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Direct Pay for States: How States Can Advance Clean Energy with Tax Credits
The Inflation Reduction Act expanded opportunities for states and other tax-exempt entities to invest in clean energy with the direct pay provision. Direct pay allows states to get money back on clean energy investments using certain tax credits, reducing overall project cost.
How direct pay can work for state governments, and how credits can be maximized and combined with other IRA funding opportunities.
Nov 8, 2023
Direct Pay for States: How States Can Advance Clean Energy with Tax Credits
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The Inflation Reduction Act (IRA) is the nation’s largest investment in climate and clean energy and provides tools for states, local and Tribal governments to invest in and own clean energy and emissions reduction technology like never before. Under the IRA, state, local, and Tribal governments – and other tax exempt entities – are now able to access tax credits that have historically only been available to the private sector for investment in clean energy generation or to support the development of zero-emissions technologies. Specifically, the new direct pay provision (also referred to as elective pay) enables tax exempt entities to claim the value of a tax credit in the form of a direct payment from the Internal Revenue Service (IRS).
This memo outlines how direct pay can work for state governments, and how credits can be maximized and combined with other IRA funding opportunities. This memo details five tax credits that states can take advantage of through direct pay, to reduce emissions and expand ownership of clean energy assets (a full list of eligible tax credits can be found here):
