On November 15, 2021, President Biden signed the Infrastructure Investment and Employment Act ("IIJA"), making it law. The IIJA has provided approximately US$1.2 trillion in funding for a wide range of infrastructure sectors within ten years, including roads, bridges, public transportation, passenger and freight rail services, water conservancy infrastructure, environmental restoration, power grids, renewable energy, and broadband infrastructure . In addition, the IIJA includes new tax incentive bond clauses that create two new types of exempt facility bonds—qualified broadband projects and qualified carbon dioxide capture facilities—and increase the financing of qualified road or ground freight forwarding facilities. The total national cap for tax-free facility bonds. This customer alert will summarize IIJA's tax incentive bond terms.

A. New types of exempt financing bonds

According to the IIJA, government entities and their agencies can issue tax incentive bonds for any "qualified broadband project" as long as they meet all tax law requirements. IIJA defines qualified broadband projects as: (A) Designed to provide broadband services to one or more census block groups, in which more than 50% of residential households cannot obtain services that provide fixed terrestrial broadband services at least 25 Mbit/s Downstream and at least 3 Mbits of upstream services ("Qualified Service Area"), and (B) finally uploaded to a location at a download speed of at least 100 Mbits/sec and a speed of 20 Mbits/sec before the project, 90% or more of the area includes qualified service areas.

According to the IIJA, exempt facility bonds that fund privately-owned qualified broadband projects are exempt from the 75% volume cap requirement, while government-owned projects are not subject to any volume cap requirements.

ii. Qualified carbon dioxide capture facilities

If all tax law requirements are met, IIJA has also created the ability to use tax incentives to finance “qualified carbon dioxide capture facilities”. According to IIJA, qualified carbon dioxide capture facilities are a qualified component of industrial carbon dioxide facilities and direct air capture facilities. The IIJA specifically defines "qualified components" and "industrial carbon dioxide facilities", and adopts the definition of "direct air capture facilities" from the tax law.

According to the IIJA, "qualified components" refer to: (A) any equipment installed in an industrial carbon dioxide facility that is designed to capture and store at least 65% of carbon dioxide, or a percentage of the cost of eligible components installed in a tax-free facility Bond financing facilities shall not exceed the designed capture and storage percentage, and (B) the carbon dioxide generated by the capture, treatment and purification, compression, transportation or on-site storage shall pass through industrial carbon dioxide facilities, or help to transfer coal, petroleum residues, and biomass. Substances or other materials are converted into synthesis gas composed mainly of carbon dioxide and hydrogen for direct use or subsequent chemical or physical conversion.

The IIJA defines "industrial carbon dioxide facilities" as facilities that produce carbon dioxide (including any unorganized sources of emissions) produced by fuel combustion, gasification, bioindustrial processes, fermentation, or any manufacturing related to chemicals, fertilizers, and glass. , Steel, petroleum residues, forest products, agricultural and transportation grade liquid fuels. The definition of industrial carbon dioxide facility does not include any geological gas facility and any air separation device that does not meet the conditions of gasification equipment, or is not an essential part of any oxygen fuel combustion process.

According to the tax law, "direct air capture facility" generally refers to any facility that uses carbon capture equipment to directly capture carbon dioxide from ambient air. The tax law does not include any facilities that intentionally release carbon dioxide from naturally occurring underground spring water, or facilities that use natural photosynthesis.

(4) Maximum number and exemption for private commercial use

Tax incentive bonds that finance qualified carbon dioxide capture facilities will be exempt from the 75% transaction volume cap requirement. Finally, the IIJA amended the tax law to clarify that the sale of carbon dioxide produced by government-owned qualified carbon dioxide capture facilities does not constitute “private enterprise use” under the federal tax law.

The rules described in Ai-A.ii. The aforementioned exempt facility bonds will apply to any debt issued after the end of 2021.

B. Raise the national ceiling for qualified road or ground freight transit facilities

The tax law allows tax-exempt financing to be used for "qualified road or ground freight forwarding facilities." However, the total amount of such exempt financing bonds issued nationwide is capped. Effective November 16, 2021, the IIJA will increase this national limit from 15 billion U.S. dollars to 30 billion U.S. dollars.

Disclaimer: Due to the general nature of this update, the information provided here may not be applicable in all situations, and action should not be taken without specific legal advice based on specific circumstances.

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