In her State of the State Address, Governor Katie Hobbs announced she hopes to further increase profitability and success of businesses and families by relaunching the energy office, renamed as the Office of Resiliency. Governor Hobbs likely did this in response to the Inflation Reduction Act of 2022 (IRA) signed into law last August. The White House says the Act will lower energy and health care costs for families and bring down the deficit. While it’s unclear if the IRA will actually reduce inflation in 2023, there are tax credits that Arizona families and businesses can take advantage of this year.
Some of the funds available from the IRA require states to match incoming funds and verify income eligibility. Without an official energy office, nonprofits have been doing most of the work. It seems likely the Governor will use the Office to Resiliency to work with businesses, among other entities, to lower costs for Arizonans, diversify the energy infrastructure, and address the challenges brought by climate change. Once the Office of Resiliency is set up, Arizonan families and businesses should keep the following in mind to save money and invest in a clean energy economy.
To reduce energy costs, Arizona families can purchase energy efficient appliance and receive a rebate covering 50-100% of the cost of installation. Rebates are also offered for general repairs and improvements in homes to increase energy efficiency. Families can also get tax credits covering 30% of the costs to install solar panels and battery storage systems. Since no income limits apply to this tax credit, the government estimates that over 150,000 households in Arizona will install rooftop solar panels.
Businesses can also receive tax credits covering 30% of the costs of community solar projects with an additional 20% for projects at affordable housing properties and 10% for projects in low-income communities. Small business building owners can receive a tax credit up to $5 per square foot for any energy efficiency improvements and any business that trades out large trucks and vans for clean commercial vehicles, like electric and fuel cell models, can receive tax credits covering 30% of their purchase costs. Furthermore, clean energy businesses, like solar, wind, or storage, can receive bonuses for paying prevailing wages.
The Inflation Reduction Act also helps small businesses innovate by raising the maximum refundable research and development tax credits from $250,000 to $500,000. These credits can be used to offset employer payroll taxes. Qualified small businesses can use the additional $250,000 against the employer’s 1.45% Medicare payroll tax liability. A qualified business has less than $5 million in gross receipts in the current tax year and has a history of earning gross receipts in no more than the past five tax years.
Electric cooperatives can also receive direct-pay clean energy tax credits. Co-ops will no longer have to partner with for-profit businesses to be eligible for tax credits. Interested co-ops can receive funding for renewable energy, carbon capture, nuclear power, and other improvements to energy efficiency for up to 25% of their project costs. For rural communities, the Act expands the Rural Energy for American Program to help rural business owners and agricultural producers with clean energy and energy efficient upgrades.
For those looking to purchase a new car, the Act provides up to $7,500 for new Electric Vehicles (“EVs”) as long as household gross income does not exceed $300,000 for a joint return or surviving spouse, $225,000 for a head of household, or $150,000 for others. Buyers whose gross income does not exceed $150,000 for a joint return or surviving spouse, $112,500 for a head of household, or $75,000 for others can receive a $4,000 tax credit for purchasing a used EV. Businesses can claim a credit for sales and use of biodiesel and renewable diesel fuel, biodiesel fuel mixtures, and alternative fuel and fuel mixtures.
To take advantages of all the Inflation Reduction Act has to offer, families and businesses need only file their tax returns. Through the Act, the Internal Revenue Service received almost $80 billion dollars for tax enforcement and operations support. This will ensure that Arizonans will have better access to the benefits they are entitled to under the Act and have any questions answered quickly.
The Office of the Governor has yet to say when the Office of Resiliency is expected to open, but if established in time, it may help even more Arizonans receive tax credits under the IRA.
Alexis Glascock chairs Fennemore’s Government Relations and Regulatory practice group and oversees Government Relations in Arizona.