On Aug. 19, 2011, US Treasury published the final solid waste disposal regulations (the “Final Regulations”) in the Federal Register. Among other things, the Final Regulations define a solid waste disposal facility for purposes of determining its eligibility for tax-exempt financing under Section 142 of the Internal Revenue Code of 1986, as amended. Significantly, the Final Regulations (a) remove the no-value test contained in the prior solid waste regulations (the “No-Value Test”) that, in general terms, limited tax-exempt financing opportunities to situations where the waste literally had no value and (b) delineate and implement three qualified solid waste disposal processes: (x) final disposal process, (y) energy conversion process, and (z) recycling process. Facilities that are either preliminary or functionally related and subordinate to such processes or that involve mixed use may also be eligible for tax-exempt financing.
The Final Regulations define solid waste as material that is solid at ambient temperature and pressure and has either (i) been used previously and is a product of any agricultural, commercial, consumer, governmental or industrial operation or activity, including animal waste (i.e., used material), or (ii) is a residual byproduct or excess raw material resulting from or remaining after the completion of any agricultural, commercial, consumer, governmental or industrial production process or activity or from the provision of any service (i.e., residual material). Specifically excluded from the definition of solid waste are virgin materials (unless it is residual material), solids within liquids, precious metals, hazardous material and radioactive material.
Qualified Processes
The three qualified solid waste disposal processes and examples are as follows:
| Process | Examples |
| Final Disposal Process: placing solid waste in landfill, incinerating solid waste without capturing useful energy, land applying solid waste in an environmentally compliant manner or containing solid waste indefinitely. | Traditional landfills, municipal trash incinerators that do not generate steam, electricity or other useful energy, spreading of solid waste over fields (i.e., biosolids application) and entombment. |
| Energy Conversion Process: using solid waste to create and capture useful energy (i.e., gas, heat, hot water, steam, or other useful energy) up to the point where useful energy is created and before any transfer or distribution of such energy regardless of whether it is a useful product (see below). | Incinerators that generate steam or other useful energy, various industrial boilers that are fed by solid waste, including certain livestock, agricultural and other biomass waste and landfill gas facilities. |
| Recycling Process: processing solid waste into a useful product through a process, such as decontamination, melting, re-pulping, shredding, or other process, with such processing ending with a first useful product (see below). | Paper, plastic and tire recycling facilities. |
Preliminary, Functionally Related and Subordinate and Mixed Use Facilities
Preliminary Facilities – Facilities that collect, separate, sort, store, treat, process, disassemble or handle solid waste before such waste is used in a qualified solid waste disposal process are also eligible for financing so long as they are directly related to the process.
Functionally Related and Subordinate Facilities – A solid waste facility includes any land, building, or other property functionally related and subordinate to such facility. Property is not functionally related and subordinate to a facility if it is not of a character and size commensurate with the character and size of such facility.
Mixed-use Facilities – Facilities that involve a qualified solid waste disposal process and a non-qualified function are also eligible for financing but only on a pro rata basis equal to the average annual percentage of solid waste used in the qualified solid waste disposal process. However, if solid waste constitutes at least 65 percent (by weight or volume) of the inputs into such process in each year the bond issue is outstanding, then the entire cost of the solid waste disposal facility may be financed. There is a remedial rule if the 65 percent test is not satisfied.
Other Limitations
First Useful Product Rule – In general, particularly with respect to a recycling process, the qualified process ends at the point the first product is produced from the processing of solid waste that is useful for consumption in agricultural, consumer, commercial, governmental or industrial operations or activities and that could be sold for such use, whether or not actually sold.
The foregoing information is a brief summary of the Final Regulations, is not comprehensive, is intended for informational purposes only, is not to be relied upon and is subject to additional rules under the Final Regulations and other U.S. Treasury Regulations.