The following descriptions of environmental tax incentives from state
law in the U.S. were adapted from the appendix in “Environmental Tax Policy
in the United States: Alternatives to the Polluter Pays Principle,”
(Lockhart, J.A., Asia-Pacific Journal of Accounting, Volume 4, Number 2,
December 1997, 219-239). The information on these programs was obtained
from Commerce Clearing House On-line Tax Service and from phone interviews
with relevant state agency personnel.
Arkansas’s water resource conservation and development incentives
Arkansas’s problems with ground water depletion
prompted the legislation of this income tax credit in 1985. While
it has not received a formal evaluation, its perceived success led to an
update of the law in 1995.
Specific design features:
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Income tax credit amount: 50 percent for water impoundment systems,
50 percent for the conversion from ground water use to surface water use
in critical areas, 10 percent for the conversion from ground water use
to surface water use in noncritical areas.
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Maximum credit allowed: $9,000 per year
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Carryforward of unused credit: 9 years
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Qualifying investment: Construction and installation or restoration
of water impoundment or water control structures of twenty acre-feet or
more designed for the purpose of storing water to be used exclusively for
the irrigation of rice, wheat, soybean, cotton, corn, milo, and fruit and
vegetable crops and/or for domestic use.
Arkansas also added a new provision in 1995 for
the construction or restoration of ponds, lakes, wetlands, and for improvements
to sediment control, erosion control, or aquaculture and wildlife management.
Agency personnel hope that farmers will use this provision to create buffer
zones around streams to keep cattle and other domestic animals from damaging
streams and other sources of surface water.
Specific design features:
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Income tax credit amount: 100 percent of the cost of the project
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Maximum credit allowed: $5,000 per year
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Carryforward of unused credit: 10 years
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Qualifying investment: Construction and installation or restoration
of ponds, lakes, and other water impoundments, and water control structures
designed for the purpose of water storage for irrigation, water supply,
sediment control, erosion control, or aquaculture and wildlife management.
Includes creation and restoration of wetlands and riparian zones, and creation
of buffer zones around surface water. Vegetation, fencing, and cattle
watering systems all qualify.
California’s credit to enhance and restore salmon and steelhead
trout habitat
In 1994, California enacted an income tax
credit targeted primarily at the timber industry, effective on January
1, 1995. It gives credit for qualified projects that enhance and
restore salmon and steelhead trout to the rivers and streams of the state
in line with the goals of state regulations to double the population of
salmon and steelhead trout by the year 2000. The credit is funded
through a tax on softwood, which is harvested on private lands in the state
and sold outside the United States; the credit is intended to be revenue
neutral. The program is administered and monitored by a full-time
fisheries biologist in the Department of Fish and Game. The biologist
in charge puts tremendous energy into marketing the program and has established
a co-operative relationship with timber companies and others who potentially
qualify for the credit. The state currently has set an aggregate
cap on credits per year at $500,000.
Specific design features:
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Income tax credit amount: 10 percent of qualified costs.
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Maximum credit allowed: $50,000
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Carryforward of unused credit: indefinite
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Qualifying investments: The state employee approves all projects
based on their ability to restore fish habitat. Eligible expenditures
have included fencing and creation of riparian zones, fish screening projects
to keep fish out of irrigation systems, proper maintenance and reconstruction
of logging roads, and other plans to “keep dirt on the hill” in logging
operations. Taxpayers can include a “fair” internal cost of labor
and equipment in their application for credit. Expenditures explicitly
excluded from the credit are those undertaken to specifically meet regulatory
requirements and projects that relate to permanent hatcheries.
Oregon’s investment tax credit for plastics recycling
In 1989, Oregon implemented this program to
form a partnership between state government and business. Although
a market for plastics existed in the state, collection systems were not
in place. The state set a maximum amount for credits to be certified
each year: $1.5 million. Applicants who apply after the maximum
has been achieved are encouraged to apply in the following year.
Specific design features:
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Income tax credit amount: 10 percent of qualifying investments
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Maximum credit amount: the credit may not exceed the tax liability
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Carryforward of unused credit: 5 years
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Qualifying equipment: investment cost for collecting, transporting,
or processing plastics, or manufacturing plastic products.
New Jersey’s investment tax credit for recycling equipment
The intent of this program was to divert recyclable
materials from landfills while providing businesses with an incentive to
create new markets for recycled materials and new jobs. This program
was part of an overall program legislated in 1987 that included low interest
loans, loan guarantees, and a sales tax exemption for business recycling
activities. The credit expired on December 31, 1996.
Specific design features:
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Income tax credit amount: 50 percent of corporate business tax of
the cost of qualifying equipment
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Maximum credit amount: 20 percent of the credit may be deducted in
each year. Unused portions may be carried forward to future years.
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Qualifying equipment: Equipment must qualify under the intent of
the law. Applicants must give a description of company’s recycling
activities and an explanation of the equipment relative to transportation,
processing, or manufacturing of post consumer materials. Approval
is given in the state’s Department of Environmental Protection.
South Carolina’s income tax credit for conservation tillage equipment
The intent of this law (legislated in 1986)
is to promote water quality by encouraging farmers to invest in new conservation
tillage equipment that reduces agricultural runoff and erosion. The
law was written primarily because the technology existed, but was not being
used by farmers. The program is administered in the Land Resources
section of the Department of Natural Resources and is part of an overall
program that includes technological assistance through education and demonstration
of conservation tillage equipment. Like the Virginia program, technological
assistance, effective marketing, and enthusiastic agency personnel all
contribute to the program’s success.
Specific design features:
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Income tax credit amount: 25 percent of all expenditures
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Maximum credit amount: $2,500 in any taxable year
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Carryforward of unused credit: five years
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Qualifying equipment: Includes conservation tillage equipment, certain
drip/trickle irrigation systems, and dual purpose combination truck and
crane equipment.
Texas’s property tax exemption for pollution control equipment
This property tax exemption is the result
of an initiative approved by voters in 1993. Its intent is to correct
for any competitive disadvantages with other states, to make compliance
with regulations easier, and to assure that businesses should not be taxed
on equipment purchases required by law.
Specific design features:
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Exemption amount: 100% of qualifying equipment
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Qualifying equipment: any property constructed, purchased, or installed
to meet government requirements for pollution control. Exemption
does not apply to services provided or the manufacturing or production
of products which prevent, monitor, control, or reduce pollution.
Virginia’s pesticide and fertilizer application equipment tax credit
Effective in 1990, this income tax credit
applies to both individuals and corporations that purchase “advanced technology
pesticide and fertilizer application equipment,” allowing for more precise
application of agricultural nutrients and thus the minimization of pollutant
runoff from farmlands that affects drinking water, surface water and the
Chesapeake Bay. Interviews with agency personnel in the Department
of Conservation and Recreation indicate that nutrient runoff is the most
prevalent form of water pollution in Virginia. This tax credit is
not funded by an environmental tax. However, it is part of an overall
effort by the state to help farmers improve the management of pesticides
and fertilizers. Field staff provide technical assistance to farmers
who volunteer for the program. They look at all aspects of a farmer’s
operations, including the nutrient content of waste. The tax credit
is an added incentive to encourage farmers to get the assistance of the
program. The combination of technological assistance, marketing of
the program, and an enthusiastic staff all help to make this a successful
program in the eyes of the agency. In particular, marketing of the program
has taken a prominent role; the department distributes two educational
brochures that highlight the tax credit and the details of developing a
nutrient management plan.
Specific design features:
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Income tax credit amount: 25 percent of all qualifying expenditures
-
Maximum credit: $3,750 or total amount of tax due in the year of
purchase, whichever is less
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Carryforward of unused credit: five years
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Qualifying equipment:
---Sprayers for pesticides and liquid fertilizers;
---Pneumatic fertilizer applicators;
---Monitors, computer regulators, and height adjustment booms for sprayers
and
liquid fertilizer applicators;
---Manure applicators;
---Tramline adapters; and
---starter fertilizer banding attachments for planters.
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