where there have been closures of coal and other fossil fuel facilities. About 70% of the contiguous United States is within an energy community location. This credit can also increase up to 10% if the project follows prevailing wage and apprenticeship requirements.
• Environmental justice – This is primarily a credit for solar and wind projects and has an application process that prioritizes several identified communities such as low-income and tribal reservations to encourage renewable energy in those spaces. This credit can be anywhere from 10-20%.

Projects could see up to 70% in credits in specific cases. Overall, the distribution, transportation and logistics industries have a high opportunity to take advantage of these credits to make updates to their facilities, utilize solar, EV charging systems, geothermal, energy storage and more.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.