Michigan continues with its efforts to maintain its claim as the “Automotive Capital of the World.” Governor Granholm signed legislation this month (580 PA 2008, HB 6611) to provide significant economic incentives to encourage the commercialization and affordability of high-power energy batteries, the key component in plug-in hybrid battery-electric and fuel cell vehicles. The goal of the State is to assist in the on-going development of battery technology and future commercial production. The incentives will assist those engaged in research, development, production and supply to the advanced vehicle technology development, as well as renewable power generation initiatives within and outside the transportation sector.

Under the new laws, tax credits are provided against the Michigan Business Tax based on amounts expended for capital investment for battery or vehicle production, for amounts expended on battery or vehicle research and development and on amounts expended for battery or vehicle engineering. The credits are generally based on a percentage of costs (up to 50% of capital costs or up to 75% of engineering expenses over a number of years) or pegged to the number of battery packs or vehicles manufactured (with total awards limited to $40 million - $70 million over a multi-year award). None of these credits is exclusive of each other, and is in addition to other credits which may be available under other existing state and local incentive programs. In addition, credits are provided for the capital expense of manufacturing facilities (up to $25 million a year), or based on the number of battery pack units produced (and dependent upon the total storage capacity of the batteries).

An added sweetener to these credits is that they are refundable—that is, to the extent that the credits granted exceed a taxpayer’s tax liability for a particular year, the taxpayer may request that the excess be refunded to them by the State. The refunding of the credits is without any reduction in the face value of the credit amount.

Thus, these credits could significantly offset project launch costs during start up, preproduction and through the early production years.

Should you wish any additional information regarding this program and how you may be able to maximize these potential benefits, contact any of the attorneys in Honigman’s Sustainability Practice Group at http://www.honigman.com