by Krista A. Cohane
On July 25, 2023, Illinois Governor JB Pritzker signed legislation to tackle climate change by enacting a hydrogen fuel replacement income tax credit of up to $10 million per year for tax years ending on or after December 31, 2027, and beginning before January 1, 2029, with the goal of reducing carbon emissions and other air pollutants in Illinois. (L. 2023, H2204 (P.A. 103-0268), effective 07/25/2023.)
Allowable credit.
For tax years ending on or after December 31, 2027, and beginning before January 1, 2029, a hydrogen fuel replacement income tax credit is available in an amount equal to $1 per kilogram of eligible zero carbon hydrogen used by the taxpayer during the immediately preceding year.
Additional tax credits: The credit will be increased by $0.15 per kilogram of eligible qualifying hydrogen if a taxpayer specifically, quantifiably, and verifiably demonstrates that the eligible hydrogen satisfies both of the following criteria: (1) eligible taxpayer’s project workforce meets the minimum equity standards for equity eligible persons and equity eligible contractors determined by the Illinois Power Agency Act; the requirement will apply to both construction employment and ongoing employment in areas such as, but not limited to, operations, production, and maintenance; and (2) at least 40% of the total benefits provided by the use are received by the equity investment eligible communities impacted by the hydrogen use.
Qualified hydrogen.
Qualified hydrogen means hydrogen that: (1) receives 100% of the tax credit available under 26 U.S.C. 45V; and (2) meets the attestation and verification requirements.
Limitations.
The total amount of tax credits that may be allocated must not exceed $10 million per year, plus the amount of tax credits that were available to be allocated for eligible qualifying hydrogen use in the immediately preceding calendar year but were not allocated. If the total amount of tax credits sought by taxpayers exceeds the total of tax credits allowed to be allocated, the Department will prioritize allocation.
Application.
Taxpayers must apply to the Department on a form prescribed by the Department. The Department will issue a tax credit certificate to the applicant stating the amount of the tax credit to which the applicant is entitled. The certificate must be attached to the taxpayer’s income tax return.
Carryforward.
If the amount of credit exceeds the tax liability for the year, the excess may be carried forward five years. The credit will be applied to the earliest year for which there is a tax liability. The credit is not refundable.
Transfer.
A sale, assignment of transfer of tax credits may be made by the taxpayer earning the credits within one year after the credits are awarded. The Department will issue a certificate of transfer to each transferor and transferee, identifying the amount of the credit transferred, which should be attached to the transferor’s and transferee’s income tax return.
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