Deloitte issued a report in 2017 on transferable state tax credits that stated:
Companies should analyze transferable credits as part of a holistic approach to managing their current and future tax liabilities balancing potential tax benefits against cash flow needs that could be addressed by selling transferable credits.
Navigating transferable credits can be complex.
Depending on the credit and the state, transferrable credits can either be sold in full to one taxpayer or can be divided up and sold to multiple taxpayers. State-by-state provisions also determine whether a credit can be resold or reassigned by the transferee to another taxpayer and, if so, how many times. In some instances, transferrable credits may also be used to offset more than one type of tax.
Afloat Tax Credit marketplace organizes the complexity into an easy to use platform for originating and transfering credits.
The Inflation Reduction Act (IRA) includes two critically important sections. Section 6417 describes a set of tax credits, and section 6418 describe the rules for transferrance.
The list of credits include:
- Alternative fuel vehicle refueling property
- Carbon oxide sequestration equipment
- Zero-emission nuclear power production
- Advanced manufacturing production
- Clean fuel production credit
The Congressional Budget Office estimates the new tax credits will cost $260 billion over the next ten years.
Pomerleau compares the legislation to the:
Safe Harbor Leasing provision in the 1981 Economic Recovery Tax Act, which significantly accelerated depreciation deductions for new investments. In response to the concern that companies without taxable income couldn’t fully benefit from the larger depreciation deductions, the tax reform allowed companies to sell their depreciation deductions and investment tax credits to other companies for cash. The provision was designed to encourage economic growth and provide investment incentives for companies with no tax liability.
Earlier this year, the IRS published Request for Comments on Elective Payment of Applicable Credits and Transfer of Certain Credits. The Department of Treasury and IRS sought direct feedback on "what other processes could be implemented by the IRS to prevent duplication, fraud, improper payments, or excessive payments under § 6417?"
Afloat, already handling state tax credits for years, shared feedback as requested in a letter to IRS Associate Chief Counsel.
Buyer of Last Resort
There should always be a buyer of last resort for every tax credit because there is an enormous supply of buyers.
If, while someone is filing their taxes online, they are presented with an offer that allows them pay less in tax by clicking a button, they will click every time. The absence of such a button is evidence of the high transactional and redemptive friction in the transferance of credits. Afloat eliminates that friction, and scales its participants and marketplace with Moderated Marketplaces on Hashed Network.
Growing Total Addressible Market
Adding an additional $280 billion to the TAM in 2023. Long used at the state level, the IRA's clear embrace signals legislators want to incentivize outcomes, such as green energy technology, using transferable tax credits.
What does this mean for Hashed Network?
The Marketplace protocol applies a burn of HASH based on the amount of the tax credit sold. If Afloat captures just 1% of this incremental $280 billion market, it would burn $5.6 million of HASH in the process.
For the detailed mechanics and to plan your business, see the HASH Burn Calculator.