Strategies for Tax Reform Readiness

Tax in Transition

Helping utilities navigate corporate tax reform

In the early morning hours of Thursday, May 22, the House passed the tax and spending bill outlining details of President Trump’s tax plans. Since its introduction on Monday, May 12, the bill has retained much of the initial proposals impacting the energy sector:    

• The bill rescinds the clean energy production credit (PTC 45Y) and the clean electricity investment credit (ITC 48E) enacted with the 2022 Inflation Reduction Act (IRA), and also affects transferability. Provisions affecting tax credits will likely be at the forefront of debate and negotiations among the utility industry as customer affordability is a core focus.
• A key piece of the proposal centers around the state and local tax (SALT) deduction cap, which is also anticipated to be highly debated as lawmakers work to pass the bill—which could lead to changes in other areas of the proposal. 
• There is no mention of corporate tax rate change. 

The bill’s approval met Speaker Mike Johnson’s (R-La.) goal of approving the package in the House by Memorial Day. The bill now heads to the Senate, where the current deadline to pass the agenda and deliver to President Trump’s desk is July 4.  

As we learned with the enactment of the Tax Cuts and Jobs Act (TCJA) in 2017, there are many complexities involved in navigating corporate tax reform—especially since the 2017 changes came after more than 30 years of stability. As the political appetite for new tax legislation grows, the process for navigating change is certainly more familiar, yet not without continued complexity.

Today’s tax reform requires utilities to understand the implications of reform initiatives on the business and the extensive preparations required to manage those initiatives effectively.  

Of course, once legislation passes, tax teams must quickly adjust financials and ensure timely and accurate regulatory filings to reflect the impact of new legislation. But there are a variety of steps tax teams can take in advance of legislation to ensure they’re set up for success. Here are three keys:  

• Stay informed: The bill could still undergo significant changes as it is debated in the Senate. It’s important to regularly monitor updates to understand the impact of potential tax reform on your operations. Be sure to keep all relevant departments informed about potential changes and their implications.
• Lay the groundwork: Develop flexible strategies that can adapt to the proposed changes outlined above. Forecasting is hugely important if energy credits and transferability are impacted. Outline scenario- and time-based forecasts and develop action plans to ensure smooth enactment of updates. 

From a regulatory standpoint, make sure your systems and data are in balance to withstand heightened scrutiny from regulators verifying compliance with new tax laws.

• Leverage advanced technology for operational enhancements: Anticipated tax reform offers the opportunity to evaluate current financial and accounting systems and consider flexible options that ensure faster forecasting and more accurate reporting in the face of rapid change. 

As Chief Strategy Officer at PowerPlan, I have the unique benefit of witnessing how big an impact those operational enhancements can have amidst a changing tax landscape. I’ve seen our technology evolve over the last eight years, and I am excited about all we’ve delivered to customers since 2017 to better equip them in navigating tax reform. The introduction of Tax Fixed Assets (TFA) in 2022 has not only provided heightened data transparency and accuracy but also provided greater flexibility and faster forecasting—both of which will be necessary in preparing for tax reform this year.  

Despite the challenges tax reform can bring, I’m encouraged that tax teams have continued to prepare their organizations to be ready for an ever-changing landscape. We continue to see our customers adopt new technology to deliver accurate, informative, and impactful data to their CFOs and regulatory teams, showcasing how these changes will affect their businesses and customers.

Confidence in the Face of Uncertainty

In the months following enactment of the TCJA in 2017, PowerPlan was on the ground assisting our customers in adopting historic legislation, and we are even more prepared now to handle what comes next. As Congress continues to draft legislation, we are closely monitoring developments to ensure our team and our products are ready to help customers adapt and react. Stay informed:  

• Follow me on LinkedIn for more blogs in this series that aim to help utilities navigate uncertainty in the face of tax reform.
• Visit https://powerplan.com/tax-reform to stay up to date on the latest expectations and changes from Capitol Hill. 
• Reach out to taxreform@powerplan.com with any questions.