What Does the Inflation Reduction Act of 2022 Mean for Your Business?

*Update: this article has been modified to provide further clarification on commercial buildings that may be eligible for expanded tax deductions. Consult with an accountant to determine if these incentives apply to your commercial space.

Last month, President Joe Biden signed the Inflation Reduction Act (IRA) of 2022 into law: a new bill that aims to combat inflation through greater investment into domestic and clean energy manufacturing, lowering prescription drug prices through reformed Medicare negotiation policies, and reducing the federal deficit by taxing wealthy corporations.

While at this point it’s difficult to tell exactly how these initiatives will impact economic inflation overall (it has even been estimated to have no impact, according to the Penn Wharton Budget Model), there are some key provisions in the legislation that are important to be aware of.

We’ve summarized some the top takeaways for how the IRA could impact your business, and how you could potentially benefit through investments into both cleaner energy sources and energy efficiency projects.

What’s In the Inflation Reduction Act of 2022?

Let’s first dive into some of the key changes rolling out with the new bill. Here are some of the important provisions, as outlined in the IRA one-page Tax Summary:

1. Implementation of a new 15% corporate minimum tax rate: Corporations that earn at least $1 billion in annual profit will be required to pay a new tax rate of at least 15%. This new requirement is estimated to raise $222 billion.
2. Investments into tax enforcement: An investment of $80 billion over the next 10 years will be made into rebuilding the IRS’s “antiquated” tax enforcement systems, with the goal of ensuring and enforcing greater compliance — a provision that is estimated to raise $203 billion.
3. Creation of a 1% stock buyback fee on publicly traded companies: Any publicly traded company wishing to buyback shares of stock will now face a 1% fee, which is estimated to raise $74 billion.
4. Incentives for US consumers adopting clean energy: The new legislation outlines investments into a variety of clean energy programs for US consumers, including tax credits for consumers that transition to clean energy products for their homes (such as electric appliances or energy efficient retrofits), as well as home energy incentive rebate programs.
5. Investments into US manufacturing facilities dedicated to clean energy: A major component of the IRA is the range of tax credits, grants and incentives that will be allotted to clean energy manufacturing for domestic facilities. This includes funds to ramp up production of clean and renewable energy products (i.g. electric vehicles, solar panels, wind turbines), build new manufacturing facilities dedicated to clean technology (i.g. manufacturing electric vehicles, solar panels, wind turbines), and provide funding to research labs dedicated to clean energy research.
6. Decarbonization incentives for businesses: New tax credits, grants, and funding will also now be available for businesses working to reduce their carbon emissions, in an effort to reduce emissions across all sectors of the economy. Some of the decarbonization efforts highlighted include the use of clean sources of energy and energy storage (renewables), the use of clean fuel and clean commercial vehicles, and the reduction of emissions in manufacturing processes (more details on this below).
7. Reformed policies for Medicare to negotiate prescription drug prices: The bill implements a new negotiation policy for Medicare to now directly negotiate with drug companies to lower the prices on several prescription drugs, citing 100 drug prices to be negotiated over the next decade. More info can be found in the IRA Topline Messages for Senate Prescription Drug Pricing Reforms one-pager.

How are the funds being allocated?

1. Incentives for US consumers: 
   • $9 billion in consumer home energy rebate programs, focused on low-income consumers, to electrify home appliances and for energy efficient retrofits.
   • 10 years of consumer tax credits to make homes energy efficient and run on clean energy, making heat pumps, rooftop solar, electric HVAC and water heaters more affordable.
   • $4,000 consumer tax credits for lower/middle income individuals to buy used-clean vehicles, and up to $7,500 tax credits to buy new clean vehicles.
   • $1 billion grant program to make affordable housing more energy efficient.
2. Clean Energy Manufacturing Investments: $60 billion will be allocated to clean energy manufacturing for US companies. Specific programs that have been outlined include:
   • $30 billion in production tax credits to accelerate US manufacturing of “solar panels, wind turbines, batteries, and critical minerals processing”.
   • $10 billion investment tax credit to build clean technology manufacturing facilities (electric vehicles, wind turbines and solar panels, etc.).
   • $500 million in the Defense Production Act for heat pumps and critical minerals processing.
   • $2 billion in grants to retool existing auto manufacturing facilities to manufacture clean vehicles.
   • Up to $20 billion in loans to build new clean vehicle manufacturing facilities.
   • $2 billion for National Labs to accelerate breakthrough energy research.
3. US Decarbonization Efforts
   • Tax credits for clean sources of electricity and energy storage, with ~$30 billion in targeted grant and loan programs for states and electric utilities to accelerate the transition to clean electricity.
   • Grants and tax credits to reduce emissions from industrial manufacturing processes, including almost $6 billion for a new Advanced Industrial Facilities Deployment Program to reduce emissions from the largest industrial emitters like chemical, steel and cement plants.
   • Over $9 billion for Federal procurement of American-made clean technologies to create a stable market for clean products, including $3 billion for the U.S. Postal Service to purchase zero-emission vehicles.
   • $27 billion clean energy technology accelerator to support deployment of technologies to reduce emissions, especially in disadvantaged communities.
4. Investments into Environmental Justice Programs: $60 billion will be dedicated to environmental justice in low-income communities.
5. Neighborhood Access and Equity Grants: $3 billion will be invested in supporting affordable transportation access.
6. Grants to reduce air pollution at ports: $3 billion of IRA funds to support the purchase and installation of zero-emission equipment and technology at ports.
7. $1 billion for clean heavy-duty vehicles: Examples include school and transit buses and garbage trucks.

Full program details can be found here.

What does this mean for your business?

For corporations earning greater than $1 billion in annual profit, the 15% corporate tax is likely an obvious implication.

However, if your business doesn’t fall in that category, there are few different ways that your company could potentially benefit from this new legislation (with some industries having more opportunities than others):

1. Investing in qualifying energy efficiency improvements for commercial buildings
   • One way that eligible commercial buildings can potentially benefit from the IRA is through expanded eligibility through IRC Sec179D. According to this article through Moss Adams., the Modification of Energy Efficient Commercial Buildings Deduction (IRC Sec 179D) clean energy provision now only requires that commercial buildings “only have to reduce their energy use by 25%, down from 50% previously, to meet the minimum energy efficient commercial building property standard and receive the related deduction.” Connect with your accounting team to determine if your business is eligible for these expanded deductions!

1. • • See how PEC can work with you to discover huge potential gains in efficiency: Learn More About PEC’s Energy Management Services
       
     • Energy incentives can be a confusing and cumbersome process. Learn more about how PEC’s in-house energy incentive specialists can handle the process for you.
2. For manufacturers — investing in projects to reduce emissions in your operations
   • New grants and tax credits will be awarded to industrial manufacturing facilities that reduce emissions for their processes. PEC is proud to have worked with an extensive group of industry-leaders in the manufacturing space to launch emission reduction projects
     • See how PEC helped Weyerhaeuser capture 9,452,844 kWh in annual energy savings, cutting their emissions by 92,602 Tons of CO2 each year! Learn more here.
3. Tax incentives offered through the Alternative Fuel Vehicle Refueling Property Credit
   • Businesses building electric vehicle charging stations that meet certain eligibility requirements can be eligible for tax credits up to 30% of the project cost. In addition to the incentives, EV charging stations can offer a new potential revenue stream though charge fees. See more benefits of adding EV chargers to your commercial space: Learn more about electric vehicle charging.

Curious to learn more about how you can work with PEC to uncover efficiency gains?

Get in touch!

*Disclaimer: This article is not intended to provide any investing advice. We recommend consulting with your accounting team and investment advisor before acting on any investments highlighted in this article. 

[Sources:]

https://www.democrats.senate.gov/imo/media/doc/inflation_reduction_act_one_page_summary.pdf

https://www.democrats.senate.gov/imo/media/doc/summary_closing_tax_loopholes_in_the_inflation_reduction_act_of_2022.pdf

https://www.cohencpa.com/knowledge-center/insights/august-2022/15-takeaways-from-the-inflation-reduction-act-clean-energy-tax-incentives

https://www.forbes.com/advisor/personal-finance/inflation-reduction-act/

https://www.epa.gov/energy/greenhouse-gas-equivalencies-calculator#results

https://www.mossadams.com/articles/2022/08/inflation-reduction-act-irc-section-179d