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In the realm of sustainable food waste solutions, anaerobic digestion stands out as a transformative solution, particularly for tax-exempt entities like non-profits, universities, municipal governments, tribal organizations and more. These innovative systems offer both environmental and economic advantages, made even more appealing by the recent provisions within the Inflation Reduction Act (IRA) that grant tax incentives to non-tax paying organizations participating in clean energy initiatives.
IRA tax incentives can return potentially 30% to 50% (or more) of the cost of the project back to the owner after the project is placed in service, even if your organization is tax-exempt.
Understanding Anaerobic Digestion
Anaerobic digestion transforms organic waste into renewable energy. Microorganisms in the digesters decompose organic matter, producing biogas (a mixture of methane and carbon dioxide) that can be used for electricity generation, heat or hot water, or for CNG to charge EVs.
Benefits for Tax-Exempt Organizations
For tax-exempt entities exploring sustainable energy solutions, anaerobic digesters offer many advantages:
- Environmental Stewardship: By converting organic waste into usable energy, anaerobic digesters contribute to greenhouse gas reduction, in alignment with your organization’s sustainability goals.
- Waste Management: These systems efficiently process organic waste onsite, reducing the environmental impact of diesel hauling trucks on the road while also minimizing disposal costs. Tax-exempt organizations handling substantial organic waste, such as agricultural residues or food waste, can significantly reduce their costs by using this technology.
- Renewable Energy Production: Anaerobic digesters produce biogas, a renewable energy source. Tax-exempt entities can harness this energy for on-site electricity or heating needs, potentially leading to reduced utility bills and greater energy independence.
Tax Incentives for Clean Energy Initiatives
Under the IRA, tax-exempt entities now have the opportunity to access tax incentives previously unavailable to them. Specifically, these organizations can benefit from the elective pay (also known as “direct pay”) option, enabling them to claim clean energy tax credits.
Eligibility for elective pay requires meeting criteria for both the incentive and the specific tax credit. Once these criteria are met, the IRS returns a cash payment to the eligible entities post-filing.
Leveraging Tax Benefits with Anaerobic Digesters
Tax-exempt organizations integrating anaerobic digesters into their operations benefit in multiple ways from these tax incentives. By investing in sustainable energy infrastructure like anaerobic digesters, these entities not only contribute to climate health but can also take advantage of available tax benefits.
Case Study: Food Bank
One of Chomp’s customers is a Seattle-based food bank. The food bank’s digester will convert any uneaten food into renewable energy that will be used to charge the electric vehicles that retrieve food donations from the community. The biofertilizer generated through the digestion process will in turn be used to improve produce production on the food bank’s rooftop greenhouse and be donated for use at urban gardens around Seattle. The food bank was able to leverage tax incentives that allowed them as a tax-exempt entity to lower the cost of purchasing an anaerobic digester.
Moving Forward: Maximizing Opportunities
Organizations interested in leveraging these benefits should consider the following steps:
- Evaluate Viability: Assess the feasibility of implementing anaerobic digestion based on the volume of organic waste generated and energy needs.
- Pre-Filing Registration: Begin the pre-filing registration process with the IRS to take advantage of the elective pay option.
- Stay Informed: Stay abreast of official IRS guidance and resources, ensuring compliance with regulations and seizing available opportunities.
In conclusion, tax exempt organizations can now take advantage of incentives to purchase compelling and sustainable waste management solutions like anaerobic digesters, and to join the clean energy revolution.
The Chomp team can help guide you through the tax incentives for anaerobic digestion. Contact us to learn more.
Recommended links for more information:
- Elective Pay Frequently Asked Questions
- Elective Pay and Transferability
- Direct Pay Through the Inflation Reduction Act
- Pre-Filing Registration Requirements for Certain Tax Credit Elections
- Section 6417 Elective Payment of Applicable Credits
*Disclaimer: This is not tax or legal advice. The information presented here is based on generalized project scenarios and broad interpretation of tax rules. Qualification for tax benefits associated with a bioenergy system, and the ability to fully utilize those benefits, is complex and depends on each owner’s particular circumstances. The available tax benefits also depend on each owner’s particular circumstances. You should consult with your tax adviser regarding the availability and amount of, and ability to utilize, these tax benefits.