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January 5, 2012
Promoting Energy Savings With State Income Tax Incentives for Homeowners

Full Text Published by Tax Analysts®

by Donald Morris and Pingjing Qiao

Donald Morris is associate professor of accounting at the University of Illinois at Springfield. Pingjing Qiao is a graduate student in the university's master's in accountancy program.

The authors would like to express our thanks and appreciation to the University of Illinois at Springfield Center for State Policy and Leadership and the Institute for Legal, Legislative and Policy Studies for awarding them a competitive public affairs research grant used to support this research.


* * * * *

Introduction

The federal income tax has long strayed from its initial constitutional mission of raising revenue "to pay the Debts and provide for the common Defense and general Welfare." On this point Judge Learned Hand observed, "There is indeed no great difficulty in deciding whether a tax is 'to pay the Debts' of the United States; but at times it is hard to say whether a statute is a tax to 'provide for the . . . general Welfare.'"1 Providing incentives for activities seen as beneficial to the society, the economy, or the environment is now an accepted aspect of income taxation at both the federal and state levels. Generally, tax credits and some tax deductions are the tools used to induce desired behaviors. On the state level, according to Hartzheim, "targeted social and environmental welfare credits and incentives are designed to promote or encourage certain activities that will benefit the societal or environmental conditions of the state as a whole."2 In this report we compare the relative incentive values of state residential energy income tax credits and deductions. The comparison -- made among states offering similar incentives -- ranks their relative cash value to taxpayers.

Measuring the value and effectiveness of tax incentives is a contentious and multidimensional problem. Among the issues involved are:

  • whether incentive money gets to the intended target;
  • whether the money is used for the intended purpose;
  • whether the recipients acted in response to the incentive or for other reasons; and
  • how the administrative costs compare with the incentive's benefits.

A recent report from the Treasury Inspector General for Tax Administration dramatically illustrates the possible downside of tax incentive programs. It has been known for some time that prison inmates commit tax fraud. In 2009, for example, prisoners made fraudulent refund claims with the IRS for $295 million, of which $39 million was paid.3 Generating those refund claims were 4,608 prisoners seeking the $8,000 first-time home buyer credit,4 illustrating the challenges faced by government agencies charged with administering such programs.

The federal government recently expanded its income tax incentives for promoting energy savings and encouraging renewable energy production, and many states also use the promise of tax credits and deductions to encourage taxpayers to spend money to replace or supplement existing energy sources or reduce their reliance on nonrenewable sources of energy. Of the 41 states that impose a general income tax, 38 provide some form of tax incentive for energy or environment-related costs.5

In this report we examine state income tax incentives that mirror federal tax incentives, as well as a sample of those reflecting the unique needs and resources of their individual states. We look not only at what states are doing to encourage energy savings -- particularly for homeowners -- but also at the relative effectiveness of those incentives as measured by the rate of tax savings achieved for each dollar spent by consumers in comparison to other states providing nominally the same incentives. We examine these issues not from the point of view of the states' treasuries, but from the point of view of taxpayers as consumers and homeowners. An important area for future research involves correlating income tax credits used by taxpayers (forgone state revenue) to energy savings resulting from the alternative energy devices subsidized.

Although many states piggyback on federal tax incentives, one purpose of this report is to highlight the importance of policy aimed in the other direction -- arguing that states can benefit themselves by taking the lead rather than merely following the federal government. States are in a unique position to act as proving grounds for any number of innovative energy-related tax programs. States are closer to their own citizens, face primarily local issues -- including the demands of their regional geography and climate conditions -- and are in a better position to assess their own resources than is the federal government. Also, states are presumably more nimble and able to implement unique solutions more readily than the federal government.

Another problem with the states' tendency to follow the lead of the federal government in this area is the mercurial nature of many federal energy incentives. Congress's emphasis in recent years has been on short-term incentives, often enacted at the end of the year and effective retroactively. At a recent hearing of the Senate Finance Committee regarding the federal government's use of tax credits for promoting some activities, committee Chair Max Baucus, D-Mont., said: "These temporary tax incentives hinder taxpayers' ability to plan. As a result, they may only benefit those people who would have acted anyway.6 Ultimately, the desirability of any tax incentive will depend on whether we want to encourage the activity in the first place."7 States may be in a better position to offer stable incentive programs because the range of problems they confront is more limited and thus their planning horizons can be longer than the federal government's.

The first part of this report outlines federal energy income tax incentives for individuals implemented or enhanced by the American Recovery and Reinvestment Act of 2009. After laying out the federal government's scheme of incentives for energy conservation and alternative energy production for homeowners, we indicate which states follow that format and compare the potential tax savings available by state. Because some states use tax deductions rather than credits as incentives, we also include state deductions that fall within one of the federal categories (solar, wind, and so on).8 Following the initial comparison with federal incentives, we look at tax incentives that are unique to particular states and that are available for the federal government to observe and evaluate for their potential national implications.


Prior Literature on Credits as Incentives

Whether income tax credits are an effective energy policy incentive has been addressed in the literature. In general terms, Weiner reports that "unfortunately, determining a tax credit's costs and benefits is inherently difficult -- partly because it is impossible to know the level and mix of economic activity that would occur without the credit."9 The U.S. Government Accountability Office explains that tax credits and deductions may not be an effective way to achieve federal goals "if targeting them to entities or activities meant to receive the benefits is difficult, if they subsidize activities that would have been undertaken without their stimulus, or if they serve to exacerbate other key private sector and public policy challenges."10

Pitts and Wittenbach investigated energy tax credits for households and found that most of those credits have their greatest impact on higher-income taxpayers who would have made the same investments regardless of the credit. "The credit [for insulation, for example] appears to do little to help those consumers least able to afford insulation investment,"11 they say. The same study also found that nearly 40 percent of consumers did not find out about the tax credit until after they had purchased the insulation.

One reason that energy credits are assumed to benefit higher-income taxpayers more than lower-income taxpayers is that most credits are nonrefundable.12 Lancaster and others generalize that result:


    A disadvantage of nonrefundable tax credits is that the method of reimbursement is a tax-offset that reduces the taxpayers' tax liability -- this requires that the taxpayer have positive tax liability against which to offset the credit. This may effectively eliminate the capability of lower income people to take advantage of the credit since their tax burden may be insufficient.13

In "Ten Principles for State Tax Incentives," Ihlanfeldt criticizes states that offer credits and other incentives only in response to neighboring states' adoption of those measures. As a result of that policy, he argues, "many states have adopted tax incentives not well founded on economic theory or empirical evidence."14 Others have voiced similar concerns. A Nebraska legislator writes, "If we are asked why [we offer a particular credit] we frequently answer, 'Because other states are doing it and we cannot afford to be outdone.'"15 The proliferation of state tax incentives to encourage the film industry to produce movies in State A rather than State B is an illustration. At present at least 20 states -- almost half the states that impose an income tax -- offer movie-related incentives. That calls into question the incentive value to a film company: It can hardly go wrong as long as it chooses to make its movie in one of those 20 states.

On a positive note, Feld and Frey make the argument that government incentives are part of a "psychological tax contract" with taxpayers providing benefits for both parties. "Genuinely rewarding taxpayers in an exchange relationship will increase tax compliance. It should thus be considered as a tax authority's dominant strategy to approach taxpayers in order to enhance their tax compliance,"16 they say. Viewed in this light, the benefits of a stable energy incentive policy may go beyond the initial goal of reducing reliance on imported oil. Taxpayers may eventually see themselves as engaged in a joint venture with their state governments producing a more predictable economic climate, thereby benefiting everyone.


Federal Energy Incentives

The federal tax code contains a number of income tax incentives for encouraging alternative energy technology and energy conservation. From credits for solar- and wind-powered electrical generation to credits for the purchase of energy-efficient windows, these targeted measures are intended to push the United States past its historical reliance on nonrenewable energy and the natural resources of other countries. Many states with an income tax follow the federal government's lead in dealing with energy savings incentives.

An alternative approach to following the federal government would be to require each state to examine what local energy policy problems the federal government's tax regime fails to address and how the state's revenue laws could be changed to supplement rather than mimic the federal solutions. For example, homeowners on the East Coast rely on heating oil for winter heat while Midwestern and Western states rely on natural gas or electricity. The available conditions for solar and wind energy also varies across the country. Based on an analysis of its options and resources, each state is in a position to tailor its solutions to the specific needs of its citizens, and to serve a broader role. In this role states can act as pioneers, testing grounds, and incubators for innovative ideas and solutions. Under this approach, federal and state income tax policies could be complementary rather than overlapping or at cross-purposes. Rather than assuming Congress has cornered the market on good ideas, state legislatures should focus on the gaps and blind spots in federal law and when possible direct their state's tax policy to supplement and overcome weaknesses in the federal law's design. In this way states can more effectively evaluate their policies and results in the marketplace of ideas and better allocate their scarce resources.


Federal Energy Incentives for Homeowners

In the past, some consumer investments including insulation, exterior doors, skylights, and windows -- referred to collectively as "building envelope" components -- generated federal tax credits. The purpose of the federal nonbusiness residential energy property credit (IRC section 25) is to encourage homeowners to invest in energy-saving improvements to their existing personal residences. These credits were in effect during 2006 and 2007 but not in 2008, supporting Baucus's criticism that planning under such a policy is difficult at best. Under 2006-2007 law, a $500 lifetime limit was placed on the use of that credit. But the 2009 legislation increased the amount of credit to $1,500 annually for 2009 and 2010 and eliminated the $500 lifetime cap. At the same time, the rate for the credit was increased from 10 percent to 30 percent. For 2011 the maximum credit returns to $500. Based on the fluctuation in these federal incentives and the lack of empirical data showing that these incentives have their desired result -- for example, evidence that fewer energy-efficient purchases were made in 2008 (when there was no energy credit) than in the two years before or after -- it is safe to conclude that these incentives represent the common practice of throwing money at a problem and hoping for the desired result.

The 2009-2010 nonrefundable 30 percent credit also applied to qualified energy-efficient building property installed in a taxpayer's principal residence, including qualified energy-efficient furnaces, air conditioners, electric heat pumps, water heaters, biomass stoves, and advanced main air circulating fans used in a natural gas, propane, or oil furnace meeting specific efficiency requirements. Since these products replace existing equipment, the rules for establishing their energy efficiency are very specific. Not all replacements will qualify, and taxpayers must consult the standards set by the 2000 International Energy Conservation Code that were in effect on August 8, 2005.17 Also included among the building envelope components eligible for the residential energy property credit are metal and asphalt roofs that incorporate specific heat-reducing components. In the case of all these residential energy property investments, the cost of labor and materials are included in the cost used to calculate the credit.

A separate residential alternative energy credit (IRC section 48) applies to the installation of geothermal heat pumps, solar water heaters, and wind-energy-generating equipment as well as solar photovoltaic and fuel cell devices. For 2009-2010 the credit was set at 30 percent of the cost of these items, up to a maximum credit of $1,500, and they may be installed in either new home construction or existing homes. To qualify for the credit, the use must be for the taxpayer's principal residence, which must be located in the United States.

In comparing state tax incentives with their federal counterparts, it is important to note that federal energy credits are claimed by taxpayers on the "honor system" -- no certification or other paperwork is required to be filed with the tax return. As with other aspects of the federal self-assessed (voluntary) tax system, this can be expected to encourage some taxpayer fraud. Aggravating that problem is that for the last decade, the IRS has audited less than 1 percent of individual tax returns annually. Reports of fraud by taxpayers involving the first-time home buyer credit indicates a willingness by some taxpayers to take a risk in the tax audit lottery, believing their odds of detection are low.


Procedure for Making Comparisons

One of the difficulties facing taxpayers as consumers is evaluating the potential benefits to be received from what the government considers an incentive. States are not uniform in how they package their incentives, including those for energy savings and conservation. In addition to income tax credits and deductions, states also use grants, rebates, sales tax exemptions, enterprise zones, and property tax adjustments to promote greater energy efficiency and self-sufficiency. We have limited the discussion in this report to income tax incentives. But even so, it is not always clear to consumers whether State A's credit is more beneficial than State B's or whether taxpayers are better served by State B's credit or State C's deduction, especially when the tax rates, maximum benefits, and percent of the cost included in the computation differ from one state to another.

Illustrating the Problem

Two specific examples are offered to illustrate the complexity of the problem of comparing state income tax incentives without confusing apples with oranges. To ensure comparability throughout the examples used in the report, we assume each residential energy investment is $5,000.18 This allows a computation of the relative tax savings from a uniform cost.

Example 1. Idaho offers a deduction for replacing older doors and windows with energy-efficient products for homes constructed before 1976. That state's tax rates range from 1.6 percent to 7.8 percent, directly affecting the benefit of the deduction. By contrast, Montana offers a tax credit of 25 percent of the cost of energy-efficient doors and windows up to a maximum credit of $500. Its tax rates range from 1 percent to 6.9 percent. For an Idaho homeowner, $5,000 spent on doors and windows would save between $80 and $390, depending on taxable income, while the same amount spent by the Montana homeowner would save $500 in taxes, assuming adjusted gross income was at least $50,000.

Example 2. Alabama offers an unlimited deduction for converting a home's heating source to wood burning (a category of biomass energy). Alabama tax rates start at 2 percent and increase to 5 percent. Based on a $5,000 investment, the maximum incentive is thus $250. Arizona offers a similar deduction with a maximum of $500, but its tax rates start a little higher than Alabama's and the top rate is a little lower. In both cases the potential benefit is reduced further because the deduction is a miscellaneous itemized deduction subject to a floor of 2 percent of AGI. In contrast, Michigan offers a maximum credit for wood heat of $150, but only for taxpayers with incomes under $75,000. And Utah uses a 25 percent credit for the same item up to a maximum credit of $2,000.

To provide meaningful comparisons between states, it was necessary to make a number of simplifying assumptions, in addition to the $5,000 cost of the incentive property investment. One set of assumptions deals with the taxpayers, their income, and their status as homeowners. Since the primary focus of this report is individual state tax energy incentives for a taxpayer's principal residence, our goal is to present the effects of those incentives on both the "average taxpayer," and for contrast, on a taxpayer earning two times the average. In so doing we have developed an average taxpayer family and then made them hypothetical residents of each state offering an energy income tax incentive, allowing a comparison of the income tax results obtained. Also, although most incentives are tax credits, some states use deductions. In either case we use $5,000 as the amount spent on the energy product.

To ensure that the deduction for an energy expense is effective, we posited sufficient itemized deductions, exceeding the standard deduction, so the incentive deduction's full benefit could be measured and compared with other states' deductions or credits. At the $50,000 AGI level, itemized deductions were $11,600 -- before the $5,000 additional deduction -- and at the $100,000 AGI level, itemized deductions were $23,200. The reasons for those amounts are explained in the next section.


Method

In making our state-to-state comparisons of energy tax incentives, we based our tax calculations on an average taxpayer. Unfortunately, trying to figure out what constitutes an average taxpayer is nearly as complex as the tax code itself. The problem starts with the fact that taxable income is quite different from spendable income. One of the major factors complicating the determination of a hypothetical average family's income is that, according to John Fox, "the tax laws currently allow massive amounts of income to be [legally] siphoned away from taxable income."19 Much of that siphoning takes the form of tax incentives available to some taxpayers and not others. As a result, Fox reports, more than 45 percent of the income potentially available for taxation is legally excluded.20

For these reasons we approached the problem of determining an average taxpayer pragmatically. As a starting point, we used the U.S. Census Bureau's real median household income for 2009, which was pegged at $49,777.21 We assumed our average taxpayer was a married couple. Since we are dealing with homeowners in particular, we thought it was important to reference the median sales price of existing single-family homes. For 2010, according to the National Association of Realtors, that was $173,300.22 Using a traditional house-price-to-income ratio of 3 to 1, that means the average income of the median home buyer is $57,767. To avoid the impression that the input numbers we are using are any more than illustrative of our hypothetical average family -- rough estimates based on a number of assumptions -- we set the AGI for the average homeowner-taxpayer at $50,000.23 To make the comparison more meaningful, we also calculated the relative value of the incentives using $100,000 AGI (for reasons explained later).

Since credits are subtracted directly from the tax due, the only variables affecting the benefit of a particular energy credit are its refundability and the state's restrictions on its availability. In the case of tax deductions, however, the situation is more complex because, for those states allowing itemized deductions, the amount of the standard deduction varies from state to state and hence the potential energy expenditure may produce different tax results in State A than in State B.24 For that reason, we standardized two additional amounts in our calculations. Since our hypothetical average family is stipulated to own a home, we allowed it an itemized deduction on its federal income tax return of $11,600 consisting of an unspecified combination of home mortgage interest, real estate tax, and other items allowed by law.25 On average, according to IRS data, itemized deductions are 23.2 percent of AGI; in turn, 23.2 percent of $50,000 is about $11,600.26 By setting itemized deductions at $11,600, which exceeds the federal standard deduction for 2010 of $11,400, we ensured that the full tax benefit of the energy tax deductions affects taxable income.

To address the argument that higher-income taxpayers benefit more from tax incentives than lower-income taxpayers, we made the same computations for a taxpayer with AGI of $100,000 and standard deductions of $23,200.


State Tax Incentives Following the Federal Model

This section is organized following the categories used on IRS Form 5695, "Residential Energy Credits."27 This form is used to compute two categories of credits of $1,500 each (one category each on page 1 and on page 2). Those on page 1 (IRC section 25) are for energy-efficient windows, doors, and insulation, (and other building envelope items noted earlier), while those on page 2 (IRC section 48) are for residential solar, wind, and geothermal energy production aimed at supplementing the homeowner's need for commercial energy resources. For 2009, the IRS reports that 6.8 million individual tax returns (out of about 140 million filed, or roughly 5 percent) claimed some combination of the section 25 and section 48 energy credits on Form 5695. The total amount claimed for residential energy credits was $5.9 billion, or about $861 per return claiming the credit. A more detailed breakdown of the federal credit is presented later in the report.

In the following tables we show the relative tax savings for 2010 from the federal residential energy credits and the tax benefits from the corresponding or comparable state incentives, sorted from most beneficial to taxpayers to least beneficial. Each case assumes a residential energy investment of $5,000 by a couple filing a joint tax return. The appendix (p. 66) contains sample explanations of the specific state limits and calculations.

                              Table 1.
              Internal Revenue Code Section 25 Credits --
                     Energy Conservation Measures
                      Residential Insulation*

                              $50,000 AGI
 ______________________________________________________________________

                                       State Uses
                                       Federal                State Tax
                        State Uses     Taxable     Taxable    Rates
                        Federal AGI    Income      Income     (Low)
 ______________________________________________________________________

 Federal                   N/A           N/A       $31,100      N/A
 Montana                   Yes           No         34,140    0.0100
 Idaho                     Yes           No         31,100    0.0160
 Michigan                  Yes           No         42,800    0.0435
 Kentucky                  Yes           No         38,400    0.0200
 Louisiana                 Yes           No         47,469    0.0200
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                               Code
                        State Tax   State      Section
                        Rates       Marginal   or         Form
                        (High)      Tax Rate   Statute    Number
 ______________________________________________________________________

 Federal                    N/A       N/A      25C         5695
 Montana                  0.0690     0.0690    15-32-109   ENRG-C
 Idaho                    0.0780     0.0740    63-3022     39R
 Michigan                 0.0435     0.0435    206.253     4764
 Kentucky                 0.0600     0.0580    141         5695-K
 Louisiana                0.0600     0.0400    47:297B     Sch. G
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                       Maximum     Tax Before
                       C = Credit      Credit or   Credit or
                       D = Deduction   Deduction   Deduction
 ______________________________________________________________________

 Louisiana                    C          $1,500      $3,831
 Federal                      C          $1,500      $3,831
 Montana                      C           1,000       1,860
 Idaho                        D          Actual       1,849
 Michigan                     C             150       1,862
 Kentucky                     C             100       2,040
 Louisiana                    C              25       1,215
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                  Tax
                        Tax After   Savings       Savings as
                        Credit or   From $5,000   Percentage of
                        Deduction   Expenditure   $5,000 Costs
 _____________________________________________________________________

 Fedeeral                 $2,331       $1,500        30.00%
 Montana                     860        1,000        20.00%
 Idaho                     1,479          370         7.40%
 Michigan                  1,712          150         3.00%
 Kentucky                  1,940          100         2.00%
 Louisiana                 1,215        1,190         0.50%
 _____________________________________________________________________

 *Note that the federal credit is for additional insulation to an
 existing home and not replacement insulation or insulation for new
 construction. The states listed in each table are those offering an
 incentive comparable to the federal energy credits.

                              Table 2.
              Internal Revenue Code Section 25 Credits --
                     Energy Conservation Measures
                      Residential Insulation*

                             $100,000 AGI
 ______________________________________________________________________

                                       State Uses
                                       Federal                State Tax
                        State Uses     Taxable     Taxable    Rates
                        Federal AGI    Income      Income     (Low)
 ______________________________________________________________________

 Federal                   N/A           N/A       $69,500      N/A
 Montana                   Yes           No         72,540    0.0100
 Idaho                     Yes           No         69,500    0.0160
 Kentucky                  Yes           No         76,800    0.0200
 Louisiana                 Yes           No         79,956    0.0200
 Michigan                  Yes           No         92,800    0.0435
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                               Code
                         State Tax  State      Section
                         Rates      Marginal   or          Form
                         (High)     Tax Rate   Statute     Number
 ______________________________________________________________________

 Federal                    N/A        N/A     25C         5695
 Montana                  0.0690     0.0690    15-32-109   ENRG-C
 Idaho                    0.0780     0.0780    63-3022     39R
 Kentucky                 0.0600     0.0600    141         5695-K
 Louisiana                0.0600     0.0600    47:297B     Sch. G
 Michigan                 0.0435     0.0435    206.253     4764
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                        Maximum     Tax Before
                        C = Credit      Credit or   Credit or
                        D = Deduction   Deduction   Deduction
 ______________________________________________________________________

 Federal                       C          $1,500      $9,744
 Montana                       C           1,000       4,509
 Idaho                         D          Actual       4,758
 Kentucky                      C             100       4,274
 Louisiana                     C              25       2,515
 Michigan                      C             150       4,037
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                  Tax
                        Tax After   Savings       Savings as
                        Credit or   From $5,000   Percentage of
                        Deduction   Expenditure   $5,000 Costs
 ______________________________________________________________________

 Federal                  $8,244       $1,500        30.00%
 Montana                   3,509        1,000        20.00%
 Idaho                     4,368          390         7.80%
 Kentucky                  4,174          100         2.00%
 Louisiana                 2,490           25         0.50%
 Michigan                  4,037            0         0.00%
 ______________________________________________________________________

 *Note that the federal credit is for additional insulation to an
 existing home and not replacement insulation or insulation for new
 construction. The states listed in each table are those offering an
 incentive comparable to the federal energy credits.

                              Table 3.
                Energy-Efficient Doors and Windows*

                              $50,000 AGI
 ______________________________________________________________________

                                       State Uses
                                       Federal                State Tax
                        State Uses     Taxable     Taxable    Rates
                        Federal AGI    Income      Income     (Low)
 ______________________________________________________________________

 Federal                   N/A           N/A       $31,100      N/A
 Montana                   Yes           No         34,140    0.0100
 Kentucky                  Yes           No         38,400    0.0200
 Michigan                  Yes           No         42,800    0.0435
 Idaho                     Yes           No         31,100    0.0160
 Louisiana                 Yes           No         47,469    0.0200
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                Code
                         State Tax   State      Section
                         Rates       Marginal   or         Form
                         (High)      Tax Rate   Statute    Number
 ______________________________________________________________________

 Federal                    N/A        N/A     25C         5695
 Montana                  0.0690     0.0690    15-32-109   ENRG-C
 Kentucky                 0.0600     0.0580    141         5695-K
 Michigan                 0.0435     0.0435    206.253     4764
 Idaho                    0.0780     0.0740    63-3022     39R
 Louisiana                0.0600     0.0400    47:297B     Sch. G
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                        Maximum     Tax Before
                        C = Credit      Credit or   Credit or
                        D = Deduction   Deduction   Deduction
 ______________________________________________________________________

 Federal                       C          $1,500      $3,831
 Montana                       C           1,000       1,860
 Kentucky                      C             250       2,040
 Michigan                      C             150       1,862
 Idaho                         D          Actual       1,849
 Louisiana                     C              25       1,215
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                  Tax
                        Tax After   Savings       Savings as
                        Credit or   From $5,000   Percentage of
                        Deduction   Expenditure   $5,000 Costs
 ______________________________________________________________________

 Federal                  $2,331       $1,500        30.00%
 Montana                     860        1,000        20.00%
 Kentucky                  1,790          250         5.00%
 Michigan                  1,712          150         3.00%
 Idaho                     1,701          148         2.96%
 Louisiana                 1,190           25         0.50%
 ______________________________________________________________________

 *Note that Idaho's deduction is at 40 percent of actual cost, which is
 why the cost savings does not equal the marginal tax rate multiplied
 by the investment.

                              Table 4.
                Energy-Efficient Doors and Windows*

                              $10,000 AGI
 ______________________________________________________________________

                                       State Uses
                                       Federal                State Tax
                        State Uses     Taxable     Taxable    Rates
                        Federal AGI    Income      Income     (Low)
 ______________________________________________________________________

 Federal                   N/A           N/A       $69,500      N/A
 Montana                   Yes           No         72,540    0.0100
 Kentucky                  Yes           No         76,800    0.0200
 Idaho                     Yes           No         69,500    0.0160
 Louisiana                 Yes           No         79,956    0.0200
 Michigan                  Yes           No         92,800    0.0435
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                Code
                         State Tax  State       Section
                         Rates      Marginal    or         Form
                         (High)     Tax Rate    Statute    Number
 ______________________________________________________________________

 Federal                    N/A        N/A     25C         5695
 Montana                  0.0690     0.0690    15-32-109   ENRG-C
 Kentucky                 0.0600     0.0600    141         5695-K
 Idaho                    0.0780     0.0780    63-3022     39R
 Louisiana                0.0600     0.0600    47:297B     Sch. G
 Michigan                 0.0435     0.0435    206.253     4764
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                        Maximum     Tax Before
                        C = Credit      Credit or   Credit or
                        D = Deduction   Deduction   Deduction
 ______________________________________________________________________

 Federal                       C          $1,500      $9,744
 Montana                       C           1,000       4,509
 Kentucky                      C             250       4,274
 Idaho                         D          Actual       4,758
 Louisiana                     C              25       2,515
 Michigan                      C             150       4,037
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                  Tax
                        Tax After   Savings       Savings as
                        Credit or   From $5,000   Percentage of
                        Deduction   Expenditure   $5,000 Costs
 ______________________________________________________________________

 Federal                  $8,244       $1,500        30.00%
 Montana                   3,509        1,000        20.00%
 Kentucky                  4,024           25        05.00%
 Idaho                     4,602          156         3.12%
 Louisiana                 2,490           25         0.50%
 Michigan                  4,037            0         0.00%
 ______________________________________________________________________

 *Note that Idaho's deduction is at 40 percent of actual cost, which is
 why the cost savings does not equal the marginal tax rate multiplied
 by the investment.

                              Table 5.
            Approved Asphalt or Metal Roof Replacement*

                              $50,000 AGI
 ______________________________________________________________________

                                       State Uses
                                       Federal                State Tax
                        State Uses     Taxable     Taxable    Rates
                        Federal AGI    Income      Income     (Low)
 ______________________________________________________________________

 Federal                   N/A           N/A       $31,100      N/A
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                Code
                         State Tax  State       Section
                         Rates      Marginal    or         Form
                         (High)     Tax Rate    Statute    Number
 ______________________________________________________________________

 Federal                    N/A        N/A     25C         5695
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                        Maximum     Tax Before
                        C = Credit      Credit or   Credit or
                        D = Deduction   Deduction   Deduction
 ______________________________________________________________________

 Federal                       C          $1,500      $3,831
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                  Tax
                        Tax After   Savings       Savings as
                        Credit or   From $5,000   Percentage of
                        Deduction   Expenditure   $5,000 Costs
 ______________________________________________________________________

 Federal                  $2,331       $1,500        30.00%
 ______________________________________________________________________

 *Note that none of the states offered this credit, so only the $50,000
 AGI federal benefit is shown here.

                              Table 6.
           Qualified Energy-Efficient Building Property*

                              $50,000 AGI
 ______________________________________________________________________

                                       State Uses
                                       Federal                State Tax
                        State Uses     Taxable     Taxable    Rates
                        Federal AGI    Income      Income     (Low)
 ______________________________________________________________________

 Federal                   N/A           N/A       $31,100      N/A
 Utah                      Yes           No         24,930    0.0500
 Montana                   Yes           No         34,140    0.0100
 Oregon                    Yes           No         35,369    0.0500
 Kentucky                  Yes           No         38,400    0.0200
 Alabama                   No            No         30,044    0.0200
 Michigan                  Yes           No         42,800    0.0435
 Idaho                     Yes           No         31,100    0.0160
 Arizona                   Yes           No         34,200    0.0259
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                Code
                         State Tax  State       Section
                         Rates      Marginal    or         Form
                         (High)     Tax Rate    Statute    Number
 ______________________________________________________________________

 Federal                    N/A        N/A     25C         5695
 Utah                     0.0500     0.0500    59-10-1024  TC-40A
 Montana                  0.0690     0.0690    15-32-401   ENRG-B
 Oregon                   0.1100     0.0900    316.116     39Z
 Kentucky                 0.0600     0.0580    141         5695-K
 Alabama                  0.0500     0.0500    40:18-15    Sch. A
 Michigan                 0.0435     0.0435    206.253     4764
 Idaho                    0.0780     0.0740    63-3022     39R
 Arizona                  0.0454     0.0288    43-1027     Sch. A
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                        Maximum     Tax Before
                        C = Credit      Credit or   Credit or
                        D = Deduction   Deduction   Deduction
 ______________________________________________________________________

 Federal                       C          $1,500      $3,831
 Utah                          C           2,000       1,799
 Montana                       C           1,000       1,860
 Oregon                        C             300       2,754
 Kentucky                      C             250       2,040
 Alabama                       D          Actual       1,423
 Michigan                      C             150       1,862
 Idaho                         D          Actual       1,849
 Arizona                       D             500         927
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                  Tax
                        Tax After   Savings       Savings as
                        Credit or   From $5,000   Percentage of
                        Deduction   Expenditure   $5,000 Costs
 ______________________________________________________________________

 Federal                  $2,331       $1,500        30.00%
 Utah                        549        1,250        25.00%
 Montana                     860        1,000        20.00%
 Oregon                    2,454          300         6.00%
 Kentucky                  1,790          250         5.00%
 Alabama                   1,208          215         4.30%
 Michigan                  1,712          150         3.00%
 Idaho                     1,701          148         2.96%
 Arizona                     913           14         0.28%
 ______________________________________________________________________

 *Note: This category includes qualified electric heat pump, qualified
 central air conditioner; qualified natural gas; propane; or oil water
 heater; biomass burning stove for home heating, qualified furnace,
 and advanced main air circulating fan used in a natural gas, propane
 or oil furnace. Not all the states listed employ all these
 categories. Alabama and Arizona, for example, include only wood
 stoves, a form of biomass energy. Biomass fuel is defined by the IRS
 as any plant-derived fuel available on a renewable or recurring
 basis, including agricultural crops and trees, wood and wood waste,
 and residues (including wood pellets), plants (including aquatic
 plants), grasses, residues, and fibers. Note that Idaho's deduction
 is at 40 percent of actual cost, which is why the cost savings does
 not equal the marginal tax rate multiplied by the investment. Also,
 for Arizona, Alabama, and Idaho, the deduction is a miscellaneous
 itemized deduction subject to the 2 percent of AGI limit.)

                              Table 7.
           Qualified Energy-Efficient Building Property*

                             $100,000 AGI
 ______________________________________________________________________

                                       State Uses
                                       Federal                State Tax
                        State Uses     Taxable     Taxable    Rates
                        Federal AGI    Income      Income     (Low)
 ______________________________________________________________________

 Federal                   N/A           N/A       $69,500      N/A
 Utah                      Yes           No         74,930    0.0500
 Montana                   Yes           No         72,540    0.0100
 Oregon                    Yes           No         70,950    0.0500
 Kentucky                  Yes           No         76,800    0.0200
 Alabama                   No            No         58,706    0.0200
 Idaho                     Yes           No         69,500    0.0160
 Arizona                   Yes           No         72,600    0.0259
 Michigan                  Yes           No         92,800    0.0435
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                Code
                         State Tax  State       Section
                         Rates      Marginal    or         Form
                         (High)     Tax Rate    Statute    Number
 ______________________________________________________________________

 Federal                    N/A        N/A     25C         5695
 Utah                     0.0500     0.0500    59-10-1024  TC-40A
 Montana                  0.0690     0.0690    15-32-401   ENRG-B
 Oregon                   0.1100     0.0900    316.116     39Z
 Kentucky                 0.0600     0.0600    141         5695-K
 Alabama                  0.0500     0.0500    40:18-15    Sch. A
 Idaho                    0.0780     0.0780    63-3022     39R
 Arizona                  0.0454     0.0336    43-1027     Sch. A
 Michigan                 0.0435     0.0435    206.253     4764
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                        Maximum     Tax Before
                        C = Credit      Credit or   Credit or
                        D = Deduction   Deduction   Deduction
 ______________________________________________________________________

 Federal                       C          $1,500      $9,744
 Utah                          C           2,000       4,253
 Montana                       C           1,000       4,509
 Oregon                        C             300       5,958
 Kentucky                      C             250       4,274
 Alabama                       D          Actual       2,858
 Idaho                         D          Actual       4,758
 Arizona                       D             500       2,141
 Michigan                      C             150       4,037
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                  Tax
                        Tax After   Savings       Savings as
                        Credit or   From $5,000   Percentage of
                        Deduction   Expenditure   $5,000 Costs
 ______________________________________________________________________

 Federal                  $8,244       $1,500        30.00%
 Utah                      3,003        1,250        25.00%
 Montana                   3,509        1,000        20.00%
 Oregon                    5,658          300         6.00%
 Kentucky                  4,024          250         5.00%
 Alabama                   2,653          205         4.10%
 Idaho                     4,602          156         3.12%
 Arizona                   2,125           16         0.32%
 Michigan                  4,037            0         0.00%
 ______________________________________________________________________

 *Note: This category includes qualified electric heat pump, qualified
 central air conditioner; qualified natural gas; propane; or oil water
 heater; biomass burning stove for home heating, qualified furnace,
 and advanced main air circulating fan used in a natural gas, propane
 or oil furnace. Not all the states listed employ all these
 categories. Alabama and Arizona, for example, include only wood
 stoves, a form of biomass energy. Biomass fuel is defined by the IRS
 as any plant-derived fuel available on a renewable or recurring
 basis, including agricultural crops and trees, wood and wood waste,
 and residues (including wood pellets), plants (including aquatic
 plants), grasses, residues, and fibers. Note that Idaho's deduction
 is at 40 percent of actual cost, which is why the cost savings does
 not equal the marginal tax rate multiplied by the investment. Also,
 for Arizona, Alabama, and Idaho, the deduction is a miscellaneous
 itemized deduction subject to the 2 percent of AGI limit.)

                              Table 8.
              Internal Revenue Code Section 48 Credits --
        Alternative Energy Production Solar Heating System*

                              $50,000 AGI
 ______________________________________________________________________

                                       State Uses
                                       Federal                State Tax
                        State Uses     Taxable     Taxable    Rates
                        Federal AGI    Income      Income     (Low)
 ______________________________________________________________________

 Federal                   N/A           N/A       $31,100      N/A
 Louisiana                 Yes           No         47,469    0.0200
 Hawaii                    Yes           No         36,320    0.0140
 Georgia                   Yes           No         32,575    0.0100
 Oregon                    Yes           No         35,369    0.0500
 West Virginia             Yes           No         46,000    0.0300
 New York                  Yes           No         35,000    0.0400
 Utah                      Yes           No         24,930    0.0500
 North Carolina            No            Yes        33,400    0.0600
 Rhode Island              Yes           No         31,100    0.0375
 Montana                   Yes           No         34,140    0.0100
 Arizona                   Yes           No         34,200    0.0287
 South Carolina            No            Yes        31,100    0.0300
 Massachusetts             No            No         39,200    0.0530
 Kentucky                  Yes           No         38,400    0.0200
 New Mexico                Yes           No         30,100    0.0170
 Idaho                     Yes           No         31,100    0.0160
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                Code
                         State Tax  State       Section
                         Rates      Marginal    or         Form
                         (High)     Tax Rate    Statute    Number
 ______________________________________________________________________

 Federal                    N/A        N/A     48          5695
 Louisiana                0.0600     0.0400    47:6030     Sch. F
 Hawaii                   0.1100     0.0760    196-6.5     N-334
 Georgia                  0.0600     0.0600    48-7-29     IT-CEP
 Oregon                   0.1100     0.0900    316.116     39Z
 West Virginia            0.0650     0.0650    11-13Z      SECT
 New York                 0.0897     0.0590    606 (g-1)   IT-255
 Utah                     0.0500     0.0500    59-10-1024  TC-40A
 North Carolina           0.0775     0.0700    105-129.15  478G
 Rhode Island             0.0990     0.0375    44-57-1     Sch. C
 Montana                  0.0690     0.0690    15-32-401   ENRG-B
 Arizona                  0.0454     0.0288    43-1027     310
 South Carolina           0.0700     0.0700    3587        TC 38
 Massachusetts            0.0530     0.0530    ch. 62,     Sch. Z
                                               6(d)
 Kentucky                 0.0600     0.0580    141         5695-K
 New Mexico               0.0530     0.0490    7-2-18.14   PIT-CR
 Idaho                    0.0780     0.0740    63-3022     39R
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                        Maximum     Tax Before
                        C = Credit      Credit or   Credit or
                        D = Deduction   Deduction   Deduction
 ______________________________________________________________________

 Federal                       C          $1,500      $3,831
 Louisiana                     C          12,500       1,215
 Hawaii                        C           5,000       1,875
 Georgia                       C          10,500       1,693
 Oregon                        C           1,500       2,754
 West Virginia                 C           2,000       1,935
 New York                      C           5,000       1,652
 Utah                          C           2,000       1,799
 North Carolina                C           1,225       2,127
 Rhode Island                  C           3,750       1,167
 Montana                       C           1,000       1,860
 Arizona                       C           1,000         927
 South Carolina                C           3,500       1,716
 Massachusetts                 C           1,000       2,078
 Kentucky                      C             500       2,040
 New Mexico                    C           9,000       1,064
 Idaho                         D          Actual       1,849
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                 Tax
                       Tax After   Savings       Savings as
                       Credit or   From $5,000   Percentage of
                       Deduction   Expenditure   $5,000 Costs
 ______________________________________________________________________

 Federal                 $2,331       $1,500        30.00%
 Louisiana               -1,285        2,500        50.00%
 Hawaii                     125        1,750        35.00%
 Georgia                      0        1,693        33.86%
 Oregon                   1,254        1,500        30.00%
 West Virginia              435        1,500        30.00%
 New York                   402        1,250        25.00%
 Utah                       549        1,250        25.00%
 North Carolina             902        1,225        24.50%
 Rhode Island                 0        1,167        23.34%
 Montana                    860        1,000        20.00%
 Arizona                      0          927        18.54%
 South Carolina             858          858        17.16%
 Massachusetts            1,553          525        10.50%
 Kentucky                 1,540          500        10.00%
 New Mexico                 564          500        10.00%
 Idaho                    1,701          148         2.96%
 ______________________________________________________________________

 *Note that among the states there are differences in the kinds of
 solar heating systems allowed, including passive and active solar.
 For the purposes of this comparison, except for photovoltaic, they
 have all been combined into one group. In this study, photovoltaic
 devices are provided in tables 16 and 17 (pp. 57, 58). Note that
 Idaho's deduction is at 40 percent of actual cost, which is why the
 cost savings does not equal the marginal tax rate multiplied by the
 investment. Some states require the solar electric or other system to
 be attached to the grid in a net metering arrangement. Louisiana's
 credit is refundable. North Carolina taxable income begins with
 federal taxable income and permits adjustments to arrive at state
 taxable income.

            Internal Revenue Code Section 48 Credits --
        Alternative Energy Production Solar Heating System*

                             $100,000 AGI
 ______________________________________________________________________

                                       State Uses
                                       Federal                State Tax
                        State Uses     Taxable     Taxable    Rates
                        Federal AGI    Income      Income     (Low)
 ______________________________________________________________________

 Federal                   N/A           N/A       $69,500      N/A
 Louisiana                 Yes           No         79,956    0.0200
 Georgia                   Yes           No         71,400    0.0100
 Hawaii                    Yes           No         74,720    0.0140
 Oregon                    Yes           No         70,950    0.0500
 West Virginia             Yes           No         96,000    0.0300
 New York                  Yes           No         76,800    0.0400
 Rhode Island              Yes           No         69,500    0.0375
 South Carolina            No            Yes        69,500    0.0300
 Utah                      Yes           No         74,930    0.0500
 North Carolina            No            Yes        72,800    0.0600
 Arizona                   Yes           No         72,600    0.0287
 Montana                   Yes           No         72,540    0.0100
 Massachusetts             No            No         89,200    0.0530
 Kentucky                  Yes           No         76,800    0.0200
 New Mexico                Yes           No         69,500    0.0170
 Idaho                     Yes           No         69,500    0.0160
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                Code
                         State Tax  State       Section
                         Rates      Marginal    or         Form
                         (High)     Tax Rate    Statute    Number
 ______________________________________________________________________

 Federal                    N/A        N/A     48          5695
 Louisiana                0.0600     0.0600    47:6030     Sch. F
 Georgia                  0.0600     0.0600    48-7-29     IT-CEP
 Hawaii                   0.1100     0.0825    196-6.5     N-334
 Oregon                   0.1100     0.0900    316.116     39Z
 West Virginia            0.0650     0.0600    11-13Z      SECT
 New York                 0.0897     0.0685    606 (g-1)   IT-255
 Rhode Island             0.0990     0.0775    44-57-1     Sch. C
 South Carolina           0.0700     0.0700    3587        TC 38
 Utah                     0.0500     0.0500    59-10-1024  TC-40A
 North Carolina           0.0775     0.0700    105-129.15  478G
 Arizona                  0.0454     0.0336    43-1027     310
 Montana                  0.0690     0.0690    15-32-401   ENRG-B
 Massachusetts            0.0530     0.0530    ch. 62,     Sch. Z
                                               6(d)
 Kentucky                 0.0600     0.0600    141         5695-K
 New Mexico               0.0490     0.0490    7-2-18.14   PIT-CR
 Idaho                    0.0780     0.0780    63-3022     39R
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                        Maximum     Tax Before
                        C = Credit      Credit or   Credit or
                        D = Deduction   Deduction   Deduction
 ______________________________________________________________________

 Federal                       C          $1,500      $9,744
 Louisiana                     C          12,500       2,515
 Georgia                       C          10,500       4,027
 Hawaii                        C           5,000       4,746
 Oregon                        C           1,500       5,958
 West Virginia                 C           2,000       5,115
 New York                      C           5,000       4,467
 Rhode Island                  C           3,750       3,019
 South Carolina                C           3,500       4,403
 Utah                          C           2,000       4,253
 North Carolina                C           1,225       4,884
 Arizona                       C           1,000       2,141
 Montana                       C           1,000       4,509
 Massachusetts                 C           1,000       4,728
 Kentucky                      C             500       4,274
 New Mexico                    C           9,000       2,995
 Idaho                         D          Actual       4,758
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                   Tax
                         Tax After   Savings       Savings as
                         Credit or   From $5,000   Percentage of
                         Deduction   Expenditure   $5,000 Costs
 ______________________________________________________________________

 Federal                   $8,244       $1,500        30.00%
 Louisiana                     15        2,500        50.00%
 Georgia                    2,277        1,750        35.00%
 Hawaii                     2,996        1,750        35.00%
 Oregon                     4,458        1,500        30.00%
 West Virginia              3,615        1,500        30.00%
 New York                   3,217        1,250        25.00%
 Rhode Island               1,769        1,250        25.00%
 South Carolina             3,153        1,250        25.00%
 Utah                       3,003        1,250        25.00%
 North Carolina             3,659        1,225        24.50%
 Arizona                    1,141        1,000        20.00%
 Montana                    3,509        1,000        20.00%
 Massachusetts              4,203          525        10.50%
 Kentucky                   3,774          500        10.00%
 New Mexico                 2,495          500        10.00%
 Idaho                      4,602          156         3.12%
 ______________________________________________________________________

 *Note that among the states there are differences in the kinds of
 solar heating systems allowed, including passive and active solar.
 For the purposes of this comparison, except for photovoltaic, they
 have all been combined into one group. In this study, photovoltaic
 devices are provided in tables 16 and 17 (pp. 57, 58). Note that
 Idaho's deduction is at 40 percent of actual cost, which is why the
 cost savings does not equal the marginal tax rate multiplied by the
 investment. Some states require the solar electric or other system to
 be attached to the grid in a net metering arrangement. Louisiana's
 credit is refundable. North Carolina taxable income begins with
 federal taxable income and permits adjustments to arrive at state
 taxable income.

                               Table 10.
                      Solar Hot Water Heater*

                              $50,000 AGI
 ______________________________________________________________________

                                       State Uses
                                       Federal                State Tax
                        State Uses     Taxable     Taxable    Rates
                        Federal AGI    Income      Income     (Low)
 ______________________________________________________________________

 Federal                   N/A           N/A       $31,100      N/A
 Hawaii                    Yes           No         36,320    0.0140
 Georgia                   Yes           No         32,575    0.0100
 Oregon                    Yes           No         35,369    0.0500
 West Virginia             Yes           No         46,000    0.0300
 Rhode Island              Yes           No         31,000    0.0375
 Montana                   Yes           No         34,140    0.0100
 Arizona                   Yes           No         34,200    0.0287
 South Carolina            No            Yes        31,100    0.0300
 Massachusetts             No            No         39,200    0.0530
 Kentucky                  Yes           No         38,400    0.0200
 North Carolina            No            Yes        33,400    0.0600
 Idaho                     Yes           No         31,100    0.0160
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                Code
                         State Tax  State       Section
                         Rates      Marginal    or         Form
                         (High)     Tax Rate    Statute    Number
 ______________________________________________________________________

 Federal                    N/A        N/A     48          5692
 Hawaii                   0.1100     0.0760    196-6.5     N-334
 Georgia                  0.0600     0.0600    48-7-29     IT-CEP
 Oregon                   0.1100     0.0900    316.116     39Z
 West Virginia            0.0650     0.0650    11-13Z      SECT
 Rhode Island             0.0990     0.0375    44-57-1     Sch. C
 Montana                  0.0690     0.0690    15-32-401   ENRG-B
 Arizona                  0.0454     0.0288    43-1027     310
 South Carolina           0.0700     0.0700    3587        TC 38
 Massachusetts            0.0530     0.0530    ch. 62,     Sch. Z
                                               6(d)
 Kentucky                 0.0600     0.0580    141         5695-K
 North Carolina           0.0775     0.0700    105-129.15  478G
 Idaho                    0.0780     0.0740    63-3022     39R
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                         Maximum     Tax Before
                         C = Credit      Credit or   Credit or
                         D = Deduction   Deduction   Deduction
 ______________________________________________________________________

 Federal                        C          $1,500      $3,831
 Hawaii                         C           2,250       1,875
 Georgia                        C           2,500       1,693
 Oregon                         C           1,500       2,754
 West Virginia                  C           2,000       1,935
 Rhode Island                   C           1,750       1,167
 Montana                        C           1,000       1,860
 Arizona                        C           1,000         927
 South Carolina                 C           3,500       1,716
 Massachusetts                  C           1,000       2,078
 Kentucky                       C             500       2,040
 North Carolina                 C             490       2,127
 Idaho                          D          Actual       1,849
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                  Tax
                        Tax After   Savings       Savings as
                        Credit or   From $5,000   Percentage of
                        Deduction   Expenditure   $5,000 Costs
 ______________________________________________________________________

 Federal                  $2,331       $1,500        30.00%
 Hawaii                      125        1,750        35.00%
 Georgia                       0        1,693        33.86%
 Oregon                    1,254        1,500        30.00%
 West Virginia               435        1,500        30.00%
 Rhode Island                  0        1,167        23.34%
 Montana                     860        1,000        20.00%
 Arizona                       0          927        18.54%
 South Carolina              858          858        17.16%
 Massachusetts             1,553          525        10.50%
 Kentucky                  1,540          500        10.00%
 North Carolina            1,637          490         9.80%
 Idaho                     1,701          148         2.96%
 ______________________________________________________________________

 *Note that Idaho's deduction is at 40 percent of actual cost, which is
 why the cost savings does not equal the marginal tax rate multiplied
 by the investment.

                             Table 11.
                      Solar Hot Water Heater*

                             $100,000 AGI
 ______________________________________________________________________

                                       State Uses
                                       Federal                State Tax
                        State Uses     Taxable     Taxable    Rates
                        Federal AGI    Income      Income     (Low)
 ______________________________________________________________________

 Federal                   N/A           N/A       $31,100      N/A
 Hawaii                    Yes           No         36,320    0.0140
 Georgia                   Yes           No         32,575    0.0100
 Oregon                    Yes           No         35,369    0.0500
 West Virginia             Yes           No         46,000    0.0300
 Rhode Island              Yes           No         31,000    0.0375
 Montana                   Yes           No         34,140    0.0100
 Arizona                   Yes           No         34,200    0.0287
 South Carolina            No            Yes        31,100    0.0300
 Massachusetts             No            No         39,200    0.0530
 Kentucky                  Yes           No         38,400    0.0200
 North Carolina            No            Yes        33,400    0.0600
 Idaho                     Yes           No         31,100    0.0160
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                Code
                         State Tax  State       Section
                         Rates      Marginal    or         Form
                         (High)     Tax Rate    Statute    Number
 ______________________________________________________________________

 Federal                    N/A        N/A     48          5692
 Hawaii                   0.1100     0.0760    196-6.5     N-334
 Georgia                  0.0600     0.0600    48-7-29     IT-CEP
 Oregon                   0.1100     0.0900    316.116     39Z
 West Virginia            0.0650     0.0650    11-13Z      SECT
 Rhode Island             0.0990     0.0375    44-57-1     Sch. CR
 Montana                  0.0690     0.0690    15-32-401   ENRG-B
 Arizona                  0.0454     0.0288    43-1027     310
 South Carolina           0.0700     0.0700    3587        TC 38
 Massachusetts            0.0530     0.0530    ch. 62,     Sch. Z
                                               6(d)
 Kentucky                 0.0600     0.0580    141         5695-K
 North Carolina           0.0775     0.0700    105-129.15  478G
 Idaho                    0.0780     0.0740    63-3022     39R
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                        Maximum     Tax Before
                        C = Credit      Credit or   Credit or
                        D = Deduction   Deduction   Deduction
 ______________________________________________________________________

 Federal                       C          $1,500      $3,831
 Hawaii                        C           2,250       1,875
 Georgia                       C           2,500       1,693
 Oregon                        C           1,500       2,754
 West Virginia                 C           2,000       1,935
 Rhode Island                  C           1,750       1,167
 Montana                       C           1,000       1,860
 Arizona                       C           1,000         927
 South Carolina                C           3,500       1,716
 Massachusetts                 C           1,000       2,078
 Kentucky                      C             500       2,040
 North Carolina                C             490       2,127
 Idaho                         D          Actual       1,849
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                  Tax
                        Tax After   Savings       Savings as
                        Credit or   From $5,000   Percentage of
                        Deduction   Expenditure   $5,000 Costs
 ______________________________________________________________________

 Federal                  $2,331       $1,500        30.00%
 Hawaii                      125        1,750        35.00%
 Georgia                       0        1,693        33.86%
 Oregon                    1,254        1,500        30.00%
 West Virginia               435        1,500        30.00%
 Rhode Island                  0        1,167        23.34%
 Montana                     860        1,000        20.00%
 Arizona                       0          927        18.54%
 South Carolina              858          858        17.16%
 Massachusetts             1,553          525        10.50%
 Kentucky                  1,540          500        10.00%
 North Carolina            1,637          490         9.80%
 Idaho                     1,701          148         2.96%
 ______________________________________________________________________

 *Note that Idaho's deduction is at 40 percent of actual cost, which is
 why the cost savings does not equal the marginal tax rate multiplied
 by the investment.

                             Table 12.
                           Wind Energy*

                              $50,000 AGI
 ______________________________________________________________________

                                       State Uses
                                       Federal                State Tax
                        State Uses     Taxable     Taxable    Rates
                        Federal AGI    Income      Income     (Low)
 ______________________________________________________________________

 Federal                   N/A           N/A       $31,100      N/A
 Louisiana                 Yes           No         47,469    0.0200
 North Carolina            No            Yes        33,400    0.0600
 Georgia                   Yes           No         32,575    0.0100
 Oregon                    Yes           No         35,369    0.0500
 Utah                      Yes           No         24,930    0.0500
 Rhode Island              Yes           No         31,000    0.0375
 Hawaii                    Yes           No         36,320    0.0140
 Montana                   Yes           No         34,140    0.0100
 Arizona                   Yes           No         34,200    0.0287
 Massachusetts             No            No         39,200    0.0530
 Kentucky                  Yes           No         38,400    0.0200
 Idaho                     Yes           No         31,100    0.0160
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                Code
                         State Tax  State       Section
                         Rates      Marginal    or         Form
                         (High)     Tax Rate    Statute    Number
 ______________________________________________________________________

 Federal                    N/A        N/A     48          5695
 Louisiana                0.0600     0.0400    47:6030     Sch. F
 North Carolina           0.0775     0.0700    105-129.15  478G
 Georgia                  0.0600     0.0600    48-7-29     IT-CEP
 Oregon                   0.1100     0.0900    316.116     39Z
 Utah                     0.0500     0.0500    59-10-1024  TC-40A
 Rhode Island             0.0990     0.0375    44-57-1     Sch. CR
 Hawaii                   0.1100     0.0760    196-6.5     N-334
 Montana                  0.0690     0.0690    15-32-401   ENRG-B
 Arizona                  0.0454     0.0288    43-1027     310
 Massachusetts            0.0530     0.0530    ch. 62,     Sch. Z
                                               6(d)
 Kentucky                 0.0600     0.0580    141         5695-K
 Idaho                    0.0780     0.0740    63-3022     39R
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                        Maximum     Tax Before
                        C = Credit      Credit or   Credit or
                        D = Deduction   Deduction   Deduction
 ______________________________________________________________________

 Federal                       C          $1,500      $3,831
 Louisiana                     C          12,500       1,215
 North Carolina                C           3,675       2,127
 Georgia                       C          10,500       1,693
 Oregon                        C           1,500       2,754
 Utah                          C           2,000       1,799
 Rhode Island                  C           3,750       1,167
 Hawaii                        C           1,500       1,875
 Montana                       C           1,000       1,860
 Arizona                       C           1,000         927
 Massachusetts                 C           1,000       2,078
 Kentucky                      C             500       2,040
 Idaho                         D          Actual       1,849
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                  Tax
                        Tax After   Savings       Savings as
                        Credit or   From $5,000   Percentage of
                        Deduction   Expenditure   $5,000 Costs
 ______________________________________________________________________

 Federal                  $2,331       $1,500        30.00%
 Louisiana                -1,285        2,500        50.00%
 North Carolina              377        1,750        35.00%
 Georgia                       0        1,693        33.86%
 Oregon                    1,254        1,500        30.00%
 Utah                        549        1,250        25.00%
 Rhode Island                  0        1,167        23.34%
 Hawaii                      875        1,000        20.00%
 Montana                     860        1,000        20.00%
 Arizona                       0          927        18.54%
 Massachusetts             1,553          525        10.50%
 Kentucky                  1,540          500        10.00%
 Idaho                     1,701          148         2.96%
 ______________________________________________________________________

 *Note that Idaho's deduction is at 40 percent of actual cost, which is
 why the cost savings does not equal the marginal tax rate multiplied
 by the investment. Louisiana's credit is refundable.

                             Table 13.
                           Wind Energy*

                             $100,000 AGI
 ______________________________________________________________________

                                       State Uses
                                       Federal                State Tax
                        State Uses     Taxable     Taxable    Rates
                        Federal AGI    Income      Income     (Low)
 ______________________________________________________________________

 Federal                   N/A           N/A       $69,500      N/A
 Louisiana                 Yes           No         79,956    0.0200
 Georgia                   Yes           No         71,400    0.0100
 North Carolina            No            Yes        72,800    0.0600
 Oregon                    Yes           No         70,950    0.0500
 Rhode Island              Yes           No         69,500    0.0375
 Utah                      Yes           No         74,930    0.0500
 Arizona                   Yes           No         72,600    0.0287
 Hawaii                    Yes           No         74,720    0.0140
 Montana                   Yes           No         72,540    0.0100
 Massachusetts             No            No         89,200    0.0530
 Kentucky                  Yes           No         76,800    0.0200
 Idaho                     Yes           No         69,500    0.0160
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                Code
                         State Tax  State       Section
                         Rates      Marginal    or         Form
                         (High)     Tax Rate    Statute    Number
 ______________________________________________________________________

 Federal                    N/A        N/A     48          5695
 Louisiana                0.0600     0.0600    47:6030     Sch. F
 Georgia                  0.0600     0.0600    48-7-29     IT-CEP
 North Carolina           0.0775     0.0700    105-129.15  478G
 Oregon                   0.1100     0.0900    316.116     39Z
 Rhode Island             0.0990     0.0775    44-57-1     Sch. CR
 Utah                     0.0500     0.0500    59-10-1024  TC-40A
 Arizona                  0.0454     0.0336    43-1027     310
 Hawaii                   0.1100     0.0825    196-6.5     N-334
 Montana                  0.0690     0.0690    15-32-401   ENRG-B
 Massachusetts            0.0530     0.0530    ch. 62,     Sch. Z
                                               6(d)
 Kentucky                 0.0600     0.0600    141         5695-K
 Idaho                    0.0780     0.0780    63-3022     39R
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                        Maximum     Tax Before
                        C = Credit      Credit or   Credit or
                        D = Deduction   Deduction   Deduction
 ______________________________________________________________________

 Federal                       C          $1,500      $9,744
 Louisiana                     C          12,500       2,515
 Georgia                       C          10,500       4,027
 North Carolina                C           3,675       4,884
 Oregon                        C           1,500       5,958
 Rhode Island                  C           3,750       3,019
 Utah                          C           2,000       4,253
 Arizona                       C           1,000       2,141
 Hawaii                        C           1,500       4,746
 Montana                       C           1,000       4,509
 Massachusetts                 C           1,000       4,728
 Kentucky                      C             500       4,274
 Idaho                         D          Actual       4,758
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                  Tax
                        Tax After   Savings       Savings as
                        Credit or   From $5,000   Percentage of
                        Deduction   Expenditure   $5,000 Costs
 ______________________________________________________________________

 Federal                  $8,244       $1,500        30.00%
 Louisiana                    15        2,500        50.00%
 Georgia                   2,277        1,750        35.00%
 North Carolina            3,134        1,750        35.00%
 Oregon                    4,458        1,500        30.00%
 Rhode Island              1,769        1,250        25.00%
 Utah                      3,003        1,250        25.00%
 Arizona                   1,141        1,000        20.00%
 Hawaii                    3,746        1,000        20.00%
 Montana                   3,509        1,000        20.00%
 Massachusetts             4,203          525        10.50%
 Kentucky                  3,774          500        10.00%
 Idaho                     4,602          156         3.12%
 ______________________________________________________________________

 *Note that Idaho's deduction is at 40 percent of actual cost, which is
 why the cost svings does not equal the marginal tax rate multiplied
 by the investment. Louisiana's credit is refundable.

                             Table 14.
                       Geothermal Heat Pump*

                              $50,000 AGI
 ______________________________________________________________________

                                       State Uses
                                       Federal                State Tax
                        State Uses     Taxable     Taxable    Rates
                        Federal AGI    Income      Income     (Low)
 ______________________________________________________________________

 Federal                   N/A           N/A       $31,100      N/A
 North Carolina            No            Yes        33,400    0.0600
 Georgia                   Yes           No         32,575    0.0100
 Oregon                    Yes           No         35,369    0.0500
 Utah                      Yes           No         24,930    0.0500
 Rhode Island              Yes           No         31,100    0.0375
 Montana                   Yes           No         34,140    0.0100
 Kentucky                  Yes           No         38,400    0.0200
 North Dakota              No            Yes        31,100    0.0151
 Idaho                     Yes           No         31,100    0.0160
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                               Code
                         State Tax  State      Section
                         Rates      Marginal   or         Form
                         (High)     Tax Rate   Statute    Number
 ______________________________________________________________________

 Federal                    N/A        N/A     48          5692
 North Carolina           0.0775     0.0700    105-129.15  478G
 Georgia                  0.0600     0.0600    48-7-29     IT-CEP
 Oregon                   0.1100     0.0900    316.116     39Z
 Utah                     0.0500     0.0500    59-10-1024  TC-40A
 Rhode Island             0.0990     0.0375    44-57-1     Sch. CR
 Montana                  0.0690     0.0690    15-32-103   ENRG-A
 Kentucky                 0.0600     0.0580    141         5695-K
 North Dakota             0.0399     0.0151    57-38-30    ND-1TC
 Idaho                    0.0780     0.0740    63-3022     39R
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                        Maximum     Tax Before
                        C = Credit      Credit or   Credit or
                        D = Deduction   Deduction   Deduction
 ______________________________________________________________________

 Federal                       C          $1,500      $3,831
 North Carolina                C           2,940       2,127
 Georgia                       C           2,000       1,693
 Oregon                        C           1,500       2,754
 Utah                          C           2,000       1,799
 Rhode Island                  C           1,750       1,167
 Montana                       C           1,500       1,860
 Kentucky                      C             500       2,040
 North Dakota                  C              3%         573
 Idaho                         D          Actual       1,849
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                  Tax
                        Tax After   Savings       Savings as
                        Credit or   From $5,000   Percentage of
                        Deduction   Expenditure   $5,000 Costs
 ______________________________________________________________________

 Federal                  $2,331       $1,500        30.00%
 North Carolina              377        1,750        35.00%
 Georgia                       0        1,693        33.86%
 Oregon                    1,254        1,500        30.00%
 Utah                        549        1,250        25.00%
 Rhode Island                  0        1,167        23.34%
 Montana                     860        1,000        20.00%
 Kentucky                  1,540          500        10.00%
 North Dakota                423          150         3.00%
 Idaho                     1,701          148         2.96%
 ______________________________________________________________________

 *Note that Idaho's deduction is at 40 percent of actual cost, which is
 why the cost savings does not equal the marginal tax rate multiplied
 by the investment.

                             Table 15.
                       Geothermal Heat Pump*

                             $100,000 AGI
 ______________________________________________________________________

                                       State Uses
                                       Federal                State Tax
                        State Uses     Taxable     Taxable    Rates
                        Federal AGI    Income      Income     (Low)
 ______________________________________________________________________

 Federal                   N/A           N/A       $69,500      N/A
 Georgia                   Yes           No         71,400    0.0100
 North Carolina            No            Yes        72,800    0.0600
 Oregon                    Yes           No         70,950    0.0500
 Rhode Island              Yes           No         69,500    0.0375
 Utah                      Yes           No         74,930    0.0500
 Montana                   Yes           No         72,540    0.0100
 Kentucky                  Yes           No         76,800    0.0200
 Idaho                     Yes           No         69,500    0.0160
 North Dakota              No            Yes        69,500    0.0151
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                Code
                         State Tax  State       Section
                         Rates      Marginal    or         Form
                         (High)     Tax Rate    Statute    Number
 ______________________________________________________________________

 Federal                    N/A        N/A     48          5695
 Georgia                  0.0600     0.0600    48-7-29     IT-CEP
 North Carolina           0.0775     0.0700    105-129.15  478G
 Oregon                   0.1100     0.0900    316.116     39Z
 Rhode Island             0.0990     0.0775    44-57-1     Sch. CR
 Utah                     0.0500     0.0500    59-10-1024  TC-40A
 Montana                  0.0690     0.0690    15-32-103   ENRG-A
 Kentucky                 0.0600     0.0600    141         5695-K
 Idaho                    0.0780     0.0780    63-3022     39R
 North Dakota             0.0399     0.0282    57-38-30    ND-1TC
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                        Maximum     Tax Before
                        C = Credit      Credit or   Credit or
                        D = Deduction   Deduction   Deduction
 ______________________________________________________________________

 Federal                       C          $1,500      $9,744
 Georgia                       C           2,000       4,027
 North Carolina                C           2,940       4,884
 Oregon                        C           1,500       5,958
 Rhode Island                  C           1,750       3,019
 Utah                          C           2,000       4,253
 Montana                       C           1,500       4,509
 Kentucky                      C             500       4,274
 Idaho                         D          Actual       4,758
 North Dakota                  C              3%       1,482
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                  Tax
                        Tax After   Savings       Savings as
                        Credit or   From $5,000   Percentage of
                        Deduction   Expenditure   $5,000 Costs
 ______________________________________________________________________

 Federal                  $8,244       $1,500        30.00%
 Georgia                   2,277        1,750        35.00%
 North Carolina            3,134        1,750        35.00%
 Oregon                    4,458        1,500        30.00%
 Rhode Island              1,769        1,250        25.00%
 Utah                      3,003        1,250        25.00%
 Montana                   3,509        1,000        20.00%
 Kentucky                  3,774          500        10.00%
 Idaho                     4,602          156         3.12%
 North Dakota              1,332          150         3.00%
 ______________________________________________________________________

 *Note that Idaho's deduction is at 40 percent of actual cost, which is
 why the cost savings does not equal the marginal tax rate multiplied
 by the investment.

                             Table 16.
                        Photovoltaic (PV)*

                              $50,000 AGI
 ______________________________________________________________________

                                       State Uses
                                       Federal                State Tax
                        State Uses     Taxable     Taxable    Rates
                        Federal AGI    Income      Income     (Low)
 ______________________________________________________________________

 Federal                   N/A           N/A       $31,100      N/A
 Louisiana                 Yes           No         47,469    0.0200
 Hawaii                    Yes           No         36,320    0.0140
 North Carolina            No            Yes        33,400    0.0600
 Georgia                   Yes           No         32,575    0.0100
 Oregon                    Yes           No         35,369    0.0500
 West Virginia             Yes           No         46,000    0.0300
 New York                  Yes           No         35,000    0.0400
 Utah                      Yes           No         24,930    0.0500
 Rhode Island              Yes           No         31,100    0.0375
 Montana                   Yes           No         34,140    0.0100
 Arizona                   Yes           No         34,200    0.0287
 Kentucky                  Yes           No         38,400    0.0200
 New Mexico                Yes           No         30,100    0.0170
 Idaho                     Yes           No         31,100    0.0160
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                Code
                         State Tax  State       Section
                         Rates      Marginal    or         Form
                         (High)     Tax Rate    Statute    Number
 ______________________________________________________________________

 Federal                    N/A        N/A     48          5692
 Louisiana                0.0600     0.0400    47:6030     Sch. F
 Hawaii                   0.1100     0.0760    196-6.5     N-334
 North Carolina           0.0775     0.0700    105-129.15  478G
 Georgia                  0.0600     0.0600    48-7-29     IT-CEP
 Oregon                   0.1100     0.0900    316.116     39Z
 West Virginia            0.0650     0.0650    11-13Z      SECT
 New York                 0.0897     0.0590    606 (g-1)   IT-255
 Utah                     0.0500     0.0500    59-10-1024  TC-40A
 Rhode Island             0.0990     0.0375    44-57-1     Sch. CR
 Montana                  0.0690     0.0690    15-32-401   ENRG-B
 Arizona                  0.0454     0.0288    43-1027     310
 Kentucky                 0.0600     0.0580    141         5695-K
 New Mexico               0.0530     0.0490    7-2-18.14   PIT-CR
 Idaho                    0.0780     0.0740    63-3022     39R
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                        Maximum     Tax Before
                        C = Credit      Credit or   Credit or
                        D = Deduction   Deduction   Deduction
 ______________________________________________________________________

 State                         C          $1,500      $3,831
 Federal                       C          $1,500      $3,831
 Louisiana                     C          12,500       1,215
 Hawaii                        C           5,000       1,875
 North Carolina                C           3,675       2,127
 Georgia                       C          10,500       1,693
 Oregon                        C           1,500       2,754
 West Virginia                 C           2,000       1,935
 New York                      C           5,000       1,652
 Utah                          C           2,000       1,799
 Rhode Island                  C           3,750       1,167
 Montana                       C           1,000       1,860
 Arizona                       C           1,000         927
 Kentucky                      C             500       2,040
 New Mexico                    C           9,000       1,064
 Idaho                         D          Actual       1,849
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                  Tax
                        Tax After   Savings       Savings as
                        Credit or   From $5,000   Percentage of
                        Deduction   Expenditure   $5,000 Costs
 ______________________________________________________________________

 Federal                  $2,331       $1,500        30.00%
 Louisiana                -1,285        2,500        50.00%
 Hawaii                      125        1,750        35.00%
 North Carolina              377        1,750        35.00%
 Georgia                       0        1,693        33.86%
 Oregon                    1,254        1,500        30.00%
 West Virginia               435        1,500        30.00%
 New York                    402        1,250        25.00%
 Utah                        549        1,250        25.00%
 Rhode Island                  0        1,167        23.34%
 Montana                     860        1,000        20.00%
 Arizona                       0          927        18.54%
 Kentucky                  1,540          500        10.00%
 New Mexico                  564          500        10.00%
 Idaho                     1,701          148         2.96%
 ______________________________________________________________________

 *Note the Idaho's deduction is at 40 percent of actual cost, which is
 why the cost savings does not equal the marginal tax rate multiplied
 by the investment. Louisiana's credit is refundable.

                             Table 17.
                        Photovoltaic (PV)*

                             $100,000 AGI
 ______________________________________________________________________

                                       State Uses
                                       Federal                State Tax
                        State Uses     Taxable     Taxable    Rates
                        Federal AGI    Income      Income     (Low)
 ______________________________________________________________________

 State                     Yes           N/A       $31,100    0.0100
 Federal                   N/A           N/A       $69,500      N/A
 Louisiana                 Yes           No         79,956    0.0200
 Georgia                   Yes           No         71,400    0.0100
 Hawaii                    Yes           No         74,720    0.0140
 North Carolina            No            Yes        72,800    0.0600
 Oregon                    Yes           No         70,950    0.0500
 West Virginia             Yes           No         96,000    0.0300
 New York                  Yes           No         76,800    0.0400
 Rhode Island              Yes           No         69,500    0.0375
 Utah                      Yes           No         74,930    0.0500
 Arizona                   Yes           No         72,600    0.0287
 Montana                   Yes           No         72,540    0.0100
 Kentucky                  Yes           No         76,800    0.0200
 New Mexico                Yes           No         69,500    0.0170
 Idaho                     Yes           No         69,500    0.0160
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                Code
                         State Tax  State       Section
                         Rates      Marginal    or         Form
                         (High)     Tax Rate    Statute    Number
 ______________________________________________________________________

 Federal                    N/A        N/A     48          5695
 Louisiana                0.0600     0.0600    47:6030     Sch. F
 Georgia                  0.0600     0.0600    48-7-29     IT-CEP
 Hawaii                   0.1100     0.0825    196-6.5     N-334
 North Carolina           0.0775     0.0700    105-129.15  478G
 Oregon                   0.1100     0.0900    316.116     39Z
 West Virginia            0.0650     0.0600    11-13Z      SECT
 New York                 0.0897     0.0685    606 (g-1)   IT-255
 Rhode Island             0.0990     0.0775    44-57-1     Sch. CR
 Utah                     0.0500     0.0500    59-10-1024  TC-40A
 Arizona                  0.0454     0.0336    43-1027     310
 Montana                  0.0690     0.0690    15-32-401   ENRG-B
 Kentucky                 0.0600     0.0600    141         5695-K
 New Mexico               0.0490     0.0490    7-2-18.14   PIT-CR
 Idaho                    0.0780     0.0780    63-3022     39R
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                        Maximum     Tax Before
                        C = Credit      Credit or   Credit or
                        D = Deduction   Deduction   Deduction
 ______________________________________________________________________

 Federal                       C          $1,500      $9,744
 Louisiana                     C          12,500       2,515
 Georgia                       C          10,500       4,027
 Hawaii                        C           5,000       4,746
 North Carolina                C           3,675       4,884
 Oregon                        C           1,500       5,958
 West Virginia                 C           2,000       5,115
 New York                      C           5,000       4,467
 Rhode Island                  C           3,750       3,019
 Utah                          C           2,000       4,253
 Arizona                       C           1,000       2,141
 Montana                       C           1,000       4,509
 Kentucky                      C             500       4,274
 New Mexico                    C           9,000       2,995
 Idaho                         D          Actual       4,758
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                  Tax
                        Tax After   Savings       Savings as
                        Credit or   From $5,000   Percentage of
                        Deduction   Expenditure   $5,000 Costs
 ______________________________________________________________________

 Federal                  $8,244       $1,500        30.00%
 Louisiana                    15        2,500        50.00%
 Georgia                   2,277        1,750        35.00%
 Hawaii                    2,996        1,750        35.00%
 North Carolina            3,134        1,750        35.00%
 Oregon                    4,458        1,500        30.00%
 West Virginia             3,615        1,500        30.00%
 New York                  3,217        1,250        25.00%
 Rhode Island              1,769        1,250        25.00%
 Utah                      3,003        1,250        25.00%
 Arizona                   1,141        1,000        20.00%
 Montana                   3,509        1,000        20.00%
 Kentucky                  3,774          500        10.00%
 New Mexico                2,495          500        10.00%
 Idaho                     4,602          156         3.12%
 ______________________________________________________________________

 *Note the Idaho's deduction is at 40 percent of actual cost, which is
 why the cost savings does not equal the marginal tax rate multiplied
 by the investment. Louisiana's credit is refundable.

                             Table 18.
                       Small Hydroelectric*

                                $50,000
 ______________________________________________________________________

                                       State Uses
                                       Federal                State Tax
                        State Uses     Taxable     Taxable    Rates
                        Federal AGI    Income      Income     (Low)
 ______________________________________________________________________

 Federal                   N/A           N/A           N/A       N/A
 North Carolina            No            Yes       $33,400    0.0600
 Utah                      Yes           No         24,930    0.0500
 Montana                   Yes           No         34,140    0.0100
 South Carolina            No            Yes        31,100    0.0300
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                Code
                         State Tax  State       Section
                         Rates      Marginal    or         Form
                         (High)     Tax Rate    Statute    Number
 ______________________________________________________________________

 Federal                     N/A        N/A    N/A         N/A
 North Carolina           0.0775     0.0700    105-129.15  478G
 Utah                     0.0500     0.0500    59-10-1024  TC-40A
 Montana                  0.0690     0.0690    15-32-401   ENRG-B
 South Carolina           0.0700     0.0700    3587        TC 38
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                        Maximum     Tax Before
                        C = Credit      Credit or   Credit or
                        D = Deduction   Deduction   Deduction
 ______________________________________________________________________

 Federal                      N/A            N/A         N/A
 North Carolina                C          $3,675      $2,127
 Utah                          C           2,000       1,799
 Montana                       C           1,000       1,860
 South Carolina                C           3,500       1,716
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                  Tax
                        Tax After   Savings       Savings as
                        Credit or   From $5,000   Percentage of
                        Deduction   Expenditure   $5,000 Costs
 ______________________________________________________________________

 Federal                     N/A          N/A           N/A
 North Carolina             $377       $1,750        35.00%
 Utah                        549        1,250        25.00%
 Montana                     860        1,000        20.00%
 South Carolina              858          858        17.16%
 ______________________________________________________________________

 *Note that South Carolina's credit is limited to 50 percnet of the tax.

                             Table 19.
                       Small Hydroelectric*

                               $100,000
 ______________________________________________________________________

                                       State Uses
                                       Federal                State Tax
                        State Uses     Taxable     Taxable    Rates
                        Federal AGI    Income      Income     (Low)
 ______________________________________________________________________

 Federal                   N/A           N/A           N/A       N/A
 North Carolina            No            Yes       $72,800    0.0600
 South Carolina            No            Yes        69,500    0.0300
 Utah                      Yes           No         74,930    0.0500
 Montana                   Yes           No         72,540    0.0100
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                Code
                         State Tax  State       Section
                         Rates      Marginal    or         Form
                         (High)     Tax Rate    Statute    Number
 ______________________________________________________________________

 Federal                     N/A        N/A    N/A         N/A
 North Carolina           0.0775     0.0700    105-129.15  478G
 South Carolina           0.0700     0.0700    3587        TC 38
 Utah                     0.0500     0.0500    59-10-1024  TC-40A
 Montana                  0.0690     0.0690    15-32-401   ENRG-B
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                        Maximum     Tax Before
                        C = Credit      Credit or   Credit or
                        D = Deduction   Deduction   Deduction
 ______________________________________________________________________

 Federal                      N/A            N/A         N/A
 North Carolina                C          $3,675      $4,884
 South Carolina                C           3,500       4,403
 Utah                          C           2,000       4,253
 Montana                       C           1,000       4,509
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                  Tax
                        Tax After   Savings       Savings as
                        Credit or   From $5,000   Percentage of
                        Deduction   Expenditure   $5,000 Costs
 ______________________________________________________________________

 Federal                     N/A          N/A           N/A
 North Carolina           $3,134       $1,750        35.00%
 South Carolina            3,153        1,250        25.00%
 Utah                      3,003        1,250        25.00%
 Montana                   3,509        1,000        20.00%
 ______________________________________________________________________

 *Note that South Carolina's credit is limited to 50 percent of the tax.

                             Table 21.
                   Energy-Efficient Appliances*

                             $100,000 AGI
 ______________________________________________________________________

                                       State Uses
                                       Federal                State Tax
                        State Uses     Taxable     Taxable    Rates
                        Federal AGI    Income      Income     (Low)
 ______________________________________________________________________

 Federal                   N/A           N/A           N/A       N/A
 Michigan                  Yes           No        $42,800    0.0435
 Oregon                    Yes           No         35,369    0.0500
 Virginia                  Yes           No         36,490    0.0200
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                Code
                         State Tax  State       Section
                         Rates      Marginal    or         Form
                         (High)     Tax Rate    Statute    Number
 ______________________________________________________________________

 Federal                     N/A        N/A    45M         N/A
 Michigan                 0.0435     0.0435    206.253     4764
 Oregon                   0.1100     0.0900    316.116     39Z
 Virginia                 0.0575     0.0575    58.1-609.1  ADJ/CG
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                        Maximum     Tax Before
                        C = Credit      Credit or   Credit or
                        D = Deduction   Deduction   Deduction
 ______________________________________________________________________

 Federal                      N/A            N/A         N/A
 Michigan                      C            $150      $1,862
 Oregon                        C             400       2,754
 Virginia                      D             500       1,844
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                  Tax
                        Tax After   Savings       Savings as
                        Credit or   From $5,000   Percentage of
                        Deduction   Expenditure   $5,000 Costs
 ______________________________________________________________________

 Federal                     N/A          N/A           N/A
 Michigan                 $1,712         $150         3.00%
 Oregon                    2,354          400         8.00%
 Virginia                  1,841            3         0.06%
 ______________________________________________________________________

 *Note -- section 45M of the Internal Revenue Code (administered as
 part of section 38, general business credit) permits an
 energy-efficient appliance credit, but it is for manufacturers of
 appliances rather than for consumers. The credit is a specified
 amount for dishwashers ($25 in 2011), clothes washers ($225 in 2011),
 and refrigerators ($150 in 2011).

                             Table 21.
                   Energy-Efficient Appliances*

                             $100,000 AGI
 ______________________________________________________________________

                                       State Uses
                                       Federal                State Tax
                        State Uses     Taxable     Taxable    Rates
                        Federal AGI    Income      Income     (Low)
 ______________________________________________________________________

 Federal                   N/A           N/A           N/A       N/A
 Michigan                  Yes           No        $92,800    0.0435
 Oregon                    Yes           No         70,950    0.0500
 Virginia                  Yes           No         74,940    0.0300
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                Code
                         State Tax  State       Section
                         Rates      Marginal    or         Form
                         (High)     Tax Rate    Statute    Number
 ______________________________________________________________________

 Federal                     N/A        N/A    N/A         45M
 Michigan                 0.0435     0.0435    206.253     4764
 Oregon                   0.1100     0.0900    316.116     39Z
 Virginia                 0.0575     0.0575    58.1-609.1  ADJ/CG
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                        Maximum     Tax Before
                        C = Credit      Credit or   Credit or
                        D = Deduction   Deduction   Deduction
 ______________________________________________________________________

 Federal                      N/A            N/A         N/A
 Michigan                      C            $150      $4,037
 Oregon                        C             400       5,958
 Virginia                      D             500       4,052
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                                  Tax
                        Tax After   Savings       Savings as
                        Credit or   From $5,000   Percentage of
                        Deduction   Expenditure   $5,000 Costs
 ______________________________________________________________________

 Federal                     N/A          N/A           N/A
 Michigan                 $4,037           $0         0.00%
 Oregon                    5,558          400         8.00%
 Virginia                  4,049            3         0.06%
 ______________________________________________________________________

 *Note -- section 45M of the Internal Revenue Code (administered as
 part of section 38, general business credit) permits an
 energy-efficient appliance credit, but it is for manufacturers of
 appliances rather than for consumers. The credit is a specified
 amount for dishwashers ($25 in 2011), clothes washers ($225 in 2011),
 and refrigerators ($150 in 2011).

______________________________________________________________________

Table 22.
Other State Credits and Deductions
Not Using the Federal Tax Code Categories

______________________________________________________________________

Description:

    The residence must be certified to be 50% more energy-efficient than the 1995 mode energy code (MEC) at closing. The home energy ratings system (HERS) is used for certification of potential savings.

Maximum

    5% of the purchase price of the home up to $5,000

Credit/Deduction

    D

State

    Arizona
______________________________________________________________________

Description

    Solar heating for swimming pools
    Solar photovoltaic (PV) phones
    Solar photovoltaic (PV) street lighting
Maximum

    25% of cost up to $1,000 with carryover provision

Credit/Deduction

    C

State

    Arizona
______________________________________________________________________

Description

    Solor hot water heater plumbing stub outs and electric vehicle recharge outlets

Maximum

    $75 each

Credit/Deduction

    C

State

    Arizona
______________________________________________________________________

Description

    Deduction for solar-powered roof vent or fan

Maximum

    50% of the cost up to $1,000

Credit/Deduction

    D

State

    Indiana
______________________________________________________________________

Description

    Credit for purchasing bioheating oil (at least 5% biodiesel)

Maximum

    Credit of 3 cents per gallon up to a maximum credit of $500

Credit/Deduction

    C

State

    Maryland
______________________________________________________________________

Description

    Caulking and weatherstripping an existing structure

Maximum

    Smaller of 25% of cost or $500

Credit/Deduction

    C

State

    Montana
______________________________________________________________________

Description

    Exhaust fans to reduce air conditioning

Maximum

    Smaller of 25% of cost or $500

Credit/Deduction

    C

State

    Montana
______________________________________________________________________

Description

    Glass fireplace doors on existing fireplaces

Maximum

    Smaller of 25% of cost or $500

Credit/Deduction

    C

State

    Montana
______________________________________________________________________

Description

    Heat recovery ventilators (HRV)

Maximum

    Smaller of 25% of cost or $500

Credit/Deduction

    C

State

    Montana
______________________________________________________________________

Description

    Hot-water-restricting shower heads

Maximum

    Smaller of 25% of cost or $500

Credit/Deduction

    C

State

    Montanta
______________________________________________________________________

Description

    Masonry heater

Maximum

    $500

Credit/Deduction

    C

State

    Montana
______________________________________________________________________

Description

    Programmable thermostats

Maximum

    Smaller of 25% of cost or $500

Credit/Deduction

    C

State

    Montana
______________________________________________________________________

Description

    Replace domestic water heater with more efficient model

Maximum

    Smaller of 25% of cost or $500

Credit/Deduction

    C

State

    Montana
______________________________________________________________________

Description

    Replace incandescent lighting with fluorescent or electronic ballast or LED lights

Maximum

    Smaller of 25% of cost or $500

Credit/Deduction

    C

State

    Montana
______________________________________________________________________

Description

    Comprehensive, whole building including passive solar space heat, solar water heat, wind, photovoltaic, and daylighting

Maximum

    Credit is based on square feet of house and the level of certification achieved based on US Green Building Council

Credit/Deduction

    C

State

    New Mexico
______________________________________________________________________

Description

    Credit only for the contractor of new construction incorporating renewable energy and energy-efficient components

Maximum

    Not available to the homeowner or home purchaser

Credit/Deduction

    C

State

    Oklahoma
______________________________________________________________________

Description

    Credit for energy-efficient manufactured homes

Maximum

    $750 must be certified by the South Carolina Energy Office

Credit/Deduction

    C

State

    South Carolina
______________________________________________________________________

Description

    Programmable thermostats

Maximum

    20% of sales tax not to exceed $500

Credit/Deduction

    D

State

    Virginia
______________________________________________________________________

In addition to the incentives listed above, in which the states follow the federal model, Table 22 lists a number of state energy income tax incentives unique to that state or at least not included in the federal model.

Evaluating the Use of
State Energy Tax Credits and Deductions as Incentives

To this point we have illustrated a central problem encountered in attempting to evaluate the effectiveness of state income tax incentives for alternative energy and energy conservation: Income tax incentives designed to encourage a specific taxpayer behavior may be structured in an endless variety of ways, making their relative incentive appeal difficult to measure and compare.

Incentives taking the form of credits or deductions are part of what is referred to as tax expenditures, and widely acknowledged to be difficult to evaluate.28 Those tax expenditures -- an unfortunate term because its meaning to the layperson is quite different from its meaning in public finance29 -- are difficult to focus directly on their intended targets and may thus be less effective than other means of achieving the desired results.

The term "tax expenditure," according to Burman, "refers to departures from the normal tax structure designed to favor a particular industry, activity, or class of persons."30 The GAO lists as examples of tax expenditures "tax exemptions, exclusions, deductions, credits, and deferrals"31 and has criticized their widespread use in the tax code. Effectively, tax expenditures represent the cost -- in lost tax revenue -- from items afforded special tax status and benefiting special groups of taxpayers. As Kaplow points out, these "rules that consciously deviate from tax principles in order to subsidize certain activities and groups" are one source of tax complexity.32

A more general problem with the government's use of energy tax incentives taking the form of credits or deductions, according to Pasquariello, is that these special departures from the general rules "have not been periodically reviewed as are direct expenditures."33 As a result, the GAO says, tax expenditures may not be an effective way to achieve federal goals.34

One solution to this problem, according to Pasquariello, is found in the fact that "many of the tax expenditures now on the books can be easily converted into direct expenditures. . . . This kind of restructuring would unmask the irrationality and fundamental unfairness of many of our tax expenditure programs. [Doing so] would simplify the complexity of the tax system while providing a way to monitor the benefits."35


Conclusion

Our discussion of state income tax credits and deductions as incentives for residential alternative energy and energy conservation investments, including our brief review of the literature, reveals three concerns for which the data and explanations in this paper provide some guidance. The first relates to the inability of governments to track the benefits of tax incentives, including energy income tax credits and deductions. To overcome that problem, some states take steps to administer their credits or deductions in a manner that ensures at least minimal benefit tracking. Louisiana's attempt at accountability, for example, requires taxpayers to include with their claim for a credit on photovoltaic devices a copy of the "modeled array output report using PV Watts Solar System Performance Calculator" and Form R-1082 including the name of the contractor who installed the device and the contractor's Louisiana license number.

Other states, including Georgia,36 New Mexico,37 Oregon,38 Rhode Island,39 and Utah40 tackle the problem of accountability by engaging their state's department of energy or environmental agency in certifying the extent of energy savings. That procedure allows (at least theoretically) a determination of the amount of energy saved per dollar of forgone tax revenue. Although administratively burdensome, those procedures ensure that those claiming the income tax credits have met certain energy production benchmarks. For these few states, at least, income tax credits are issued to taxpayers only after evidence is presented that measurable alternative energy production is occurring. For the federal government and other states, there is no tracking, and that creates an open invitation to tax cheating for taxpayers so inclined. Without such monitoring mechanisms there are serious questions about the effectiveness of energy income tax credits as opposed to direct economic incentives including grants or low-interest loans. We believe that states should use these credits only when they have a mechanism in place for measuring their costs and benefits. The federal government could then evaluate the different methods used by the states and select the most appropriate.

A second concern noted earlier is that the benefits of energy incentives may go to those who would have invested in the alternative energy or energy savings products without the credit or deduction. Because of that problem it is often difficult to know if a tax credit or deduction had its desired effect. Although it may never be possible to obtain a definitive answer to that question, in the case of new technology and particularly alternative energy sources there is a consideration that may mitigate this concern.

When looking at who benefits from tax credits for energy savings and alternative energy investments, it is important to observe that new technology is generally expensive during its inception and early stages of production and use. According to Cohen, "Each product has a cycle of life that contains different stages: introduction, growth, maturity, and decline. This is called the product life cycle." Cohen advises that "in the introductory state of the product life cycle, . . . the organization experiences high costs due to marketing. Manufacturing is generally involved in short production runs of highly skilled labor content and there is overcapacity."41 Because we are in the introductory stage for residential photovoltaic, wind, and geothermal energy production, for example, it may at first be only high-income taxpayers who can afford to buy the necessary equipment (with or without a credit).

In the life cycle of any product it is necessary for the early adopters to pay a premium for a product to enable producers to recoup their research and development costs and design and build less expensive models financed by the higher prices charged to the early adopters. If not for the higher-income taxpayers' willingness to pay these higher initial prices, middle- and lower-income taxpayers would not later be able to afford these new alternative sources of energy. Viewed from that perspective, at least at the outset, offering tax credits -- even if used by those who can afford the more expensive new technology without a subsidy -- can be defended as reasonable public policy as in investment in the future.

"In the growth stage," Cohen says, "the product has established itself and is successful. Sales are continuing to increase and, as a result, other companies are attracted and new competitors will probably be entering the market with their own version of the product."42 Under those conditions, prices come down and the products become more accessible to average homeowners. As the technology becomes more affordable to middle-income taxpayers, however, the emphasis of the tax incentives should shift to that group through income limits on the credit's availability (as is done for the federal earned income tax credit, for example).

A third consideration referred to earlier and related to the second -- but with a subtly different emphasis -- suggests that the benefits of tax credits and deductions go primarily to higher-income taxpayers. That issue, as raised in the literature, may indicate either a moral or a tactical concern. One reason we presented the data here at the $50,000 and $100,000 AGI levels was to evaluate the notion that nonrefundable income tax credits benefit higher-income taxpayers more than lower-income taxpayers. For residential energy credits, at least, that appears not to be the case. In particular, Louisiana has eliminated this problem by making its credit refundable. Other states, including Montana, New Mexico, and New York, allow unused energy credits to be carried forward.

Our examples show that taxpayers at the $50,000 AGI level are generally able to use even nonrefundable credits. Whether taxpayers at the $50,000 AGI level can afford some of the alternative energy investments, however, is another question. If not, the inducement of a tax credit -- to be realized by the taxpayer up to a year after the investment is made -- may not be meaningful; direct grants might be preferable. For the few states that offer tax deductions, there is no question that they benefit taxpayers in higher tax brackets more than those in lower brackets.

Table 23 shows the IRS's breakdown of the section 25 and section 48 energy credit use for specific income ranges.

                             Table 23.
              Federal Residential Energy Credts for 2009
                        Sections 25 and 48*
 ______________________________________________________________________

                                                             AGI
                                All           AGI $0 to      $50,000 to
          Item                  returns       $49,999        $74,999
 ______________________________________________________________________

 Number of tax returns
 claiming credit               6,816,037      1,699,365      1,605,486

 Amount claimed
 (in thousands)               $5,868,082     $1,064,139     $1,265,051

 Amount of credit per
 return                            $861           $626            $788
 ______________________________________________________________________

                           (table continued)
 ______________________________________________________________________

                                             AGI
                               AGI           $100,000       AGI
                               $75,000 to    to             $200,000
          Item                 $99,999       $199,999       or more
 ______________________________________________________________________

 Number of tax returns
 claiming credit               1,292,251      1,772,281      446,654

 Amount claimed
 (in thousands)               $1,107,113     $1,746,794     $684,985

 Amount of credit per
 return                             $857           $986       $1,534
 ______________________________________________________________________

 *Note: IRS SOI Table 2. "All Returns: Tax Liability, Tax
 Credits, and Tax Payments, by Size of Adjusted Gross Income, Tax Year
 2008."

The IRS data show that the absolute dollar benefit per return does increase as taxpayers' income increases. Those with an AGI of $200,000 or more received credits roughly double the size of those for taxpayers with an AGI of $50,000 (788/1,534 = .51). However, as a percentage of income, taxpayers with an AGI of $50,000 to $74,999 enjoyed a return/benefit of 1.5 percent (788/50,000), while taxpayers with an AGI of $100,000 to $199,999 benefited only 0.98 of 1 percent (986/100,000), and for taxpayers with an AGI of $200,000 or more, the benefit provided by the credit is only 0.76 of 1 percent (1,534/200,000) of their income. These results indicate that whether high-income taxpayers benefit more must be answered yes and no: It depends on whether the answer is given in dollars or as a percent of income.

Fifteen years ago Hartzheim reported, "Many states are beginning to evaluate more closely the effects of their state tax credit and incentives programs in an attempt to enable the programs to meet their desired purpose."43 It is difficult to determine how much progress has been made in that direction. The state residential energy credits we evaluated represent the spectrum, from financially significant incentives for some states -- including Louisiana, Georgia, Idaho, Oregon, and Utah -- to mere window dressing for others -- including Michigan and especially Virginia, where the incentive for purchasing energy-efficient appliances is a deduction of 20 percent of the sales tax paid on the purchase. For a $5,000 appliance, the sales tax at 5 percent is $250. A deduction for 20 percent of $250 is $50, which produces a $3 tax savings at the $50,000 AGI level.

We suggest that for any existing or contemplated tax credits, states evaluate the reasons for their use to ensure they do not include the fact that the federal government offers the same incentive or that neighboring states have adopted it. To understand why that is the case, consider the likely success of a business whose primary strategy is copying the actions of its competitors. That business, by definition, can never gain a competitive advantage and will always find itself behind the curve.

Given those overlapping considerations, the fundamental question for government energy policy is what place alternative energy holds in that state's vision of the future. The relative importance of that question, in contrast to other issues, will determine how much money should be allocated to encouraging the use of these technologies. But once the amount of incentive money is determined, the method used for its dissemination must be considered. In offering income tax credits that can be tracked and the amount of new alternative energy generated can be related to the amount of government investment, an argument can be made for their continued use. But if credits are offered blindly, as the federal residential energy credits appear to be -- simply throwing money at the problem -- alternative methods should be sought including grants, low-interest loans, or other mechanisms generally requiring higher administrative costs but allowing more accountability.

The example of prison inmates fraudulently claiming the federal first-time home buyer credit should be a constant reminder to legislatures that resources expended in the design of an incentive program are often worth many times the amounts spent later in attempting to administer a poorly designed program. In 2008, in response to the problem of prisoner tax fraud, President Bush signed the Inmate Tax Fraud Prevention Act of 2008. The perceived need for this law is a dramatic illustration of how a poorly designed tax incentive can encourage waste, fraud, and abuse. If the tax law cannot anticipate and prevent tax cheating among inmates locked up in prison, what chance does it have in its battle with ordinary citizens? In the case of energy-saving tax incentives, we noted earlier that the federal government spent $5.9 billion on residential energy incentives in 2009, but with no mechanism for measuring the energy savings achieved as a result. That states can learn from the federal government's blunders rather than blindly copying them is borne out by the handful of states highlighted in this report that actively monitor energy credits to ensure that tax revenue is spent as intended.


References

    Burman, Leonard E., 2003, "Is the Tax Expenditure Concept Still Relevant?" National Tax Journal, vol. 56, no. 3 (September).

    Cohen, William A., 2001, The Marketing Plan, 3rd ed., New York: John Wiley & Sons.

    Feld, Lars P., and Bruno S. Frey., 2007, "Tax Compliance as the Result of a Psychological Tax Contract: The Role of Incentives and Responsive Regulation," Law & Policy, vol. 29, no. 1 (January).

    Fox, John O., 2001, If Americans Really Understood the Income Tax: Uncovering Our Most Expensive Ignorance, Boulder, Colo.: Westview Press.

    Government Accountability Office, 2005, "Government Performance and Accountability: Tax Expenditures Represent a Substantial Federal Commitment and Need to Be Reexamined," GAO-05-690 (September).

    Hand, Learned, 1979, The Bill of Rights, New York: Atheneum.

    Hartzheim, Lori A., 1996-1997, "State Tax Incentives: Headed in the Right Direction," Journal of State Taxation, vol. 15, no. 51.

    House of Representatives, 2007, Testimony before the Committee on the Budget, statement of Michael Brostek, director, tax issues, strategic issues, GAO, "Tax Compliance: Multiple Approaches Are Needed to Reduce the Tax Gap," GAO-07-488T. (February 16).

    Ihlanfeldt, Keith R., 1995, "Ten Principles for State Tax Incentives," Economic Development Quarterly, vol. 9, no. 4 (November).

    Kaplow, Louis, 1996, "How Tax Complexity and Enforcement Affect the Equality and Efficiency of the Income Tax," National Tax Journal, vol. 49, no. 1 (March).

    Lancaster, Kathryn A., Michael R. Kinney, and Jack Robison, 2001, "Evidence on the Effectiveness of Using Tax Credits to Promote Energy Conservation," Oil, Gas & Energy Quarterly, vol. 50, no. 2 (December).

    Pasquariello, Ronald, 1985, Tax Justice: Social and Moral Aspects of American Tax Policy, Lanham, Md.: University Press of America Inc.

    Pitt, Robert E., and James L. Wittenbach, 1981, "Tax Credits as a Means of Influencing Consumer Behavior," Journal of Consumer Research, vol. 8 no. 3 (December).

    Treasury Inspector General for Tax Administration, 2010, "Significant Problems Still Exist With Internal Revenue Service Efforts to Identify Prisoner Tax Refund Fraud," Reference Number: 2011-40-009 (December 29).

    Treasury Inspector General for Tax Administration, 2011, "Administration of the First-Time Homebuyer Credit Indicates a Need for Improved Controls Over Refundable Credits," Reference No. 2011-41-035 (March 31).

    Weiner, Jennifer, 2009, "State Business Tax Incentives: Examining Evidence of Their Effectiveness," New England Economic Indicators (Fourth Quarter).


                                  Appendix
                    How Sample States Calculate Residential
                        Energy Credit and Deductions
 _____________________________________________________________________________

                                 Arizona

 Residential Solar and Wind Energy        A credit of 25% of cost up to a
 System Tax Credit                        maximum credit of $1,000.

                                 Georgia

 Clean Energy Property Credit             A credit of 35% of the costs with
                                          the following credit limits: solar
                                          water heat up to $2,500; PV, active
                                          space heating, wind energy up to
                                          $10,500; Energy Star certified
                                          geothermal heat pump, $2,000.
                                          Requires preapproval by the Georgia
                                          Environmental Finance Authority.

                                 Hawaii

 Renewable Energy Technologies Credit     Solar systems for hot water are
                                          eligible for a credit of 35% of
                                          cost up to a maximum credit of
                                          $2,250. Solar residential heating
                                          systems are eligible for a credit
                                          of 35% of cost up to a maximum
                                          credit of $5,000. Wind-powered
                                          energy systems are eligible for a
                                          credit of 20% of cost up to a
                                          maximum credit of $1,500.

                                  Idaho

 Alternative Energy Device Deduction      The full amount is deductible at
                                          the rate of 40% in the first year
                                          and 20% in subsequent years.
                                          Included are systems using solar
                                          radiation, wind, or geothermal
                                          resources to provide heating or
                                          cooling or to generate electricity,
                                          a natural gas or propane unit that
                                          replaces a non-certified wood
                                          stove, or an EPA-certified wood
                                          stove replacing a non-certified
                                          wood stove.

                                Kentucky

 Energy-Efficient Products Tax Credit     A credit of 30% of the cost up to a
                                          maximum credit of $500 for solar
                                          space heat, wind generation, or
                                          solar water heating system.

                                Louisiana

 Individual Wind or Solar Energy          The credit is 50% of the first
 Income Tax Credit                        $25,000 of the cost of each system
                                          for solar water heat, solar space
                                          heat, photovoltaic, or wind or
                                          solar pool heating. Any excess
                                          credit is  refundable.

                              Massachusetts

 Residential Renewable Energy             The credit is 15% of the cost of
 Tax Credit                               solar heating or cooling or wind
                                          energy. Cost must be reduced by
                                          federal credits ($1,500 for 2010)
                                          with a maximum credit of $1,000.

                                Michigan

 Energy-Efficient Home Improvements       A credit of 10% of the cost up to
 Tax Credit                               $75 (or $150 on joint return) for
                                          purchase of energy-efficient
                                          clothes washers, dishwashers, water
                                          heaters, furnaces, building
                                          insulation, and windows. Limited to
                                          taxpayers with income under $37,500
                                          ($75,000 for joint returns).

                                 Montana

 Alternative Energy System Credit,        Up to a maximum credit of $500 (per
 Energy Conservation Installation         spouse) of the cost of an
 Credit, and Geothermal System Credit     alternative energy system (ENRG-B),
                                          including biomass heating, solar
                                          heating, solar hot water, wind, and
                                          photovoltaic systems. Energy
                                          conservation (ENRG-C) provides a
                                          credit of 25% of the cost up to a
                                          maximum credit of $500 per spouse.
                                          The geothermal credit is up to a
                                          maximum of $1,500 and any unused
                                          credit may be carried forward.

                               New Mexico

 Solar Market Development Credit          A credit of 10% of the cost up to a
                                          maximum credit of $9,000 is allowed
                                          for either a solar thermal or
                                          photovoltaic system installed in a
                                          residence, business, or
                                          agricultural enterprise. The credit
                                          must be certified on Form RPD-41317
                                          by the Energy, Minerals and Natural
                                          Resources Department. Unused
                                          credits may be carried forward for
                                          10 years.

                                New York

 Solar Energy System Equipment            A credit of 25% of the cost up to a
 Tax Credit                               maximum credit of $5,000 determined
                                          by multiplying the number of watts
                                          by $6 for residential use. The
                                          systems must have a capacity of
                                          10kW and be part of a net-metering
                                          arrangement connected to the grid.
                                          Unused credits may be carried
                                          forward for five years.

                             North Carolina

 Renewable Energy Property                A credit for 35% of the cost
 Investment Credit                        limited to the following credit
                                          amounts: $1,400 for solar water
                                          heating, $3,500 for solar energy
                                          equipment for active space heating,
                                          $8,400 for geothermal heat pump,
                                          and $10,500 for other including
                                          wind and hydroelectric.

                                 Oregon

 Residential Energy Tax Credit            The maximum amount of the credit
                                          depends on the type of energy
                                          device and is based on an estimate
                                          of how much energy the system will
                                          save in the first year. Category
                                          two alternative energy devices,
                                          which include solar electric, wind,
                                          and fuel cell systems, are eligible
                                          for a credit of up to $3 per watt
                                          of output ($2 for wind), not to
                                          exceed $1,500 except fuel cell and
                                          wind turbines where the maximum is
                                          $6,000 spread over four years.
                                          Category one devices are eligible
                                          for a credit of up to $1,500 and
                                          include solar water heaters,
                                          ground-source heat pumps,
                                          energy-efficient appliances and
                                          premium efficiency wood or pellet
                                          stoves. Biofuel systems and
                                          appliances have lower limits.

                              Rhode Island

 Renewable Energy System Tax Credit       Credit for 25% of the cost of
                                          geothermal, wind, photovoltaic,
                                          solar space heating, or solar water
                                          heating. Administered by the Rhode
                                          Island Office of Energy Resources.
                                          For costs up to $7,000, the maximum
                                          credit is $1,750 and $3,750 for
                                          systems costing more than $15,000.

                             South Carolina

 Solar Energy and Small Hydropower        The maximum credit is 25% of the
 Tax Credit                               cost up to 50% of the tax liability
                                          or $3,500, whichever is less.

                                  Utah

 Residential Renewable Energy System      A 25% credit up to a maximum credit
 Individual Tax Credit                    of $2,000 for solar, hydro energy,
                                          geothermal, or wind energy system.
                                          Net metering is permitted.

                              West Virginia

 Residential Solar Energy Tax Credit      A credit for up to 30% of the cost
                                          of a solar system with a maximum
                                          credit of $2,000. For passive solar
                                          heating, photovoltaic system, or
                                          domestic solar water heating.
FOOTNOTES

1 Learned Hand, The Bill of Rights (New York: Atheneum, 1979), p. 13.

2 Lori A. Hartzheim, "State Tax Incentives: Headed in the Right Direction," Journal of State Taxation, vol. 15, no. 51 (1996-1997).

3 Treasury Inspector General for Tax Administration, "Significant Problems Still Exist With Internal Revenue Service Efforts to Identify Prisoner Tax Refund Fraud," Dec. 29, 2010, Reference Number: 2011-40-009. The Inmate Tax Fraud Prevention Act of 2008, signed October 15, 2008, provides the IRS with the authority to disclose to the head of the Federal Bureau of Prisons information on prisoners who have filed or facilitated the filing of a false tax return.

4 Treasury Inspector General for Tax Administration, "Administration of the First-Time Homebuyer Credit Indicates a Need for Improved Controls Over Refundable Credits," Reference No. 2011-41-035, Mar. 31, 2011, p. 28.

5 A useful resource for those interested in state renewable energy resource data is the website maintained by the U.S. Department of Energy in conjunction with other interested agencies. The Database of State Incentives for Renewables and Efficiency provides links to each state and summaries of state energy incentive policies. See http://www.dsireusa.org/.

6 The same argument is made by Robert E. Pitt and James L. Wittenbach, "Tax Credits as a Means of Influencing Consumer Behavior," Journal of Consumer Research, vol. 8 no. 3 (Dec. 1981).

7 Senate Committee on Finance, news release, Mar. 30, 2011. Opening Statement of U.S. Sen. Max Baucus, D-Mont., "Regarding the Effectiveness of Tax Incentives."

8 Note that within a given type of alternative energy, like solar, there can be dramatic differences between the states as to what is required. For example, some states require that the system be integrated with the local utility's grid in a net metering program. In Louisiana, for example:


    The credit provided by R.S. 47:6030 is only allowed for complete and functioning wind energy systems or solar energy systems. Eligible wind energy systems under the tax credit include systems designed to produce electrical energy and systems designed to produce mechanical energy through blades, sails, or turbines. Eligible solar electric systems under the tax credit include grid-connected net metering systems, grid-connected net metering systems with battery backup, stand alone alternating current (AC) systems and stand alone direct current (DC) systems, designed to produce electrical energy.

9 Jennifer Weiner, "State Business Tax Incentives: Examining Evidence of Their Effectiveness," New England Economic Indicators (Fourth Quarter 2009).

10 GAO, "Government Performance and Accountability: Tax Expenditures Represent a Substantial Federal Commitment and Need to Be Reexamined," GAO-05-690 (Sept. 2005), p. 50.

11 Pitt and Wittenbach, supra note 7.

12 Id.

13 Kathryn A. Lancaster, Michael R. Kinney, and Jack Robison, "Evidence on the Effectiveness of Using Tax Credits to Promote Energy Conservation," Oil, Gas & Energy Quarterly, vol. 50, no. 2 (Dec. 2001). The issue of tax incentives benefiting higher-income taxpayers has been discussed by a number of writers. According to John Fox, a critic of the tax expenditure system, "Congress undermines the effectiveness of progressive tax rates by allowing so much income of middle- and upper-income taxpayers . . . to escape status as taxable income." John O. Fox, If Americans Really Understood the Income Tax: Uncovering Our Most Expensive Ignorance (Boulder, Colo.: Westview Press, 2001).

14 Keith R. Ihlanfeldt, "Ten Principles for State Tax Incentives," Economic Development Quarterly, vol. 9 no. 4 (Nov. 1995): 339-355.

15 Former Nebraska Sen. Don Wesley, "Myths and Realities of Economic Development Incentives: Who's Giving Away the Store? Revisited," State Tax Notes, Sept. 20, 1993 or 93 STN 185-18.

16 Lars P. Feld and Bruno S. Frey, "Tax Compliance as the Result of a Psychological Tax Contract: The Role of Incentives and Responsive Regulation," Law & Policy, vol. 29, no. 1 (Jan. 2007).

17 In evaluating insulation, for example, the specific R value is the key. The code also provides energy ratings applicable to furnaces, water heaters, and other residential property expenditures in numerical form in units of measurement employed by the particular industry. Electric heat pumps, for example, are graded in terms of a heating seasonal performance factor, a seasonal energy efficiency ratio value, and an energy efficiency ratio. The contractor or dealer selling or installing the item should be able to document the item's ratings and their relation to those of the International Energy Conservation Code, and the taxpayer should retain this documentation in his or her records. The IRS issued Notice 2009-53 that allows manufacturers to certify that their products meet the new standards. For example, not all Energy Star qualified products qualify for a tax credit. For detailed information about qualifying improvements, see the United States Department of Energy's Energy Star website and the Energy Star Frequently Asked Questions site. Available at http://www.dsireusa.org/incentives/index.cfm?state=us&EE=0&re=1.

18 Although $5,000 may seem too high in the case of insulation and too low in the case geothermal heat pumps, the comparisons are made using percentages, so it is the relative tax savings that is the focus of the study.

19 Fox, supra note 14, p. 49.

20 Id.

21 For 2009 the Census Bureau reported that the median household income was $49,777. "Income, Poverty, and Health Insurance Coverage in the United States: 2009," available at http://www.census.gov/prod/2010pubs/p60-238.pdf.

22 National Association of Realtors, 2010, "Median Sales Price of Existing Single-Family Homes for Metropolitan Areas."

23 Also, the IRS categorizes taxpayers in terms of AGI ranges. The $50,000-$60,000 AGI range includes more taxpayers than any other single income range in the IRS scheme.

24 Among the states in this study, only New York has a standard deduction that is larger than the federal standard deduction ($15,000).

25 The mix between the components is not relevant for this discussion as the point is to ensure that any new energy incentive cost incurred would increase the amount of itemized deductions by the amount spent.

26 For specific amounts and calculations, see the IRS Statistics of Income Bulletin for 2008, Table 2.1, "Returns With Itemized Deductions: Sources of Income, Adjustments, Itemized Deductions by Type, Exemptions, and Tax Items, by Size of Adjusted Gross Income, Tax Year 2008." Taxpayers itemizing deductions numbered 48,167,223. The AGI for those taxpayers was $5.73 trillion, resulting in an average AGI of about $119,000. Using the same approach, it was determined that the average total itemized deductions for this average taxpayer was $27,640, which is about 23.2 percent of $119,000.

27 American Recovery and Reinvestment Act of 2009.

28 See, for example, Fox, supra note 14.

29 "Tax expenditure" is the term used by economists and legislators, but it is an unfortunate term because its meaning to the average taxpayer implies an outlay of previously collected tax revenue rather than a reduction in tax revenue.

30 Leonard E. Burman, "Is the Tax Expenditure Concept Still Relevant?" National Tax Journal, vol. 56, no. 3 (Sept. 2003): 1-20.

31 House of Representatives, testimony before the Committee on the Budget, statement of Michael Brostek, director, tax issues, strategic issues, GAO, "Tax Compliance: Multiple Approaches Are Needed to Reduce the Tax Gap," GAO-07-488T (Feb. 16, 2007), p. 11.

32 Louis Kaplow, "How Tax Complexity and Enforcement Affect the Equality and Efficiency of the Income Tax," National Tax Journal, vol. 49, no. 1 (Mar. 1996): 135-150.

33 Ronald Pasquariello, Tax Justice: Social and Moral Aspects of American Tax Policy (Lanham, Md.: University Press of America Inc., 1985), p. 94.

34 Government Accountability Office, "Government Performance and Accountability: Tax Expenditures Represent a Substantial Federal Commitment and Need to Be Reexamined," GAO-05-690 (Sept. 2005), p. 50.

35 Pasquariello, supra note 34, at p. 96

36 The requirements for applying for the 35 percent Georgia clean energy property tax credit include:


    Step One: Install the technology and submit a pre-application online for the Clean Energy Property Tax Credit. Step Two: Receive confirmation from Georgia Environmental Finance Authority (GEFA) that your technology has been approved. Please review and confirm that the information in the Pre-Application Confirmation is accurate and complete. Step Three: Complete the IT-CEP-AP Form, attach it to the GEFA Pre-Application Confirmation and submit both documents to the DOR.

37 New Mexico requires its Solar Market Development Tax Credit to be certified by the Energy, Mines, and Natural Resources Department for solar thermal and photovoltaic systems.

38 Oregon requires taxpayers to apply for residential energy credits through the Oregon Department of Energy website by completing an Application and Verification Form for Residential Energy Tax Credit Certification.

39 The Rhode Island residential energy credits are administered by the Rhode Island Office of Energy Resources.

40 The Utah energy tax credit certification is administered by the Utah Department of Natural Resources.

41 William A. Cohen, The Marketing Plan, 3rd ed. (New York: John Wiley & Sons, 2001), pp. 48-49.

42 Id.

43 Lori A. Hartzheim, "State Tax Incentives: Headed in the Right Direction," Journal of State Taxation, vol. 15, no. 51 (1996-1997).


END OF FOOTNOTES


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