Oregon DEQ Pollution Control Fac by ps94506


									Pollution Control Facilities Tax Credit
    Program Report through December 31, 2006
Oregon Department of Environmental Quality
          811 SW Sixth Avenue
           Portland, OR 97204

           Report Prepared by:
            Maggie Vandehey
             (503) 229-6878

        Report date: March 1, 2007
This report provides the most frequently requested background information and data
for the Pollution Control Facilities Tax Credit (PCTC) program. Unless otherwise
stated, the data in this report represents issued tax credits from January 1, 1997
through December 31, 2006.

For the years 1997 through 2006, this report will not match previous reports. The
data is limited to approved tax credits. It does not include data for certificate
revocations, reissues or transfers; or data for the Pollution Prevention, Reclaimed
Plastics and Truck Engine Tax Credits. Data prior to 1997 is static.


  1      Legislative Summary                                                            3

  2      Tax Expenditure Liability by Year                                              6

  3      Illustration of How Certification in One Year Could Impact State Revenues      7

  4      Tax Credits by Filing Method                                                   8

  5      Top PCTC Beneficiaries (Over One Million Dollars)                              9

  6      Tax Credits by Economic Areas of the State                                    10

  7      Tax Credits by Facility County                                                11

  8      Tax Credits by Pollution Control Purpose                                      12

  9      Tax Credits by Media                                                          14

  10     Tax Credits by Applicable Percentage                                          21

  11     Pollution Control Tax Credits in Other States – 2005                          22

        The Oregon Legislature established the Pollution Control [Facilities] Tax Credit
        (PCTC) program in 1967 1 under Governor Tom McCall. Twenty-three other
        states and the federal government already had tax credits for pollution controls.
        Oregon lawmakers borrowed some of the provisions of these laws to develop
        Oregon's program.

        The Legislature initially established this program to compensate Oregon
        businesses suddenly faced with huge capital expenditures when they were
        required to respond to stricter environmental regulations to meet new air and
        water quality standards. The legislators reasoned that all Oregonians would
        benefit from improved air and water quality.

        The originating legislation allowed the owner of the facility to choose whether
        they wanted to use the credit to reduce their Oregon tax liability or to exempt
        their pollution control facility from property tax.

        Over the years, the program expanded to encourage industry to control noise
        pollution, and to recycle or recover hazardous waste, solid waste and used oil.
        The Legislature eventually limited the property tax exemption to cooperatives and
        nonprofit corporations.

        When the Oregon Legislature adopted the first PCTC statutes, it included policy
        statements and dictated how the Oregon Sanitary Authority, the predecessor to
        the Oregon Department of Environmental Quality (DEQ), was to implement that
        policy. For example, the law detailed each step in the process of applying for
        and securing certification of a pollution control facility. They even spelled out the
        deadlines for filing the application in the statutes. Over the years, the Legislature
        delegated limited authority to the Environmental Quality Commission (EQC) or to
        the Department of Environmental Quality (DEQ).

        Table 1 summarizes amendments to the PCTC laws.

    OR Laws 1967, ch 593

                                                                                     Page 1

      The purpose of the PCTC is to provide tax relief to businesses and individuals for
      controlling or reducing contaminants and waste materials that would otherwise
      pollute the environment. The Legislative Assembly provided the following policy
      statement early in the program's history:

           In the interest of the public peace, health and safety, it is the policy of the
           State of Oregon to assist in the prevention, control and reduction of air,
           water and noise pollution and solid waste, hazardous wastes and used oil
           in this state by providing tax relief with respect to Oregon facilities
           constructed to accomplish such prevention, control and reduction. ORS

      The 2001 Legislature added its findings and declarations as a Legislative Note 2
      listed below:

              The concept of environmental responsibility has matured beyond basic
              compliance to voluntary implementation of innovative solutions to
              achieve shared environmental goals.

              A pollution control tax credit that shifts the majority of the incentive away
              from compensation for basic regulatory compliance and toward
              encouraging voluntary investment is an effective way to achieve
              environmental goals.

              It is the policy of this state to promote sustainability and provide
              incentives for the voluntary prevention, elimination, reduction, or control
              of pollution through voluntary application of innovative solutions to
              achieve the environmental goals of this state.

             It is the policy of this state to promote social, economic, and
              environmental principles of sustainability by providing incentives to
              individuals and businesses that support social, economic, and
              environmental sustainability goals.

  Legislative Notes are included with the law to assist in placing the permanent
law in clearer context. In some instances, Legislative Counsel gives these notes
a lead line, which also appears in the chapter outline. Additional notes indicate
special effective dates, special temporary provisions or temporary versions of
permanent law. Legislative Counsel deletes notes in subsequent editions when
they are no longer useful.

                                                                                    Page 2
                                       Table 1
                            Legislative Summary
                    Pollution Control Facilities Tax Credit
                ORS 468.150 -.190, ORS 307.015, ORS 315.304

1967 Originating Legislation

      Tax credit provision:

             for air and water pollution control facilities
             as an election of:
                      a 20-year property tax exemption for the cost of the facility, or
                      a 10-year income tax credit of 5% of the cost for each year, with a
                      3-year carry-forward
             through 1978

             Limited the credit to the proportion of cost for pollution control
             Began to phase out of property tax exemption

             Restarted phase-out of the property tax exemption
             Added mobile field incinerators

             Required preliminary certification
             Added garbage burners

             Added recovery of useful products from solid waste
             Added 468.150 - provision for alternatives to open field burning

             Added noise pollution controls
             Limited property tax exemption to non-profits and cooperatives
             Adjusted the period over which the credit could be claimed to the lesser of
             useful life or 10 years
             Extended sunset to 1988

                                                                                  Page 3
Table 1: Legislative Summary continued…

                  Added hazardous waste and used oil recovery

                  Expanded hazardous waste eligibility
                  Added the "sole purpose" test
                  Included recycling facilities

                  Reduced total credit to 25% of cost allocated to pollution control for facilities
                  constructed after 6/30/1989
                  Disqualified energy recovery facilities & clean-up of hazardous waste spills
                  Extend sunset to 1990

                  Restored credit to 50% of cost allocated to pollution control
                  Removed preliminary certification requirement
                  Eliminated burning and use of materials for fuel, heat and disposal
                  Disqualified asbestos abatement
                  Extended sunset to 1995

                  Altered certification requirements
                  Limited consideration to percentage of time the facility is used for pollution
                  control for facilities costing up to $50,000
                  Allowed co-ops subject to the income tax the option of taking the income tax
                  credit rather than a property tax credit
                  Extended sunset to 2001

                  Added nonpoint source pollution controls to list of eligible facilities

                  Shifted maximum tax credit determination from Oregon Department of
                  Revenue to the Oregon Environmental Quality Commission
                  Reduced maximum tax credit to 35%, 25%, 15%, 0% over time, contingent on
                  certain conditions
                  Reduced the application filing period to one year
                  Prohibited environmental felons from obtaining the credit
                  Extended sunset to facilities constructed on or before December 31, 2007, and
                  provided December 31, 2008 as the last date DEQ may accept applications

                                                                                            Page 4

       At the time the Oregon Environmental Quality Commission (EQC) certifies a pollution
       control facility, the State of Oregon incurs a tax expenditure liability equal to the
       approved credit. The certification history on Table 2 shows the number of facilities and
       the amount of the tax credit that the EQC and its predecessor, the Sanitary Authority,
       have certified since 1968. This table is the maximum potential tax credit liability, not
       the actual credit claimed on taxpayer's Oregon tax returns.

       PCTC certificate holders are entitled to use the credit in equal amounts over a
       maximum of ten years not to exceed the facility’s useful life. Table 3 illustrates how
       the Commission’s certifications in one tax-year may affect revenues in future tax years.
       This table reflects the tax credit spread over the facility’s useful life or ten years if the
       useful life is more than ten years. Previous reports spread all tax credit over ten years.

       Taxpayer’s use of the tax credit cannot exceed their tax liability in any year; therefore,
       some certificate holders defer all or part of an annual credit for up to three years 3 ,
       causing the timing of tax revenue impacts to shift. A smaller number of certificate
       holders are unable to use the full credit, creating a gap between the approved tax
       credits and their actual impact to the General Fund.

       Data from January 1, 1997 through December 31, 2006, is different from previous
       reports because it does not include certificate actions such as revocations. It also
       excludes the Pollution Prevention, Reclaimed Plastics and Truck Engine Tax Credit

  2001 Law provided an additional three-year carry forward for unexpired tax credits as of the
taxpayer’s 2001 tax-year.
                                                                                       Page 5
                                             Table 2
                             Tax Expenditure Liability by Year

    Year             Tax Credit             Average              Maximum           Count

  1967-1996      $    510,538,454       $        151,765     $    23,676,924            3364

   1997                   7,627,029                67,571           2,492,441            112
   1998                67,254,586                317,239          39,577,895             212
   1999                20,729,413                131,199           2,806,733             158
   2000                14,159,822                 85,817           2,238,119             165
   2001                37,218,284                127,460          16,895,125             292
   2002                22,382,316                 47,320           5,606,718             473
   2003                24,510,237                 87,537           1,800,423             280
   2004                27,866,601                116,111          21,132,149             240
   2005                 4,901,341                 24,264           1,798,561             202
   2006                 6,170,891                 29,526           1,246,747             209
 1997-2006            232,820,519                 99,369          39,577,895            2343

    Total        $    743,358,973       $        130,254     $    39,577,895           5,707

For the years 1997 through 2006, this report does not include certificate revocations, reissues or
transfers. This report is limited to final PCTC certifications and does not consider preliminary
certifications or Pollution Prevention, Reclaimed Plastics and Truck Engine Tax Credit data. Due to
these adjustments, this report will not match previous reports.

                                                                                         Page 6
                                                                                            Table 3
                                Illustration of How Certification in One Year Could Impact State Revenues

             2005           2006             2007              2008             2009            2010           2011            2012            2013          2014           2015        ‘16      ‘17     ‘18
1996     $    207,840
1997          383,763           77,843
1998         7,053,843      1,407,257        1,055,888
1999         1,453,187        838,804          268,741            87,003
2000         1,471,040      1,386,371          788,816          260,238          19,419
2001         3,400,646      3,047,674        3,012,456        2,890,456       2,337,431          96,997
2002         3,252,945      2,815,957        2,523,881          975,528         871,530         658,227        374,366
2003         3,761,820      3,670,890        2,805,618        2,311,819       1,858,178       1,286,083        390,964          20,544
2004         3,142,619      3,141,097        2,991,586        2,802,830       2,798,020       2,645,953      2,542,982       2,404,210       2,145,578
2005          912,080         839,100          820,422          509,912         411,408         372,532        341,848         334,788         329,657          29594
2006                          911,521          820,165          809,091         789,090         716,739        600,054         460,606         451,993        427,090      184,542

         $ 25,039,783    $18,136,514      $15,087,573      $10,646,877      $9,085,076      $5,776,531      $4,250,214      $3,220,148     $2,927,228      $456,684       $184,542

                         Taxpayers may claim the credit for the lesser of ten years or the useful life of the facility. This illustration spreads all tax credits over the useful life reported on the
                         If a taxpayer is unable to use a tax credit in any one tax -year, they may carry the unused credit forward for three years. The 2001 Legislature provided an
                         additional three years for unexpired credits as of the taxpayer’s 2001 tax-year.

                                                                                                                                                                                           Page 7
Tax Expenditure

    The Pollution Control Facilities Tax Credit is consistently among the largest of the
    Oregon tax credits reported in the biennial State of Oregon Tax Expenditure Report.
    It is next in size to the personal exemption credit and sometimes the Child and
    Dependent Care tax credit.

    For the 2005-07 report, the Oregon Department of Revenue (DOR) estimated a
    $24.8 million biennial impact using the following assumptions:

        The estimated corporate redemption rate is 33 percent of the EQC-approved tax
        credits issued to corporations. In estimating this percentage, DOR compares
        data for the past five years of usage on the Oregon Corporate Tax Forms 20 as a
        percent of the average of the approved tax credits. The redemption rate is
        volatile from year to year since it is sensitive to the year the taxpayer uses the
        credit. DOR considers that the 33 percent redemption rate is reasonable given
        the trend in decreasing corporate tax liability and changes in corporate tax

        The estimated individual redemption rate is 80 percent of the tax credits issued to
        taxpayers that report their taxes on the Oregon Personal Income Tax Form 40.
        DOR reasons individuals are more likely to have an Oregon tax liability.

                                        Table 4
                           Tax Credits by Filing Method
                        January 1, 1997 – December 31, 2006

                                                            % of Total
                                                            Tax            No. of
            Tax Form               Tax Credits ($)          Credits      Certificates
     40 - Corporate Income
          or Excise Tax
          ORS 315.304                  197,267,859             84.73%           816

     20 - Individual Income
           Tax Return
          ORS 315.304                    34,872,554            14.98%       1,522

      County Assessor -
       Exemption from
      Property Subject to
        ORS 307.4051                       680,106              0.29%             5

                Total                 $232,820,519               100%       2,343

                Cooperatives and nonprofit corporations may elect to take the
                credit as an exemption from property tax.

                                                                                      Page 8
PCTC Beneficiaries

     From January 1, 1997 through December 31, 2006, the EQC issued 2,343
     certificates to 1,524 taxpayers. Thirty-two taxpayers hold 77 percent of the tax
     credits approved in this period.

                                         Table 5
                  Top PCTC Beneficiaries - Over $One Million
                     January 1, 1997 - December 31, 2006

                                                                          No. of
                            Applicant                  Tax Credit ($)   Certificates
         1    Georgia Pacific West                        42,470,981               5
         2    Portland General Electric Company           27,431,506              55
         3    Halsey CLO2 Limited Partnership             16,895,125               1
         4    Willamette Industries, Inc.                 10,757,925              51
         5    Hyundai Semiconductor America, Inc.          9,309,710               3
         6    LSI Logic Corporation                        8,357,347               2
         7    Wacker Siltronic Corp.                       8,021,916               3
         8    Intel Corporation                            4,949,332              11
         9    Umpqua Bank Leasing                          4,092,297              20
         10   Portland Bulk Terminals, LLC                 3,654,251               1
         11   Weyerhaeuser Company                         3,569,363               9
         12   HMT Technology Corp.                         3,342,968               2
         13   Georgia Pacific Corp.                        3,123,096               5
         14   Roseburg Forest Products Company             3,052,490               9
         15   TDY Industries, Inc.                         2,908,561              17
         16   Klamath Energy, LLC                          2,902,021               2
         17   Hewlett-Packard Company                      2,488,488               2
         18   Boeing Company                               2,210,625               2
         19   Leathers Enterprises, Inc.                   1,892,447              16
         20   Integrated Device Technology (IDT)           1,815,799               6
         21   Tidewater Barge Lines Inc                    1,592,026               6
         22   Oregon Steel Mills, Inc.                     1,414,821               4
         23   Novellus Systems, Inc.                       1,410,862               5
         24   Monaco Coach Corporation                     1,407,921               2
         25   Synthetech, Inc.                             1,361,954               5
         26   Hermiston Power Partnership                  1,356,120               1
         27   Jeld-Wen Inc.                                1,246,747               1
         28   Far West Fibers, Inc.                        1,207,130               2
         29   Amalgamated Sugar Company                    1,097,324               1
         30   United Disposal Service, Inc.                1,041,010              65
         31   ConAgra Packaged Foods Company               1,009,234               1
         32   Hampton Lumber Mills, Inc.                   1,008,856               3
                            Total for top recipients    $178,400,245             318
               Percentage of all PCTCs for period                77%            14%

                                                                                       Page 9
Tax Credits by Location

     PCTC beneficiaries are located throughout the state as shown on Table 7.

     Eighty-four percent of the tax credits went to certificate holders based in Oregon.
     The remaining credits went to certificate holders located in thirteen other states.

     The Oregon Economic and Community Development Department designates
     geographic areas in the state that are economically distressed. The EQC approved
     60 percent of the tax credits to facilities located in these designated areas with
     $61,865,360 approved for facilities located in distressed areas and $78,909,608 to
     facilities located in severely distressed areas. The remaining 40 percent
     ($92,045,551) of the approved credits went to areas in economically viable areas of
     the state.

                                         Table 6
                  Tax Credits by Economic Areas of the State
                     January 1, 1997 - December 31, 2006






                              Severely Distressed    Not
                             Distressed           Distressed

                                                                                   Page 10
                                Table 7
                  Tax Credits by Facility County
               January 1, 1997 - December 31, 2006

                                          Percentage     Certified County
                                           of Total         Population
County                    Tax Credit      Tax Credit    Estimate 7/1/2006 *
Baker                         $187,590         0.08%                 16,470
Benton                      $5,297,568         2.28%                 84,125
Clackamas                   $6,729,459         2.89%                367,040
Clatsop                       $231,283         0.10%                 37,045
Columbia                   $25,361,739        10.89%                 46,965
Coos                          $917,182         0.39%                 62,905
Crook                         $222,334         0.10%                 24,525
Curry                          $24,133         0.01%                 21,365
Deschutes                   $2,370,069         1.02%                152,615
Douglas                     $3,968,673         1.70%                103,815
Gilliam                              $0        0.00%                  1,885
Grant                         $617,818         0.27%                  7,630
Harney                        $112,950         0.05%                  7,670
Hood River                    $167,105         0.07%                 21,335
Jackson                     $2,187,859         0.94%                198,615
Jefferson                     $302,165         0.13%                 21,410
Josephine                     $693,871         0.30%                 81,125
Klamath                     $4,376,446         1.88%                 65,455
Lake                                 $0        0.00%                  7,540
Lane                       $23,930,046        10.28%                339,740
Lincoln                    $43,320,407        18.61%                 44,520
Linn                       $33,228,243        14.27%                108,250
Malheur                     $2,224,440         0.96%                 31,725
Marion                      $9,082,794         3.90%                306,665
Morrow                      $6,139,461         2.64%                 12,125
Multnomah                  $35,918,959        15.43%                701,545
Polk                        $1,509,643         0.65%                 66,670
Sherman                       $163,572         0.07%                  1,865
Tillamook                   $1,659,660         0.71%                 25,530
Umatilla                    $2,192,236         0.94%                 72,190
Union                         $701,002         0.30%                 25,110
Wallowa                        $69,068         0.03%                  7,140
Wasco                          $31,777         0.01%                 24,070
Washington                 $14,988,952         6.44%                500,585
Wheeler                         $3,205         0.00%                  1,565
Yamhill                     $2,296,784         0.99%                 91,675
Columbia River System       $1,592,026         0.68%
                  Total   $232,820,519          100%              3,690,505

    * Prepared by Population Research Center, Portland State University,
                            December 15, 2006

                                                                              Page 11
Tax Credit Qualifications

  As shown in Table 1 on page 3, the Legislature has added various types of tax credits
  over the PCTC’s 40-year history. Currently, qualifying facilities include structures,
  buildings, installations, excavation, machinery, equipment or devices. The purpose of a
  qualifying facility is to provide pollution control using an approved method described


  A qualifying facility has a pollution control purpose if the taxpayer constructed or
  installed the facility in response to one of the following pollution control purposes.

         The ‘principal purpose’ of the facility is to respond to a requirement imposed by
         the federal Environmental Protection Agency, DEQ or a regional air pollution
         authority. Though a principal purpose facility may serve other purposes,
         responding to the requirement must be the most important and primary purpose.

         The ‘sole purpose’ of the facility is to control, prevent or reduce a substantial
         quantity of air, land or water pollution.

                                         Table 8
                      Tax Credits by Pollution Control Purpose
                        January 1, 1997 - December 31, 2006

                                                            % of       No. of
          Purpose       Tax Credit          Average         Total      Certificates
          principal     $130,545,593      $     213,659      56%            611
          sole           102,274,926             59,050      44           1732
                        $232,820,519              99,369                   2343

                                                                                      Page 12
     Origins of Principal and Sole Purpose

     The original version of the Pollution Control Facilities Tax Credit statute 4 required the
     Sanitary Authority to issue certificates if the principal purpose of the facility was to
     prevent, reduce or control air or water pollution. A taxpayer could elect to take an
     income or corporate excise tax credit, or to have the facility removed from ad valorem
     property tax rolls. To create an incentive for accelerating construction, the Legislature
     limited the tax credit to companies that constructed facilities within the first five years of
     the new, more stringent environmental laws.

     The 1969 Legislature replaced the phrase principal purpose with substantial purpose.
     The law required the Sanitary Authority to issue certificates if the substantial purpose of
     the facility was to prevent, reduce, or control air or water pollution. 5

     In 1983, the Legislature repealed the substantial purpose distinction, reinstated principal
     purpose and added the sole purpose distinctions as they appear today. Other than the
     language, there is little legislative history on the distinction between principal and sole
     purpose or on the Legislature’s intent to restrict eligibility for certification.

     The Oregon Department of Justice, on February 11, 1992, advised the Oregon
     Environmental Quality Commission that it has relatively broad authority to define the
     terms “requirement” and “sole purpose” but the sole purpose distinction should not
     duplicate the previous substantial purpose distinction.

     The Commission presently defines sole purpose to mean the “exclusive purpose” 6 of the
     facility is to control pollution or waste. The Department of Justice states this definition is
     clearly consistent with the statutory scheme as is the Commission’s somewhat broader
     interpretation that overlooks incidental or de minimis purposes.

     The Commission defines the term principal purpose to mean the primary and most
     important purpose of the facility must be to comply with a requirement imposed by the
     DEQ, the federal Environmental Protection Agency or regional air pollution authority.

     PCTC regulations do not make a distinction of facilities that exceed federal
     requirements, though some principal purpose facilities may exceed federal

     In most cases, the federal law sets performance standards for air and water quality but
     leaves the details of how to meet them up to states. DEQ tailored its rules to meet these
     federal performance standards considering Oregon's unique environmental conditions.
     Therefore, defining, identifying, measuring, verifying and gaining agreement on what
     exceeds federal requirements would be challenging.

    Senate Bill 546, 1967
  House Bill 1228, Or. Laws 1969, ch. 613
  Testimony of Bill Young, Director of DEQ, (SB 112) Senate Committee on Energy and Environment,
March 2, 1983 at 383
    OAR 340-016-0010(9)

                                                                                           Page 13
Pollution Control

A qualifying facility prevents, reduces or controls one of the following:

               Air pollution
               Hazardous waste
               Material recovery
               Noise pollution
               Nonpoint source pollution
               Water pollution

                                    Table 9
                             Tax Credits by Media

                                             Highest Tax     % of Total       No. of
                            Tax Credit ($)    Credit ($)     for Period     Certificates
 Air                          104,734,100     39,577,895       44.98%                210
                    CFC            73,533          27,498       0.03%                 24
            Field Burning       5,488,864        218,275        2.36%                129
                 Subtotal     110,296,497                      47.37%                363

 Hazardous Waste                   735,875       257,858       0.32%                 10
  Aqueous Parts Washer              10,630         1,076                             11
              Amalgam                2,923           683                              7
               Subtotal            749,427                     0.32%                 28

 Material Recovery
       Hazardous Waste             280,266       250,369       0.12%                  8
            Solid Waste         20,742,301     1,441,910       8.91%                503
                Subtotal        21,022,567                     9.03%                511

 Noise                             515,014       128,016       0.22%                 15

            Partner Plan           526,407        98,031       0.23%                 21
           Wood Chipper          1,829,151        48,510       0.79%                986
               Subtotal          2,355,558                     1.01%               1007

 Water                          87,396,500    21,132,149       37.54%               238
           Storage Tanks        10,484,955       462,696       4.50%                181
         Total for Period   $ 232,820,519                                         2,343

                                                                                    Page 14
The law defines the method for accomplishing the pollution control. The method is
different for each pollution control category.

Air pollution controls have been eligible for the Pollution Control Facilities Tax Credit
since the program’s inception in 1967. These facilities accomplish the air pollution
control by disposing of or eliminating air contaminants, air pollution, or air contamination
sources; and by using an air cleaning device as defined in ORS 468A.005.

Examples of air pollution controls are electrostatic precipitators, regenerative thermal
oxidizers, scrubbers, baghouses, enclosures or low-NOX burners.

DEQ performs a facility review and makes its recommendation to the EQC. The
recommendation includes a full description of the facility. It also includes a description
of the purpose of the facility, shown in the example below:

   The primary and most important purpose of the collection piping and the high volume
   low concentration (HVLC) scrubber system is to prevent the discharge of Hazardous
   Air Pollutants (HAPs) to the atmosphere in compliance with EPA Maximum
   Achievable Control Technologies (MACT) standards. Prior to installing the claimed
   facility, the mill discharged methanol, and other air pollutants to the atmosphere
   directly from the source. The company installed collection and treatment systems to
   meet the MACT standards for HVLC vents at Kraft pulp mills. The system collects
   and scrubs 98% of the gases from the oxygen delignification blow tank, the
   brownstock system and the Decker system. The mill’s treatment pond biodegrades
   approximately 79 tons of methanol per year, which is greater than the required 75

   Air Pollution Control: CFC

   The air-conditioning and auto repair industries claim equipment for capturing and
   reducing chlorofluorocarbons (CFC) using refrigerant recovery equipment. DEQ
   developed an application within the PCTC regulations to support its outreach efforts
   to reduce CFC.

   Air Pollution Control: Field Burning

   In 1975, the Oregon Legislature adopted ORS 468.150 to provide a tax credit for
   alternatives to field burning to accomplish field sanitation and straw utilization and
   disposal. The Legislature did not add or make the 1975 law part of ORS chapter 468
   by legislative action.

   Examples of facilities certified under this subcategory include straw storage
   buildings, field tile installations, tractors and various equipment for removing straw
   and stubble. As an example, the excerpt below is from DEQ’s analysis and
   recommendation for a straw storage building:

                                                                                   Page 15
           The family limited partnership cultivates perennial grass-seed on 1,781 acres.
           They own 1,230 acres and lease 3,356 acres. The partnership claims an 80’
           x 225’ x 20’ metal building from Pacific Building Systems, the cement
           foundation and a 6-inch cement slab floor. The building stores approximately
           1,850 tons of grass-seed straw until a market becomes available. The straw
           is from 900 acres located on tax lots 00900, 00500, 01501, 00300, 01800
           and 02000.

           The principal purpose of the facility is to reduce air pollution by reducing the
           maximum acreage to be open-burned in compliance with OAR 340-266-0060
           (Acreage Limitations, Allocations).

Hazardous Waste Pollution Control Facilities

The 1983 law added hazardous waste pollution control to the list of qualifying facilities.
These facilities control pollution by treating, substantially reducing or eliminating
hazardous waste as defined in ORS 466.005.

The example below is an excerpt from DEQ’s analysis and recommendation for a
containment system:

   The applicant designs, manufactures and markets high-performance integrated
   circuits and modules used in communications equipment, distributed computing
   systems, personal computers and office automation equipment. Part of the
   manufacturing process generates hazardous ignitable, solvent and creosol (D001,
   D026, F003, and F004) wastes. The company collects waste in two 2,500-gallon
   stainless steel waste tanks located within a coated containment vault. The tanks are
   hard-plumbed to the manufacturing units generating the wastes.

   The principal purpose of this new installation is to collect and contain hazardous
   wastes for subsequent disposal off site. DEQ under federal Environmental Protection
   Agency Code of Federal Regulation (CFR) 40 Subpart J imposes hazardous waste
   collection and containment requirements.

The DEQ developed two subcategories under hazardous waste pollution control: the
aqueous parts washers reduce solvents containing toluene and benzene, and amalgam
separators prevent mercury from contaminating rivers and streams.

Material Recovery and Recycling Facilities

The law expanded in 1975 to include material recovery of solid waste in the list of
qualifying facilities. The 1979 law added material recovery from hazardous waste or
used oil. The 1989 law excluded burning waste materials and used oil for fuel, heat, or
to dispose of it.

           The first example is an excerpt from DEQ’s analysis and recommendation to
           approve a recycling truck for material recovery of solid waste.

                                                                                  Page 16
                The taxpayer collects and recycles ferrous and nonferrous scrap
                metal for recycling at its plant. The claimed facility is a truck to collect
                scrap metal from customers in Oregon and Washington. The
                applicant accurately claimed 35 percent of the truck’s cost using the
                percentage of time the truck collects solid waste from Oregon
                sources. The truck collects approximately 5,500 tons of scrap metal
                from Oregon sources each year. The applicant delivers the scrap
                metal to the recycling plant for additional processing.

        The second example is an excerpt from DEQ’s analysis and recommendation
        to approve equipment to recycle/recover hazardous waste.

                The company manufactures hardwood cabinet doors and specialized
                molding from rough-cut hardwood boards. They use acetone to clean
                the feed lines, conveyor belts and equipment that applies stains and
                lacquers to its products.

                The applicant claims a solvent distillation system manufactured by
                Progressive Recovery, Inc and associated piping. The system pumps
                spent acetone to a skid-mounted 60-gallon spent solvent tank that
                automatically feeds into a model DST-60 distillation vessel. The
                system heats the spent solvent until the acetone vaporizes. The
                condenser converts the vapors into purified liquid acetone that collects
                the purified liquid acetone in the clean solvent tank, equipped with a
                ProtectoSeal vent to prevent emissions to the atmosphere and overfill
                controls to prevent releases of hazardous material.

                Once the clean solvent tank collects approximately 55 gallons, the
                applicant pumps the collected solvent into 55-gallon drums (not
                claimed) for storage and reuse. The system sits in a concrete
                secondary containment basin.

                The sole purpose of the solvent distillation system is to reduce
                approximately 9,000 pounds of hazardous waste per year. The
                company disposes of the concentration from the distillation vessel as
                hazardous waste. Prior to installing the solvent distillation system, the
                process generated 25,200 pounds of hazardous waste each year.

Nonpoint Source Pollution Controls

The 1999 Oregon Legislature amended the PCTC to include nonpoint source
pollution control facilities, delegating authority to the EQC to identify facilities that
reduce or control significant amounts of nonpoint source (NPS) pollution.

The legislative record did not link NPS pollution to water pollution; therefore, the
EQC defined it as “,,, pollution that comes from numerous, diverse, or widely
scattered sources of pollution that together have an adverse effect on the

                                                                                   Page 17
The EQC determined that the following NPS facilities reduce or control significant
amounts of NPS pollution:

   1. Any facility that implements a plan, project or strategy to reduce or control
      nonpoint source pollution as documented:

        •   By one or more partners listed in the Oregon Nonpoint Source Control
            Program Plan
        •   In a Federal Clean Air Act State Implementation Plan for Oregon

   2. Any facility effective in reducing nonpoint source pollution as documented in
      supporting research by:

        •   Oregon State University, Agricultural Experiment Station
        •   The United States Department of Agriculture, Agriculture Research
        •   The Oregon Department of Agriculture

   3.   Wood chippers used to reduce openly burned woody debris

   4. The retrofit of diesel engines with a diesel emission control device, certified
      by the U.S. Environmental Protection Agency

The following excerpt from DEQ’s analysis and recommendation is an example of a
NPS pollution control facility.

        The Partnership claims a used Great Plains Model GRP 2N-3010 Direct
        Seed Drill, Serial # 2142 for use on 612 acres of its 4,116-acre dryland wheat
        farm in Umatilla County. The purpose of the no-till seed drill is to control a
        substantial quantity of nonpoint source pollution.

        Prior to pruchasing the equipment, the applicant made a minimum of seven
        passes over each acre using conventional tillage methods. Using the no-till
        drill, the farm has decreased passes over the field to approximatly three

        Oregon State University documents the effectiveness of no-till drills for
        reducing nonpoint source pollution. Mary K. Corp from Oregon State
        University Extension Service provided the attached letter. The equipment
        retains plant residue on the soil surface reducing soil loss through water and
        wind erosion. This reduces sediment buildup in the rivers and dust in
        Umatilla county. Less disturbance of the soil means more carbon storage in
        the soil and a reduction of green house gasses (CO2) released into the

                                                                              Page 18
Water Pollution Controls

Water pollution controls have been eligible for the PCTC since the program’s
inception in 1967. These facilities accomplish water pollution control by disposing of
or eliminating industrial waste and the use of a treatment works as defined in ORS

The following example is an excerpt of from DEQ’s analysis and recommendation for
a water pollution control installed by a small independent paper mill

       Each day, the applicant draws approximately 6,000,000 gallons of water from
       the Willamette River, directing it to seven sand-bed filters …. The applicant
       then gravity feeds the water to the mill for use as process water. To operate
       at optimum efficiency, the system routinely feeds water back through the filter
       beds from a 122,500-gallon wash water tank at a rate of 8,000 to 9,000
       gallons per minute.

       DEQ and the applicant suspected unacceptable levels of TSS, Copper, Lead
       and Zinc were present in the backwash effluent. In a Memorandum of
       Agreement dated May 21, 2004, both parties agreed to either control
       pollutants from the outfall or eliminate the outfall altogether. The mill chose
       to eliminate the outfall and reroute the filter plant backwash to the mill’s
       wastewater treatment system for treatment prior to discharge

       The claimed facility includes piping to reroute the filter plant backwash into
       upgraded blow pits (numbered 4 and 5) to hold the backwash water,
       connections from the holding tanks to the existing mill wastewater treatment
       system, a level transmitter, and a flow control valve and flow controller to
       monitor and control the flow.

       The company previously discharged into the Willamette River. Now the mill
       effluent system treats the filter plant backwash and the process wastewater in
       a clarifier and aeration lagoon prior to discharge into the river.

                                                                             Page 19
2001 Legislation

   To coincide with its findings and declarations on page 2 of this report, the 2001
   Legislature reduced the applicable percentage of the certified facility cost that is eligible
   for the tax credit from 50 percent to a tiered approach, explained below. Interested
   parties frequently mistake the criteria in this section as qualifiers for the credit; this
   section is one of several elements used to determine the amount of the credit only if the
   facility meets the definition under ORS 468.155.

   50 Percent:         The 50 percent applicable percentage applies to taxpayers that
   started facility construction before 2001 and completed construction before 2004. The
   new law excluded facilities started and completed in 2001; therefore, the EQC adopted
   rules to address the excluded facilities.

   35 Percent:          If the applicant did not qualify for the 50 percent safe-harbor, then the
   facility or the taxpayer must meet one of the following conditions to qualify for the 35
   percent applicable percentage.

          The certified facility cost does not exceed $200,000.
          The facility is:
            ▫   a material recovery facility
            ▫   a nonpoint source facility
            ▫   regulated as a confined animal feeding operation
            ▫   used in an agricultural or forest products operation AND used for
                energy recovery
            ▫   located in an enterprise zone
            ▫   located in a distressed area as defined by the Oregon Economic and
                Community Development Department

          The taxpayer:
            ▫   voluntarily installed the facility and no portion is required in order to comply
                with a federal law administered by the United States Environmental
                Protection Agency, a state law administered by the DEQ or a regional air
                pollution authority
            ▫   is certified under International Organization for Standardization standard
                ISO 14001
            ▫   uses an Environmental Management System at the facility

          A Green Permit applies to the facility

                                                                                        Page 20
25 Percent, 15 Percent, Zero Percent:           If the 50 percent safe-harbor or the 35
percent applicable percentage do not apply to the facility or the taxpayer, then the
construction commencement date determines the applicable percentage as shown in the
following chart.

                   Applicable              Construction Commences
                   Percentage                      Between
                       25%               1/1/2001         12/31/2003
                       15%               1/1/2004         12/31/2005
                        0%               1/1/2006             sunset

          Note: Construction Commencement and Construction Completion
                  The law bases the lower percentages on construction commencement
                  but other program dates use construction completion as a reference.

The EQC approved four facilities for an applicable percentage below 35 percent. The
companies that installed these facilities are small– to mid–sized companies.

                              Table 10
                Tax Credits by Applicable Percentage
                    January 1, 1997 - December 31, 2006

                                                                            No. of
      Percent                Qualifier                  Tax Credit ($)    Certificates
     0%         Commenced 1/1/05 to sunset                                           0
    15%         Commenced 1/1/04 to 12/31/05                     48,135              1
    25%         Commenced 1/1/01 to 12/31/03                    241,219              3
    35%         <$200K                                        2,762,997            136
    35%         Distressed Area                               4,452,007             13
    35%         EMS                                                 567              1
    35%         Enterprise Zone                                 706,149              3
    35%         ISO                                             786,393              2
    35%         Material Recovery                             3,488,177            100
    35%         NPS                                           1,466,913            619
    35%         Voluntary                                     4,501,246              8
    35%         Material Recovery                             1,708,272             81
    50%         Safe Harbor                                 212,658,444           1376
                                       Total for Period $ 232,820,519             2343

                                                                              Page 21
                                             Table 11
                     Pollution Control Tax Credits in Other States - 2005

        State        Percent               Cap                               Scope of Credit
                     of Cost
 Arizona               10%        75% of tax owed in     Amount spent during tax year on qualified
                                  one tax year           environmental technology including land acquisition,
                                                         bldg. improvements, machinery and equipment

                       10%                               Underground storage tank spill cleanup
                       10%        $500,000               Real or personal property used to control or prevent
 Arkansas              30%                               Material recovery equipment used in solid waste
                                                         recycling businesses
 Colorado                         $100,000               For cleanup & development of brownfields
 Delaware                         $400 to $900 per       Material recovery
 Georgia             3% - 8%      Limited to tax year    Material recovery or pollution control equipment
                                  investment up to
                                  50% of tax owed
 Idaho                 20%        $30,000                Material recovery
 Illinois               5%                               Pollution control equip. needed for direct coal
                                                         combustion equipment if the company maintains or
                                                         increase use of Illinois coal.
 Kentucky              50%        In any one year:       Material recovery
                                  10% of available
                                  credit up to 25% of
                                  tax owed
 Louisiana             20%        50% of tax owed        Material recovery
 Maine              20%-30%                              Material recovery
 Massachusetts         25%                               Oil and hazardous material cleanup
                       50%                               For achieving and maintaining permanent solutions
 New York               5%                               Air & water pollution controls
                       10%                               Air & water pollution controls if in designated economic
                                                         development zone
 Oklahoma              20%                               Material recovery
 Oregon                35%                               Voluntary or required air, water and hazardous waste
                                                         pollution controls; material recovery; and nonpoint
 Pennsylvania          30%                               Material recovery of waste tires
 South Carolina        30%                               Material recovery
 Utah                   5%                               Material recovery
 Virginia              25%        $3,750                 Equip. for precise pesticide-fertilizer application
Exclusions:    alternative fuel vehicles & alternative refueling stations, tax deductions, sales and
excise tax exemption

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