IPT 2013 Sales & Use Tax Symposium Monterey, CA. Industry Issues Energy & Utilities

Transcription

1 IPT 2013 Sales & Use Tax Symposium Monterey, CA Industry Issues Energy & Utilities

2 Presenters Hal Kessler Deloitte Tax LLP (415) David Moore AEP (614)

3 Agenda 1) Factors Shaping the Energy and Power Industry Traditional Regulated Industry Regulated and Unregulated Businesses Industry Drivers & Observations 2) Industry Growing Trends Tax Base Expansion Boundaries of the Manufacturing Process Increased Audit Activity 3) Credit & Incentives for Renewables 4) Other Taxes Fuel Taxes Local Taxes 5) Current Developments Legislative, Administrative Rulings, Case Law 3

4 Traditional Vertically-Integrated Utility Distribution Transmission Generation 4

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6 Regulated and Unregulated Businesses Regulated Distribution Transmission 6 Unregulated Fuel Generation Trading Wholesale/Retail

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8 Current State for Electric Restructuring Cost-of-service Model Return to basics strategy of re-regulation Hybrid Model Wholesale/Retail competition mix combined with (standard offer service model) 8 Pure Market Model Customers receive prices based on spot market prices

9 Drivers Reshaping the Energy and Utility Sector 9 New Supplies of Natural Gas (ie, Fracking) Environmental & Climate Change Alternative Energy Capital Additions Satisfying customers New Technology Regulation Total Shareholder Returns

10 Industry Driver Natural Gas 10 Observations: Hydro-Fracking (Marcellus, Utica, Eagle Ford, Bakken, etc.) Huge increase in natural gas reserves has driven the price of natural gas down almost 2% since Since a strong correlation exist between the price of natural gas and the price of electricity, valuations of generation assets have been hit hard.

11 Industry Driver Natural Gas (cont.) Observations (cont.): Utilities are seeking to re-balance their mix of generating assets. Alternative Energy developers are struggling to get long-term Power Purchase Agreements with utilities that provide an adequate rate of return for the risks they are taking. Coal s share of total U.S. electricity generation is significantly declining Coal to Gas switching. 11

12 Industry Driver - Environmental Observations: New EPA rules will have a dramatic impact on the number of coal fired units operating. Analysts have predicted that anywhere from 25GW to &5 GW may be subject to retirement due to the Mercury & Air Toxics Rule, ( MATS ) and the Cross State Air Pollution Rule ( CSAPR ). 12

13 Industry Driver - Environmental Observations (cont.): System Reliability may be impacted by the retirements caused by these new rules. At least seven new or pending U.S. EPA clean air, water and other regulations could saddle the Sector with more than $200 million in new costs. 13

14 Industry Driver Alternative Energy 14 Observations: Rapid growth seen over the past several years will begin to slow as the impact of natural gas prices, and budgetary pressures on federal and state incentives. Though Renewables still represent a small percentage of total U.S. generation, the year over year net increase continues to grow rapidly. Although conventional Hydro is not always considered an alternative energy source, several states have included Hydro sources as an eligible source to meet its renewable portfolio standard.

15 Industry Driver Capital Additions 15 Observations: With the growing need for safe and reliable power, gas, and water, the Sector is continuing its efforts to replace aging infrastructure and invest in new technologies. An all of the above investment strategy is required, i.e. generation, transmission, and distribution. Transmission upgrades to reduce congestion and new transmission lines to connect wind and solar to population centers. Potential joint ventures between Utilities and Alternative Capital Companies as well as asset sales by utilities to focus on core business strategies.

16 Industry Driver Satisfying Customers Observations: Customer Choice Industrial Commercial, Residential needs 16

17 Industry Driver New Technology Observations: Nas Battery Smart Meters Electric Cars Cloud Computing 17

18 Industry Driver Regulation Observations: Commissions are challenging allowed returns on equity given today s extremely low rates on 10 and 20 year treasuries Thought is that low cost of natural gas should result in an overall unit price decrease to customers, potentially allowing utilities to recover higher costs associated with their capital expenditures build outs 18 Increased capital and operating costs are driving rate case activity

19 Industry Driver Total Shareholder Returns Observation: While the Sector has generally outperformed the broad market over the past 5 years, largely in part to the flight to quality seen through the crisis years, money is being transferred to other Sectors, most notably to the Technology Sector 19

20 Growing Trends- Tax Base Expansion 20 Louisiana, Minnesota, Maine & Nebraska Attempts to broaden base to tax services &/or eliminate popular exemptions rejected (for now) Massachusetts New tax on data processing, cloud-based computer services, and customer software North Carolina Multiple bills to lower income tax, reform franchise tax, and broaden the sales tax Ohio Governor proposed a broad-based services tax proposal including taxing affiliates Settled for an increased tax rate to offset a lower income tax rate and small business exemption

21 Growing Trends - Boundaries of the Manufacturing Process Manufacturing implies a change. The point at which the manufacturing process begins and ends continues to evolve by State through court cases and departmental rulings. Some states seem to be narrowing the exemptions while other states have been expanding in the name of economic development. 21 States are creating favorable environments for manufacturing: Many manufacturing exemptions available (Full, partial, targeted, new & expanded) R&D exemptions, credits, or grants Enterprise zone incentives Targeted incentives for certain industries or projects IRC Section 48C

22 Growing Trends -Boundaries of the Manufacturing Process (cont.) The definition of manufacturing machinery and equipment matters: Used in the manufacturing process For use in the manufacturing process Purchased for use in the manufacturing process Used predominately in the manufacturing process Used directly and exclusively in the manufacturing process 22 New & expanded equipment used in the manufacturing process

23 Growing Trends Boundaries of the Manufacturing Process (cont.) Questions: Does your State have a broad public utility exemption? Does your State have a manufacturing exemption? If so, is the production of electricity considered manufacturing? Does your State apply a broad integrated plant doctrine? 23

24 Growing Trends Increased Audit Activity 24 Exemption Certificates being scrutinized Burden of Proof is on the seller Certificate may be rejected unless it has: All sections properly completed by purchaser Authorized signature by purchaser Reason for exemption Description of goods purchased Purchaser s license, direct payment permit, or registration number Good faith acceptance (some legislative activity)

25 Growing Trends Increased Audit Activity (cont.) Audits in gross receipts tax states on electricity and gas sales: o Ohio Commercial Activity Tax o The former Michigan Business Tax ( ) o Texas Gross Margin Tax Localities also auditing utility records 25

26 26 CREDITS & INCENTIVES FOR RENEWABLES

27 Credits & Incentives: Types of Benefits 27 Traditional Broad-Based Incentives Manufacturer s Exemptions EZ s Other Exemptions & Exclusions Apportionment Advantages Targeted Incentives Utility Green Programs Economic Development / Negotiated

28 Income Tax Incentives for Renewables Overview New Programs Common income tax credits Solar and Wind credits Renewable Energy Production credits Other income tax credits Conformity 28

29 Income Tax Credits for Renewables New Legislation Texas Sales Tax Exemption in lieu of Income Tax Credit Texas HB500 (signed by Governor Perry on June 14, 2013) Provides a new 5% franchise tax credit for qualifying research expenses. Taxpayer may opt to exempt qualifying property from sales tax rather than claim a R&D franchise tax credit. Oklahoma Refundable / Transferable Credits Zero-Emission Facilities Production Tax Credit Effective 2014, Oklahoma extended the program to 2022 and converts the credit from transferable to refundable 29

30 Income Tax Credits (cont.) 30 Solar and Wind Tax Credits Arizona: Non-Residential Solar & Wind Tax Credit Residential Solar Energy Credit Hawaii Solar and Wind Energy Tax Credit South Carolina Solar Energy and Small Hydropower Tax Credit Iowa Solar Energy Systems Tax Credit Renewable Energy Production Tax Credits Generally, credit based on amount of energy produced and sold Arizona, Florida, Iowa, New Mexico

31 Income Tax Credits (cont.) Other Income Tax Credits Geothermal Tax Credit e.g. North Dakota; New Mexico Alternative Energy Investment Tax Credit (catch-all: includes Solar, Wind, Biomass, geothermal, hydroelectric) e.g. Montana 31

32 Income Tax Credits (cont.) 32 New Mexico Many Income Tax Incentive Programs: Utah Advanced Energy Tax Credit (Corporate and Personal) Agricultural Biomass Income Tax Credit (Corporate and Personal) Renewable Energy Production Tax Credit (Corporate and Personal) Geothermal Heat Pump Tax Credit (Corporate and Personal) Sustainable Building Tax Credit (Corporate and Personal) Solar Market Development Tax Credit (Personal) Alternative Energy Development Incentive (Corporate and Personal) Renewable Energy Systems Credit (Corporate and Personal)

33 Income Tax Incentives for Renewables Conformity State inclusion of grant as income Fed inclusion of utility rebate as income IRC Section 118 relief 33

34 Sales Tax Incentives for Renewables Overview: 34 New Programs States with multiple sales tax incentives Types of Incentives: Abatements Refunds Deductions, Exemptions Partial exemptions Tax Holidays

35 Sales Tax Incentives (cont.) New Program: Nebraska Refund Opportunity Eligible sources of renewable energy - Wind, solar, geothermal, hydroelectric, biomass, and transmutation of elements Refund of sales and use taxes paid for renewable energy system used to produce electricity for sale 35

36 Sales Tax Incentives (cont.) 36 States with Multiple Sales Tax Incentives New Mexico: Advanced Energy Gross Receipts Tax Deduction Biomass Equipment & Materials Compensating Tax Deduction Gross Receipts Tax Exemption for Sales of Wind and Solar Systems to Government Entities Solar Energy Gross Receipts Tax Deduction Connecticut Multiple sales tax incentives Sales and Use Tax Exemption for Energy-Efficient Products Sales and Use Tax Exemption for Solar and Geothermal Systems Exemption from Electric Generation Tax

37 Sales Tax Incentives (cont.) States with Multiple Sales Tax Incentives New York: Solar Sales Tax Exemption (with Local Option) NYC Residential Solar Sales Tax Exemption Residential Wood Heating Fuel Exemption 37

38 Sales Tax Incentives (cont.) Sales and Use Tax Abatements Nevada Renewable Energy Sales and Use Tax Abatement Nevada businesses must apply to the state for sales and use tax abatement for qualifying renewable energy technologies. If approved, sales and use tax reduced to 2.25%. 38

39 Sales Tax Incentives (cont.) Most Common Incentive: Sales Tax Exemptions Utah: Renewable Energy Sales Tax Exemption Arizona: Available to Commercial, Industrial, or Utility Sectors Solar and Wind Equipment Sales Tax Exemption Illinois: Sales Tax Exemption for Wind Energy Business Designated as High Impact Business 39

40 Sales Tax Incentives (cont.) More Exemptions New Jersey: Solar Energy Sales Tax Exemption Ohio: Energy Conversion and Thermal Efficiency Sales Tax Exemption Georgia Biomass Sales and Use Tax Exemption Sales Tax Holiday Sales Tax Exemption for Energy- Efficient 40

41 Sales Tax Incentives (cont.) California EZ sales tax credit discontinued in favor of new, partial sales tax exemption SB90 generally n/a to energy NAICS CAETFA SB71 Green Manufacturing 41

42 Property Taxation of Renewables Overview Exemptions/Exclusions New Programs Existing Programs Negotiated Special Issues Intangibles/ERC s PACE 42

43 Property Taxes (cont.) New Programs Missouri August 2013 Solar Property Tax Exemption 100% property tax exemption (state, local, and county) for solar energy systems Available to commercial, industrial, residential and agricultural sectors Florida January 2013 Property Tax Exclusion for Residential Renewal Energy Property 43

44 Property Taxes (cont.) 44 Existing Programs California Property Tax Exclusion for Solar Energy Systems Arizona Available to commercial, industrial, or residential sectors Renewable energy equipment owned by utilities assessed at 20% of its depreciated cost for the purpose of determining property tax. Oregon Rural Renewable Energy Development Zones Renewable Energy Systems Exemption

45 Property Taxes (cont.) Negotiated PILOT / FILOT (e.g. Ohio) Payment or Fee in lieu of tax Abatement (e.g. Nevada) Discretionary property tax abatement of up to 55% for up to 20 years for real and personal property used to generate electricity from renewable energy resources Application required Minimum of 10 megawatts (MW) Job creation and job quality minimum requirements 45

46 Property Taxes (cont.) Intangibles Recent CA Supreme Court Decision. Elk Hills Power, LLC v. Board of Equalization (No. S194121, Cal Sup. Ct., August 12, 2013) Held: The value of Emission Reduction Credits (ERCs) are not subject to property tax when the BOE values power plant property Reasoning: California law exempts intangible assets from property taxation 46

47 Property Tax (cont.) 47 Property Assessed Clean Energy (PACE) PACE financing effectively allows property owners to borrow money to pay for renewable energy and/or energyefficiency improvements. The amount borrowed is typically repaid over a period of years via a special assessment on the owner's property. In general, local governments (such as cities and counties) that choose to offer PACE financing must be authorized to do so by state law. As of September 1, approximately 30 states and the District of Columbia authorize Rhode Island enacted July 2013 Commercial PACE? Yes.

48 Property Tax (cont.) 48 California Statewide PACE Financing Available to commercial and residential sectors Minimum financing: $5,000 Interest Rate: Up to 7.99%, fixed over useful life of improvements, up to 20 years Eligible Technologies: Water Heaters, Lighting, Lighting Controls/Sensors, Chillers, Furnaces, Boilers, Heat pumps, Central Air conditioners, Steam-system upgrades, Programmable Thermostats, Duct/Air sealing, Building Insulation, Doors, Motor VFDs, Pool Pumps, Commercial Refrigeration Equipment There are also many local PACE financing options in CA

49 Current Developments Manufacturing A Michigan court has ruled that equipment used to transmit and distribute electricity and natural gas from the generating plants to the customers does not qualify for a use tax industrial processing exemption. [Consumers Energy Company v. Michigan Department of Treasury No MT (2013)] The State of Michigan Court of Claims ruled that equipment used in electricity transmission and distribution is eligible for the industrial processing exemption and thereby not subject to use tax. The Court reasoned that because the generation of electricity is an industrial process, "all equipment or property purchased for use in electricity production is eligible for the industrial processing exemption " including equipment that is used for transportation as well as for industrial processing. [Detroit Edison Company v. Department of Treasury, State of Michigan, Case No MT] 49

50 Current Developments Manufacturing (cont.) A company's equipment used directly to process coal, costs to rent vehicles, and the purchase of custom computer software to control and monitor a processing facility are not subject to Indiana sales and use tax, ruled the Indiana Department of Revenue. [IN Letter of Finding No ] Illinois SB 224 provides sales tax clarification of existing law that no sales tax applies to electricity and there is no MPC or M&E exemption for generating equipment. The purpose of this legislation was to clarify existing law after the Exelon decision and to treat electricity, water, and gas and their producers not subject to sales tax. Under the Exelon decision, producers of electricity were considered retailers because electricity was determined to be tangible personal property. The Illinois Department of Revenue wanted to clarify that that treatment did not apply to sales tax and electricity producers (and others) could not claim manufacturing equipment exemptions. [IL S.B. 224 (2013)] 50

51 Current Developments Manufacturing (cont.) The Colorado Court of Appeals held that a utility company's machinery and tools purchases were exempt from sales and use tax because the items were used directly and predominantly in the manufacturing of electricity. [Public Service Company of Colorado v. Department of Revenue, Colorado Court of Appeals, Sept 15, 2011] The Court of Appeals has affirmed that the generation of electricity is considered to be the manufacture of tangible personal property in Colorado. The Court also defined the manufacturing process to end at the step-down transformer outside the customer's home. As such, the machinery used in the generation and transmission of electricity in Colorado qualifies for the manufacturing machinery exemption. [Public Service Co. of Colorado v. Dept. of Rev., Colo. Ct. App., Sept. 15, 2011] 51

52 Current Developments Manufacturing (cont.) A manufacturer's sale of a maintenance contract that includes both repair parts and labor is exempt from Virginia retail sales tax because the maintenance contract is for the servicing of exempt machinery used directly in the manufacturing process. [Ruling of the Commissioner PD , issued 7/12/10] The Tennessee Department of Revenue explained the applicability of the sales and use tax machinery exemption for a variety of items used to expand and enhance a manufacturing facility, including pilings to support industrial machinery and hanger and pipe supports. [Revenue Ruling #12-24] 52

53 Current Developments Manufacturing (cont.) The Texas Comptroller determined that an electricity plant operator's purchases of turbines, generators and accessories did not qualify for the manufacturing exemption from sales & use tax because the operator did not prove that the items retained their identity as tangible personal property when they were installed. [TX Comptroller of Public Accounts, Decision, Hearing No. 100,507, Nov. 5, 2010] The Texas comptroller of public accounts has issued a letter ruling to explain that the electricity provided by a company to its suppliers located at its facility is subject to sales tax because the portion used by its suppliers is not attributable to direct manufacturing use. [Letter Ruling L, issued 7/14/10] 53

54 Current Developments Manufacturing (cont.) Arkansas Act 1404 provides a 1% reduction in the form of a refund of sales and use taxes for expenditures on repairs and replacement of certain machinery and equipment used directly in manufacturing beginning July 1, The refund will be allowed on machinery and equipment purchased to modify, replace, or repair, either in whole or in part, existing machinery or equipment used directly in producing, manufacturing, fabricating, assembling, processing, finishing, or packaging articles of commerce at a manufacturing or processing plant or facility in Arkansas and may only be claimed by holders of direct pay permits. Effective July 1, Arkansas Act 1411 reduces the sales and use tax on natural gas and electricity used by manufacturers and extends reductions to cotton gins. Beginning July 1, 2014, the tax rate on natural gas and electricity used directly by manufacturers in the actual manufacturing process will be reduced to 1.625% and, beginning July 1, 2015, the rate will be reduced to 0.625%. Also reduces the rate paid by electricity generators using combined cycle turbine technology to 1.625% beginning January 1, Effective July 1, 2014.

55 Current Developments Manufacturing (cont.) Arkansas Act 233 amends the sales tax exemption for pollution control equipment used in manufacturing operations to include sulfur removal processes during petroleum refining and extends exemption to cities and towns. Includes repair parts and repair labor of equipment required by state or federal law or regulations to be used in the refining of petroleum-based products to remove sulfur pollutants. Effective October 1, Arkansas Act 1401 exempts sales of electricity, liquefied petroleum gas and natural gas used by grain drying and storage facilities from sales and use taxes. Each utility must be separately metered. Effective July 1, The Missouri Administrative Hearing Commission has concluded that electricity used to prepare or warm food is exempt from sales tax because the electrical energy was used or consumed in the manufacturing, processing, or producing of a product. [Aquila Foreign Qualifications Corp. v. Director of Revenue, RS, Mo. Adm. Hearing Comm'n, Apr. 28, 2011]

56 Current Developments Other Taxes/Fees/Credits Oklahoma SB 343, Chapter 371, extends the coal tax credit until December 31, 2021, and the zero-emissions facility tax credit until January 1, 2021, and converts the credits from transferable credits to refundable credits beginning January 1, 2014; previous credits unused by January 1, 2014, would be refunded at 85 percent of the credit's value. [OK S.B. 343 (2013), signed by the Governor May 29, 2013] Oklahoma HB 2308 repeals multiple tax credits, including credits for gas used in manufacturing and for water treatment and pollution control facilities, and repeals several deductions and exclusions beginning in tax year 2014; the measure is expected to generate additional income tax collections of $1.9 million. [OK H.B (2013), signed by the Governor May 29, 2013] 56

57 Current Developments Other Taxes/Fees/Credits (cont.) The Kentucky Court of Appeals held that a natural gas marketing company's sales of gas are subject to utility tax because the company's utility services constitute a taxable event under KRS [Appeal from Fayette Circuit Court Honourable Ernesto M. Scorsone, Judge Action No. 08-CI-02182] The Louisiana Department of Revenue issued a revenue ruling to explain that electrical cooperatives should consider "gross receipts" to encompass all intrastate revenues when calculating the inspection and supervision fees. [Revenue Ruling No ] West Virginia HB 101 creates a severance tax credit for suppliers of coal to electric utilities that provide financial assistance to certain industrial facilities via special electricity rates. The credit is available for tax years January 12, 2012 through December 31, [H.B. 101, Enacted March 16, 2012] 57

58 Current Developments Other Taxes/Fees/Credits (cont.) The New Jersey Tax Court held that amounts electric public utility companies charged for the distribution of electricity through the local distribution infrastructure were subject to sales tax, and other authorized charges were properly included in receipts for utility services for purposes of calculating sales tax. [Atlantic City Showboat, Inc. v. Director, Div. of Taxation, N.J.Tax, Jan 24, 2012] The Kentucky Court of Appeals held that a natural gas marketing company must pay utility tax on its sales of natural gas to a non-profit company because the utility tax is levied against the entity that furnishes the utility service. [Commonwealth of Kentucky v. Saint Joseph Health System, Inc., Court of Appeals of Kentucky, Oct. 7, 2011] 58

59 Current Developments Administrative Michigan HB 4203 as introduced would require online retailers and their affiliates physically located in Michigan or doing business in the state to collect and remit use tax on sales to Michigan residents, and includes click-through nexus provisions. [House Bill No. 4203] Michigan HB 4804, signed into law as Act 458, provides that beginning 2014, taxpayers who make accelerated monthly payments of sales and use tax must make payments equal to 75 percent of the previous month's liability or 75 percent of the liability for the same month in the previous calendar year, whichever is less, plus a reconciliation payment. [House Bill No. 4804] 59

60 Current Developments Administrative (cont.) The Texas Comptroller of Public Accounts has amended sales and use tax rules regarding refunds and payments under protest, including a new rule clarifying the items that must be submitted with a refund claim in order to toll the statute of limitations and allow a person to request an administrative hearing. [34 TAC 3.325] In a manufacturer's claim for qualification of the predominant use exemption from Indiana sales and use tax on its purchase of electricity, it was determined that when electricity is sold from a single meter, the purchase of the electricity is taxable unless the electricity is used predominantly (greater than 50%) for excepted purposes. [Letter of Findings No , Indiana Department of Revenue, Feb. 29, 2012] 60

61 Current Developments Administrative (cont.) Utah HB 137 creates the Office of Energy Development and restructures Utah's energy legislation by focusing on energy delivery projects. These projects are intended to "increase the capacity for the delivery of energy to inside or outside state users, or raise the capability of an existing energy delivery system or related facility to deliver energy to users in or out of state." [H.B. 137, Enacted March 15, 2012] The Louisiana Department of Revenue has explained that recent legislation extended the sunset date for manufacturers concerning the sales tax exclusion on alternative fuel substances from June 30, 2012, to June 30, [Revenue Information Bulletin No , Jan. 4, 2012] 61

62 Current Developments Administrative (cont.) Arkansas Ballot Issue 1, the voters in the November, 2012 general election approved a constitutional amendment to levy a temporary increase of sales and use tax from 6.0% to 6.5% beginning July 1, 2013, to provide funding for highways, bridges, roads, and other surface transportation projects. The tax will be levied on all taxable sales except food and food ingredients, for approximately 10 years and will terminate when there are no bonds outstanding to which tax collections have been pledged. The Virginia House approved legislation (HB 2313) that would cut the state's fuel tax and increase the sales tax from 5% to 5.3%, effective July 1. A portion of the sales tax would fund state transportation projects. [Virginia House Passes Transportation Bill, February 2013] 62

63 Current Developments Administrative (cont.) Missouri SB 23 implements affiliate and click-through nexus provisions to require vendors to collect sales taxes. [Missouri S.B. 23 (2013)] Indiana HB 1007 as passed by the House would require retailers or their affiliates with physical presence nexus in the state -- such as warehouses or distribution facilities -- to begin collecting sales tax on Indiana sales beginning July 1. [House Bill No. 1007] The Indiana Department of Revenue has updated an information bulletin to explain that optional maintenance contracts that meet the definition of bundled transactions are subject to sales tax at the time of sale, but sales of optional warranty contracts are not subject to sales tax if the delivery of tangible personal property is uncertain. [Information Bulletin #2, January 2013] 63

64 Current Developments Miscellaneous H.B. 500 was passed by the Legislature and signed by Governor Rick Perry on June 14, The legislation makes permanent a $1 million small business exemption, provides exclusions from revenue for certain energy service and transportation companies, provides for a COGS deduction for pipelines, allows for certain companies providing electric utilities to be excluded from a combined report, as well as several other adjustments. [TX H.B. 500 (2013)] H.B. 800 was passed by the Legislature and signed by Governor Rick Perry on June 14, The bill authorizes sales tax exemptions and franchise tax credits -- estimated at $255 million for the next two fiscal years -- to encourage research and development activities in the state. The 5.0% credit is based on the federal calculation of qualified research expenditures and is limited to onehalf of the franchise tax liability. It provides an option to take a sales tax exemption rather than a credit. [TX H.B. 800 (2013)] 64

65 Current Developments Miscellaneous (cont.) As part of the 2011 budget bill, Connecticut has enacted a $2.5 per MwH tax imposed on electricity generated by an electric generation facility located in the state. This tax is effective for calendar quarters commencing on or after July 1, The tax is not imposed on electricity generated by fuel cells or alternative energy systems. [Tax on Generation, 2011 budget bill, Public Act 11-6, signed May 4, 2011] Texas has adopted a rule to implement the 2009 enactment of H.B. 469, which created a sales & use tax exemption for CO2 sequestration projects. [34 Tx. Admin. Code 3.326] 65 New Mexico has provided an exemption from use tax and expands a deduction from gross receipts tax for facilities that transmit electricity using voltage source conversion technology and provides a deduction from gross receipts tax for receipts from operating a market or exchange for electricity. [H.B. 116, enacted Feb. 28, 2012]

66 About this presentation This presentation contains general information only and the respective speakers and their firms are not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. The respective speakers and their firms shall not be responsible for any loss sustained by any person who relies on this presentation.

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