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
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.
The three qualified solid waste disposal processes and examples are as
|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
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.
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.