102ND GENERAL ASSEMBLY
State of Illinois
2021 and 2022
HB5818

 

Introduced 11/16/2022, by Rep. Michael J. Zalewski

 

SYNOPSIS AS INTRODUCED:
 
New Act
35 ILCS 5/240 new

    Creates the Hydrogen Fuel Replacement Tax Credit Act. Provides that, for tax years ending on or after December 31, 2023, an income tax credit is allowed to eligible taxpayers in an amount equal to $1 per kilogram of eligible zero-carbon hydrogen used by the eligible taxpayer during the tax year for which a credit is sought. Provides for additional credits if the use of the zero-carbon hydrogen by the eligible taxpayer occurs in an environmental justice community or the eligible taxpayer uses contractors or employs labor at a project location in an equity investment eligible community. Provides that the total amount of tax credits to be allocated by the Department of Revenue to taxpayers for eligible zero-carbon hydrogen use occurring in the tax year ending during that State fiscal year shall not exceed $100,000,000, plus the amount of tax credits that were available to be allocated for eligible zero-carbon hydrogen use in the tax year ending during the prior State fiscal year but were not allocated. Effective immediately.


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A BILL FOR

 

HB5818LRB102 29181 HLH 41125 b

1    AN ACT concerning revenue.
 
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
 
4    Section 1. Short title. This Act may be cited as the
5Hydrogen Fuel Replacement Tax Credit Act.
 
6    Section 5. Legislative findings; purpose. The General
7Assembly finds that:
8        (1) the health, welfare, and prosperity of all
9    Illinois citizens require that the State of Illinois act
10    to reduce carbon emissions and other air pollutants in the
11    State;
12        (2) the State currently invests in a variety of
13    strategies to reduce carbon emissions and other air
14    pollutants, including, but not limited to, strategies that
15    encourage the use of renewable energy, nuclear energy,
16    energy efficient processes, and low-emission vehicles;
17        (3) zero-carbon hydrogen can be produced through the
18    electrolysis of water using electricity generated by
19    emissions-free energy sources or through methods involving
20    carbon capture and sequestration; and
21        (4) replacing fossil fuels with zero-carbon hydrogen
22    will reduce carbon emissions and other air pollutants and
23    benefit the environment and public health of this State.

 

 

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1    This Act is intended to encourage the replacement of
2fossil fuels with zero-carbon hydrogen for the purposes of
3promoting decarbonization and improving the State's air
4quality.
 
5    Section 10. Definitions. As used in this Act:
6    "Attestation" means a statement that is made under penalty
7of perjury by a producer under Section 13.
8    "Department" means the Department of Revenue.
9    "Eligible taxpayer" means a taxpayer that:
10        (1) is subject to subsections (a) and (b) of Section
11    201 of the Illinois Income Tax Act;
12        (2) has eligible zero-carbon hydrogen use for which
13    the producer has provided an attestation under Section 13;
14        (3) complies with subsection (e) of Section 15 if
15    applicable; and
16        (4) is allocated credits by the Department under
17    Section 25.
18    "Eligible zero-carbon hydrogen use" means the consumption,
19in Illinois, of zero-carbon hydrogen.
20    "Environmental attribute credit" means a renewable energy
21credit, zero-emission credit, or carbon mitigation credit, as
22those terms are defined in Sections 1-10 and 1-75 of the
23Illinois Power Agency Act, or any other environmental
24attribute credit tracked by the Generation Attribute Tracking
25System run by PJM Interconnection, LLC.

 

 

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1    "Environmental justice community" has the meaning provided
2in the Illinois Power Agency's long-term renewable resources
3procurement plan.
4    "Producer" means a zero-carbon hydrogen producer.
5    "Renewable energy resource" has the same meaning as
6provided in Section 1-10 of the Illinois Power Agency Act as
7that Act exists on the effective date of this Act.
8    "Zero-carbon hydrogen" means hydrogen that is electrolyzed
9using electricity generated by a zero-emission facility or a
10renewable energy resource or hydrogen that is produced by a
11process that results in a lifecycle greenhouse gas emissions
12rate of less than 0.45 kilograms of CO2e per kilogram of
13hydrogen.
14    "Zero-emission facility" has the same meaning as provided
15in Section 1-10 of the Illinois Power Agency Act as that Act
16exists on the effective date of this Act.
 
17    Section 13. Attestation required. Each taxpayer seeking
18credits under this Act shall submit with its application for
19credits under this Act an attestation from the producer, made
20under penalty of perjury, that the producer has retired
21environmental attribute credits associated with generation
22from a zero-emission facility or a renewable energy resource
23during each hour in which the hydrogen for which a tax credit
24is claimed is produced, in an amount at least as great as the
25energy consumed in that hour for production of the volume of

 

 

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1hydrogen for which a tax credit is claimed. In so attesting,
2the producer may credit a portion of a monthly attribute
3certificate to a specific hour within that month in an amount
4equal to the generation quantity reflected in the certificate,
5multiplied by the ratio of the zero-emission facility's or
6renewable energy resource's total generation in that hour to
7its total monthly generation.
 
8    Section 15. Allowable credit.
9    (a) For tax years ending on or after December 31, 2023, a
10credit is allowed against the taxes imposed on an eligible
11taxpayer under subsections (a) and (b) of Section 201 of the
12Illinois Income Tax Act in an amount equal to $1 per kilogram
13of eligible zero-carbon hydrogen used by the eligible taxpayer
14during the tax year for which a credit is sought.
15    (b) The allowable credit provided in subsection (a) of
16this Section shall be increased by $0.15 per kilogram of
17eligible zero-carbon hydrogen if the use of the zero-carbon
18hydrogen by the eligible taxpayer occurs in an environmental
19justice community.
20    (c) The allowable credit provided in subsection (a) of
21this Section shall be increased by $0.15 per kilogram of
22eligible zero-carbon hydrogen if the eligible taxpayer uses
23contractors or employs labor at a project location in an
24equity investment eligible community, as defined in Section
255-5 of the Energy Transition Act on the effective date of this

 

 

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1Act, to convert existing equipment or install new equipment to
2enable eligible zero-carbon hydrogen use for which a credit is
3claimed under this Act.
4    (d) An eligible taxpayer may not earn tax credits for
5eligible zero-carbon hydrogen use in an amount that exceeds
6the amount of tax credit allocated to it under Section 25. The
7credit or credits may not reduce the taxpayer's liability to
8less than zero. An eligible taxpayer may carry forward any tax
9credit that has been earned but not used (or transferred
10pursuant to Section 35) for a period of up to 5 tax years after
11the last tax year in which a credit was earned by that taxpayer
12for eligible zero-carbon hydrogen use. Unused credits that are
13not transferred pursuant to Section 35 shall expire at the end
14of this 5-year carryforward period.
15    (e) Labor performed on or after the effective date of this
16Act to convert the eligible taxpayer's existing equipment or
17install for the eligible taxpayer new equipment to enable
18eligible zero-carbon hydrogen use for which a credit is
19claimed under this Act shall be performed by general
20contractors that enter into a project labor agreement, as
21defined by the Illinois Power Agency Act, prior to
22construction. The project labor agreement shall be filed with
23the Department. At a minimum, the project labor agreement must
24provide the names, addresses, and occupations of the owner of
25the facilities and the individuals representing the labor
26organization employees participating in the project labor

 

 

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1agreement consistent with the Project Labor Agreements Act.
2The agreement must also specify the terms and conditions as
3defined by the Illinois Power Agency Act. Any information
4submitted pursuant to this subsection (e) shall be considered
5commercially sensitive information.
 
6    Section 20. Credit availability. Beginning with the State
7fiscal year ending June 30, 2024, and in each subsequent State
8fiscal year, the total amount of tax credits to be allocated by
9the Department to taxpayers for eligible zero-carbon hydrogen
10use occurring in a tax year ending during that State fiscal
11year shall not exceed $100,000,000, plus the amount of tax
12credits that were available to be allocated for eligible
13zero-carbon hydrogen use in the tax year ending during the
14prior State fiscal year but were not allocated.
 
15    Section 25. Credit allocation by the Department.
16    (a) Taxpayers shall notify the Department, by January 1,
172023, of the dollar amount of credit the taxpayer estimates it
18will earn for eligible zero-carbon hydrogen use in tax years
19ending on or after December 31, 2023 and ending on or before
20June 30, 2024. For tax years ending on or after July 1, 2024,
21taxpayers shall notify the Department of the dollar amount of
22credit the taxpayer estimates it will earn for eligible
23zero-carbon hydrogen use by January 1 immediately preceding
24the first day of the fiscal year in which the tax year ends.

 

 

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1    (b) The Department shall notify each taxpayer of the
2dollar amount of credit allocated to that taxpayer for
3zero-carbon hydrogen use. That notification shall occur by
4March 1 following the date on which the taxpayer notifies the
5Department of its estimated zero-carbon hydrogen use under
6subsection (a). The taxpayer must notify the Department within
730 days after the notification by the Department under this
8subsection (b) if it wishes to surrender its allocation.
9    (c) The Department shall not allocate any credit under
10this Act to a taxpayer for a tax year that ends on or after
11December 31, 2032 if the taxpayer has not previously claimed a
12credit under this Act for eligible zero-carbon hydrogen use.
13    (d) Notwithstanding any other provision of this Section or
14Section 30, the Department shall not allocate credits under
15this Act to a taxpayer for more than 10 years.
16    (e) The amount of credit allocated to a taxpayer by the
17Department in subsection (b) of this Section shall be the
18maximum credit that the taxpayer is permitted to earn for the
19tax year ending in the State fiscal year for which credits are
20allocated.
21    (f) In years when the total allocation of credits sought
22by taxpayers exceeds the available credits to be allocated to
23all taxpayers under Section 20, a taxpayer that fails to earn
24credit for eligible zero-carbon hydrogen use for at least 90%
25of the credit allocated to that taxpayer shall pay a penalty
26equal to the dollar amount of tax credit allocated but

 

 

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1unearned. This subsection shall not apply if a taxpayer's
2failure to use its full allocation of credits is due to an
3extraordinary event that was unforeseen at the time of the
4requested allocation under subsection (a) of this Section or
5the 30-day surrender period in subsection (b) of this Section,
6such as an unexpected outage of the generator providing
7electricity used to produce zero-carbon hydrogen, an
8unexpected outage of the hydrogen production facility, or an
9unexpected outage of the taxpayer's facility using the
10zero-carbon hydrogen.
11    (g) Except as provided in Section 35, an allocation may
12not be transferred, sold, or otherwise conveyed, nor may an
13allocation be rolled forward to a subsequent year.
 
14    Section 30. Prioritization of tax credit allocation. If
15the total amount of tax credits sought by taxpayers under
16Section 25 exceeds the total amount of tax credits that are
17allowed to be allocated under Section 20, the Department shall
18prioritize allocation as follows:
19        (1) first, tax credits shall be allocated to eligible
20    taxpayers participating in, or purchasing hydrogen or
21    electricity from participants in, a United States
22    Department of Energy Hydrogen Hub for their associated
23    eligible zero-carbon hydrogen use;
24        (2) next, any remaining credits shall be allocated to
25    eligible taxpayers who previously received a credit

 

 

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1    allocation and who engaged in eligible zero-carbon
2    hydrogen use in the prior calendar year, in an amount
3    equal to the most recent allocation; however, if there are
4    insufficient remaining credits available, then priority
5    shall be given to such eligible taxpayers based on the
6    amount of eligible zero-carbon hydrogen they used in the
7    prior calendar year, in order from greatest to least; and
8        (3) finally, any remaining credits for the fiscal year
9    shall be allocated to taxpayers in proportion to their
10    requested allocation, excluding any amount already
11    allocated to a taxpayer pursuant to subsections (1) and
12    (2) of this Section.
 
13    Section 35. Transfer of credits.
14    (a) Any eligible taxpayer earning tax credits under this
15Act (referred to in this Section as the assignor), which tax
16credits have been allocated and earned but not yet used by the
17eligible taxpayer against its tax liability for any tax year
18and which have not expired, may sell, assign, convey, or
19otherwise transfer such credits. The taxpayer acquiring the
20credits (referred to in this Section as the assignee) may use
21the amount of the acquired credits against the tax imposed
22under subsections (a) and (b) of Section 201 of the Illinois
23Income Tax Act for the tax year in which the assignee acquired
24the credit and may carry forward any unused credit for 5 tax
25years after the tax year in which the assignee acquired the

 

 

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1credit.
2    (b) The Department shall certify the eligibility of the
3credit to be transferred by the assignor upon assignor's
4application to the Department. The application shall set forth
5the hydrogen producer's name and attestation, the amount of
6all credits earned and previously used by the assignor, the
7amount of all credits earned and unused by the assignor, the
8amount of credits proposed to be transferred, and the
9assignee's name and tax identification number. The Department
10shall thereafter certify whether the amount of credits
11proposed to be transferred to the assignee is available to the
12assignor.
 
13    Section 40. Severability. If any provision of this Act or
14its application to any person or circumstance is held invalid,
15the invalidity of that provision or application does not
16affect other provisions or applications of this Act that can
17be given effect without the invalid provision or application.
 
18    Section 900. The Illinois Income Tax Act is amended by
19adding Section 240 as follows:
 
20    (35 ILCS 5/240 new)
21    Sec. 240. Hydrogen fuel replacement tax credits.
22    (a) For tax years ending on or after December 31, 2023 and
23prior to January 1, 2043, an eligible taxpayer who qualifies

 

 

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1for a credit under the Hydrogen Fuel Replacement Tax Credit
2Act is entitled to a credit against the taxes imposed under
3subsections (a) and (b) of Section 201 of this Act as provided
4in that Act. If the eligible taxpayer is a partnership or
5Subchapter S corporation, the credit shall be allowed to the
6partners or shareholders in accordance with the determination
7of income and distributive share of income under Sections 702
8and 704 and Subchapter S of the Internal Revenue Code.
9    (b) If the amount of any tax credit awarded under this
10Section exceeds the qualified taxpayer's income tax liability
11for the year, the excess amount may be carried forward as
12provided in the Hydrogen Fuel Replacement Tax Credit Act.
13    (c) The Department shall allocate available credit to
14taxpayers in accordance the rules set forth in the Hydrogen
15Fuel Replacement Tax Credit Act.
16    (d) A sale, assignment, or transfer of the tax credit may
17be made by the taxpayer earning the credit in accordance with
18the rules in the Hydrogen Fuel Replacement Tax Credit Act.
19    (e) The Department shall certify the available credit for
20transfer by an assignor in accordance with the rules set forth
21in the Hydrogen Fuel Replacement Tax Credit Act.
22    (f) The Department may adopt rules to implement the
23Hydrogen Fuel Replacement Tax Credit Act.
 
24    Section 999. Effective date. This Act takes effect upon
25becoming law.