Federal income tax treatment has nothing to do with pricing sale of electricity to utility or customer.
Alex Zakupowsky is a Member of the Washington, D.C. law firm of Miller & Chevalier, Chartered. He has practiced before the Internal Revenue Service for over 40 years. Over that period of time, he has obtained both private and published guidance on a broad range of issues of importance to all segments of the electric industry. Mr. Zakupowsky served in the U.S. Treasury Department’s Office of Tax Policy prior to joining Miller & Chevalier.
The Clean Coalition recently published a report titled "Net metering & feed-in tariffs: Understanding the tax implications of distributed generation policies."1 Here I address some concerns related to the analysis in this report. And explain how the Internal Revenue Service, IRS, should be expected to analyze the potential tax consequences of a Net Energy Metering arrangement, NEM, and a Feed-In-Tariff, FIT.
The IRS understands that residential solar customers are delivering electricity to their utilities under several NEM and FIT transactional patterns. However, they have not issued any guidance addressing the taxability of such arrangements. At this time it is uncertain whether they will choose to issue guidance.
Proponents of NEM attempt to use the pricing distinctions between NEM and FIT arrangements to support different tax results. They argue that a FIT produces a taxable transaction and a NEM arrangement does not.
This outcome is unlikely. Both transactions result in delivery of electricity produced by a residential customer to a utility for consideration in the form of a credit for future electricity, cash, or a combination of both.