B.__"Disposal system" means any system used primarily for disposing of or isolating industrial or other waste and includes thickeners, incinerators, pipelines or conduits, pumping stations, force mains and all other constructions, devices, appurtenances and facilities used for collecting or conducting waterborne industrial or other waste to a point of disposal, treatment or isolation, except what is necessary to the manufacture of products.

C.__"Industrial waste" means any liquid, gaseous or solid waste substance capable of polluting the waters of the State and resulting from any process, or the development of any process, of industry or manufacture.

D.__"Treatment works" means any plant, pumping station, reservoir or other works used primarily for the purpose of treating, stabilizing, isolating or holding industrial or other waste.

E.__"Water pollution control facility" means any disposal system or any treatment works, appliance, equipment, machinery, installation or structures installed, acquired or placed in operation primarily for the purpose of reducing, controlling or eliminating water pollution caused by industrial or other waste, except septic tanks and the pipelines and leach fields connected or appurtenant to the septic tanks.

Sec. 5. 36 MRSA §1760, sub-§29, as amended by PL 1989, c. 890, Pt. A, §10 and affected by §40, is repealed.

Sec. 6. 36 MRSA §1760, sub-§30, as amended by PL 1989, c. 890, Pt. A, §11 and affected by §40, is repealed.

Sec. 7. 36 MRSA §5219-U is enacted to read:

§5219-U.__Environmental performance credit

1.__Definitions.__As used in this section, unless the context otherwise indicates, the following terms have the following meanings.

A.__"Activity production index" or "API" means the ratio of a facility's current production to the amount of that facility's base year production.

B.__"Base year emissions" means the average amount of pollutants actually emitted by a facility located in this State during the 3 calendar years prior to the effective date of this section or during the first 3 calendar years of existence for a new business applying for a credit under this section.

C.__"Base year production" means the average amount of units of product produced by a facility located in this State during the 3 calendar years prior to the effective date of this section or during the first 3 calendar years of existence for a new business applying for a credit under this section.

D.__"Department" means the Department of Environmental Protection.

E.__"New business" means any entity that was established and subject to regulatory requirements for the first time in a particular tax year.__"New business" does not mean the change in ownership of an existing entity.

F.__"Permanent reduction" means the amount of pollutants permanently eliminated from emission or discharge to the environment or, in the case of a pretreatment agreement, discharged under contract.__A reduction made to comply with regulatory standards does not constitute a permanent reduction.

G.__"Pollutants" means nitric oxides, sulfur dioxide, biological oxygen demanding materials and total suspended solids.

H.__"Substantial compliance" means that a taxpayer has no enforcement action pending against it, including an unresolved letter of warning, notice of violation or condition of previous resolution in effect.

I.__"Traded market price" means the market price at which pollutant credits are traded on the United States commodity exchange.

J.__"Unit of product" means a measure of a facility's productivity that most closely reflects all activities involving the pollutant and is as free from nonproduction influences as possible.__A unit of product measure is chosen by and unique to the operations at a facility.

2.__API calculated.__The API indicates whether production in subsequent years has increased or decreased in relation to base year production.__All facilities start with an API of one in the base year.__The API is calculated using a unit of product that is chosen by and unique to the operations at a facility.

3.__Credit allowed.__Subject to the limitations contained in this section, a taxpayer is allowed a credit against the tax imposed by this Part, calculated according to this subsection.

A.__A credit may be claimed equal to the tons of a taxpayer's permanent reduction of nitric oxides and sulfur dioxide, multiplied by the average traded market price of one ton of nitric oxides or sulfur dioxide during the preceding calendar year.__The taxpayer may not claim the credit provided by this paragraph until its permanent reductions of nitric oxides and sulfur dioxide exceed 25% of base year emissions for these pollutants.__The credit claimed in a tax year after permanent reductions exceed 25% of base year emissions is determined based on the total actual tons of permanent reduction in nitric oxides and sulfur dioxide achieved from the base year through the end of any calendar year after which permanent reductions exceed 25% of base year emissions.__For any additional increment of permanent reduction claimed in a tax year thereafter, the credit is based on the tons of permanent reductions achieved during a subsequent calendar year that exceed the tons of permanent reductions previously claimed from the base year through the end of the calendar year used to calculate the previously claimed credit.

B.__A credit may be claimed equal to the pounds of a taxpayer's permanent reduction of biological oxygen demanding materials or total suspended solids multiplied by the fee charged for discharging one pound of biological oxygen demanding materials or total suspended solids, as published in the department's licensing fee schedule in effect on the last day of the calendar year used to calculate the claimed credit, multiplied by 10.__ Poundage is based on a facility's monthly average discharge parameter.__The taxpayer may not claim the credit provided by this paragraph until its permanent reductions of biological oxygen demanding materials and total suspended solids exceed 25% of base year emissions for these pollutants.__The credit

claimed in a tax year after permanent reductions exceed 25% of base year emissions is determined based on the total actual pounds of permanent reduction in biological oxygen demanding materials and total suspended solids achieved from the base year through the end of any calendar year after permanent reductions exceed 25% of base year emissions.__For any additional increment of permanent reduction claimed in a tax year thereafter, the credit is based on the pounds of permanent reduction achieved during a subsequent calendar year that exceed the pounds of permanent reduction previously claimed for the time period from the base year through the end of the calendar year used to calculate the previously claimed credit.

A facility's permanent reductions must be determined by a taxpayer claiming the credit allowed by this section in consultation with the department and in a manner consistent with the provisions of this section and any applicable rules adopted by the department.__Each increment of permanent source reduction claimed is eligible once for the credit established in this section.

Maintenance of a permanent reduction in light of changes in production must be determined by using the activity production index.

4.__Limitations on credit.__In order to be eligible for the credit established in this section, a person:

A.__Must be in substantial compliance with all applicable state and federal environmental requirements during the tax year for which the credit is claimed or to which the credit is carried pursuant to subsection 5;

B.__Must continue in operation throughout the tax year in which the credit is claimed.__The cessation of operations does not create permanent source reductions;

C.__Must not sell any marketable emissions reductions during the tax year in which the credit is claimed; and

D.__Must obtain from the department and attach to its tax return a statement certifying that person's permanent reduction.

5.__Carryover.__The credit allowed pursuant to this section may not be used to reduce the taxpayer's tax liability under this Part to less than zero.__A credit provided by this section, subject to the limitations provided by subsections 4 and 7, that

exceeds the limitation of this subsection may be carried forward to the next succeeding 5 taxable years.

6. Recapture.__Credit amounts previously claimed must be recaptured when there is a subsequent net decrease in a taxpayer's permanent reduction at a facility used to calculate the credit compared to the level of pollutants emitted by the taxpayer during the previously used calendar year.__The recapture amount is equal to each ton, or part of a ton, of decrease in permanent reduction of nitric oxides or sulfur dioxide, multiplied by the average traded market price used to calculate the credit claimed under this section on the taxpayer's most recently filed return, plus each pound, or part of a pound, of decrease in permanent reduction of biological oxygen demanding materials or total suspended solids, multiplied by the licensing fee used to calculate the credit claimed under this section on the taxpayer's most recently filed return.__If the decrease in permanent reduction exceeds the permanent reduction used as a basis for calculating the credit on the most recently filed return, the taxpayer shall, for purposes of calculating the recapture amount for the excess in the decrease of permanent reduction, use the next available previous tax year for which a credit was claimed under this section.__Any amounts recaptured pursuant to this subsection must be added back to the total credit amount available under subsection 7.__The department shall notify the State Tax Assessor of those taxpayers subject to the recapture provisions of this subsection.__The notification must identify each taxpayer and the amount subject to recapture.

7.__Credit amount available.__In any given state fiscal year, no more than $1,500,000 in credits may be claimed pursuant to this section.__Any single taxpayer may claim no more than $500,000 of the total $1,500,000 credit available in any given fiscal year.__Permanent reduction certifications are accepted based on the date and time of receipt by Maine Revenue Services.__ The first date in any tax year on which certifications are accepted by Maine Revenue Services is July 1st.__Accepted certifications must be stamped by Maine Revenue Services, with one copy returned to the claimant and one copy sent to the department.__Upon accepting certifications equal to the maximum aggregated amount available in any given state fiscal year, all unprocessed certifications pending or subsequently received must be returned to claimants with appropriate notification.

8.__Certification.__A taxpayer calculating permanent reductions shall do so on a form established by the department.__ All calculations certified by the department must be filed with Maine Revenue Services as part of a taxpayer's corporate income tax submission.__A taxpayer claiming this credit shall annually

certify to the department that its permanent reductions continue to exist.

9.__Affiliated groups.__In the case of corporations that are members of an affiliated group engaged in a unitary business, the credit allowed pursuant to this section is equal to the aggregate credit for all taxable corporations that are members of the affiliated group and applied to the total tax liability of the members under this Part.

Sec. 8. Application. That section of this Act that amends the Maine Revised Statutes, Title 36, section 1752, subsection 7-B, that section of this Act that repeals Title 36, section 1760, subsections 29 and 30 and that section of this Act that enacts Title 36, section 5219-U apply to tax years beginning on or after January 1, 2002.

Sec. 9. Revisor's review; cross-references. The Revisor of Statutes shall review the Maine Revised Statutes and include in the errors and inconsistencies bill submitted to the Second Regular Session of the 120th Legislature pursuant to Title 1, section 94 any sections necessary to correct and update any cross-references in the statutes to provisions of law repealed in this Act.

SUMMARY

This bill establishes an incentive for taxpayers to voluntarily commit to permanent pollutant reductions and elimination beyond those required to comply with regulatory standards by providing a corporate income tax credit to taxpayers that invest in technologies or make changes in processes that substantially reduce or eliminate pollution otherwise allowed to be released to the environment.