Washington has announced that it will exempt certain carbon credits and allowances under the cap and invest programme for greenhouse gas emissions from the state’s business and occupation (B&O) tax and public utility tax (PUT). This update was detailed in a
Special Notice issued by the Washington Department of Revenue on 2 July, 2024.
Washington has implemented this exemption under Engrossed House Bill 219, which was passed by the House on 9 February, 2024. The act applies both retrospectively and prospectively. It is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions,
The act took effect on 1 April, 2024.
Washington Climate Commitment Act (CCA)
Enacted in 2021 under the Climate Commitment Act (CCA), the state’s comprehensive, market-based cap-and-invest programme aims to reduce carbon pollution and meet the greenhouse gas limits mandated by state law. Effective from 1 January, 2023, the programme establishes a cap on total carbon emissions in Washington. It requires businesses to acquire allowances equal to their greenhouse gas emissions.
Engrossed House Bill 2199 (EHB 2199) creates a business and occupation (B&O) tax and public utility tax (PUT) exemption for carbon credits and allowances received under the cap and invest programme for greenhouse gas emissions, also known as the Washington Climate Commitment Act (CCA).
Under the programme, the legislature intends to identify overburdened communities where the highest concentrations of criteria pollutants occur, determine the sources of those emissions and pollutants, and pursue significant reductions of emissions and pollutants in those communities. The legislature further intends for the Department of Ecology to conduct environmental justice assessments to ensure that funds and programmes created under this chapter provide direct and meaningful benefits to vulnerable populations and overburdened communities.
The legislature further intends to empower the environmental justice council established under RCW 70A.02.110 to provide recommendations for the development and implementation of the programme, the distribution of funds, and the establishment of programmes, activities, and projects to achieve environmental justice and environmental health goals.
Who qualifies for the CCA credits and allowances B&O and PUT exemption?
As stated in the Special Notice, entities covered under the Washington CCA, opt-in entities, and recipients of no-cost allowances are eligible for the exemption.
What qualifies for the exemption?
Qualifying amounts include those obtained through receipt, generation, sale, purchase, transfer, or retirement of CCA allowances, offset credits, or price ceiling units.
How can taxpayers claim the exemption?
To claim the exemption, taxpayers should report amounts received under the appropriate B&O or PUT tax classifications and then claim an “Other” deduction with the description “Climate Commitment Act credits and allowances received under chapter 70A.65 RCW. The Department emphasised that it cannot issue refunds for CCA credits or allowances reported and paid prior to 1 April, 2024.
