APPENDIX 13C. FEDERAL PRODUCTION TAX CREDIT 


TABLE OF CONTENTS 

13C.1 INTRODUCTION .......................................................................................................13C-1 
 

13C.2 ELIGIBILITY REQUIREMENTS ..............................................................................13C-1 
 

13C.3 ELIGIBLE CCW PRODUCTS ...................................................................................13C-2 
 

13C.4 ESTIMATED LVM FEDERAL TAX CREDIT BENEFITS......................................13C-3 
 

13C.5 SHIPMENTS PROJECTIONS ....................................................................................13C-3 
 

13C.6 ESTIMATED LVM TAX CREDIT ............................................................................13C-4 
 

13C.7 TAX CREDIT SENSITIVITY ANALYSIS................................................................13C-5 
 

13C.8 IMPACTS ON INDUSTRY NET PRESENT VALUE...............................................13C-5 
 

LIST OF TABLES 

Table 13C.2-1 CCW Tax Credit Eligibility Requirements......................................................13C-2

Table 13C.4-1 Federal Production Tax Benefit to the LVM for 2007 – 2009 ........................13C-3

Table 13C.5-1 Estimated Total CCW Shipments by Equipment Class for the LVM by 

Year..................................................................................................................13C-4

Table 13C.6-1 Estimated Tax Credit for the LVM for Eligible Years ....................................13C-4

Table 13C.8-1 Changes in Industry Net Present Value for Top-Loading Commercial 

Clothes Washers (Preservation of Gross Margin Percentage Markup – 

Base Case Shipments)......................................................................................13C-6

Table 13C.8-2 Changes in Industry Net Present Value for Top-Loading Commercial 

Clothes Washers (Preservation of Gross Margin Percentage Markup – 

Price Elasticity of Demand Shipments) ...........................................................13C-6

Table 13C.8-3 Changes in Industry Net Present Value for Front-Loading Commercial 

Clothes Washers (Preservation of Gross Margin Percentage Markup – 

Base Case Shipments)......................................................................................13C-6

Table 13C.8-4 Changes in Industry Net Present Value for Front-Loading Commercial 

Clothes Washers (Preservation of Gross Margin Percentage Markup – 

Price Elasticity of Demand Shipments) ...........................................................13C-6

Table 13C.8-5 Changes in Industry Net Present Value for Top-Loading and FrontLoading Commercial Clothes Washers (Preservation of Gross Margin 

Percentage Markup – Base Case Shipments)...................................................13C-7

Table 13C.8-6 Changes in Industry Net Present Value for Top-Loading and FrontLoading Commercial Clothes Washers (Preservation of Gross Margin 

Percentage Markup – Price Elasticity of Demand Shipments)........................13C-7 
 

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EERE-2006-STD-0127 COMMENT 66.2
APPENDIX 13C. FEDERAL PRODUCTION TAX CREDIT 


13C.1 INTRODUCTION
 

The purpose of this appendix is to clarify how the Department of Energy (DOE) made its 

estimates of the Federal production tax credits (“tax credits”) that would benefit commercial 

clothes washer (CCW) manufacturers. These tax credits have been made available to CCW 

manufacturers by the enactment of the Energy Improvement and Extension Act of 2008 (EIEA 

2008; Pub. L. 110-343). To make its estimates, DOE relied primarily on market research, the 

audited annual and quarterly reports of the low-volume manufacturer (LVM) filed with the U.S. 

Securities and Exchange Commission (SEC), and information provided by manufacturers. 

13C.2 ELIGIBILITY REQUIREMENTS 

Multiple tax credit programs have been enacted in order to stimulate the adoption of 

higher efficiency products and equipment. The first to impact the CCW industry was the Energy 

Policy Act of 2005 (EPACT 2005), followed by EIEA 2008. Both programs share some 

eligibility requirements: 

�	 EPACT 2005 included a $75 million cap on the total tax credit that any one manufacturer 

can receive across all eligible products and equipment it manufactures during the 

effective dates of the program. EIEA 2008 also has a $75 million limit per taxpayer for 

all taxable years beginning after December 31, 2007, though the washers qualifying for 

the highest tier are not counted towards the cap. 

�	 Appliances or equipment that meet the efficiency requirements must be manufactured in 

the United States. The tax credit only applies to the original equipment manufacturer; i.e. 

tax-credits for private-labeled goods sourced from other domestic manufacturers accrue 

to the source, not the reseller. 

�	 Tax credits accrue on the basis of how many additional eligible appliances the 

manufacturer has sold than in years past. The calculation is based on a rolling average of 

qualifying shipments, the length of which varies by the tax credit program. 

�	 Title I section 1334 (c)(1)(B) of EPACT 2005 amended section 45M of the U.S. tax code. 

This section in EPACT 2005 was amended by EIEA 2008 Title III section 305 (b)(2) on 

October 3, 2008. Both EPACT 2005 and EIEA 2008 amend Title 26 of the United States 

Code (U.S.C) 45M. 

�	 Products or equipment must meet certain efficiency metrics that vary by program. For 

CCWs, targets were set for minimum modified energy factors (MEF) and maximum 

water factors (WF), as defined by the DOE clothes washer test procedure (10 CFR 430, 

subpart B, appendix J1). 

Some differences between the tax credits in EPACT 2005 and EIEA 2008 are shown in 

Table.13C.2.1. Principal differences include the effective dates, the length of the rolling average 

13C-1
 

EERE-2006-STD-0127 COMMENT 66.2
period over which marginal qualifying units are calculated, the number of tiers that each program 

has, the minimum efficiency requirements, and the per-unit tax credits that accrue to the original 

equipment manufacturer. 

Table. 13C.2.1 RCW and CCW Tax Credit Eligibility Requirements 

Tax 

Credit 

Effective Date Rolling 

Average Tier 

Efficiency 

Requirements 

Tax 

Credit 

per 

unit Program Start End Basis min. 

MEF 

max. 

WF 

EPACT 

2005 2006 2007 3 years N/A 1.72 8.0 $100 

2008 2008 1 (toploading) 1.72 8.0 $150 

Residential EIEA 2008 2009 

2 years 2 (toploading) 1.8 7.5 $250 

2008 2008 2010 2 years 1 (all 

washers) 2.0 8.0 $150 

2008 2010 2 years 2 (all 

washers) 2.2 4.5 $250 

EPACT 

2005 2006 2007 3 years N/A 1.72 8.0 $100 

Commercial EIEA 

2008 2008 2010 2 years 

1 (all 

washers) 2.0 8.0 $150 

2 (all 

washers) 2.2 4.5 $250 

13C.3 ELIGIBLE CCW EQUIPMENT 

DOE research suggests that no currently available, top-loading CCW meets any of the tax 

credit energy efficiency eligibility requirements. Of the three major suppliers of front-loading 

washers to the CCW market, only one makes equipment that meets the efficiency and other 

eligibility requirements. Unlike its two principal competitors, the LVM produces its frontloading equipment in its own factory in the United States. 

The two other major suppliers to the U.S. CCW industry produce some clothes washer 

products domestically, though none of these domestic-made CCWs meet the energy efficiency 

eligibility requirements. CCWs sold by these manufacturers that are eligible on the basis of 

energy efficiency metrics are either produced in wholly owned facilities abroad or sourced from 

another domestic manufacturer. 

Hence, DOE research suggests that the tax credits associated with the CCW industry are 

accruing solely to the LVM on the basis of increased front-loading CCW shipments. Using 

audited financial statements from the LVM in conjunction with previously submitted data, DOE 

research suggests that LVM shipments of front-loading washers have increased almost 50 

percent since 2006. 

13C-2
 

EERE-2006-STD-0127 COMMENT 66.2
13C.4 ESTIMATED LVM FEDERAL TAX CREDIT BENEFITS 

DOE used Form 10-Ks and Form 10-Qs submitted by the LVM to the SEC to calculate 

the benefit the LVM received from the tax credit programs from 2007 through 2009.1

 DOE 

research suggests that the LVM is not eligible for any other tax credit programs; therefore, DOE 

attributed all tax credit benefits to the sale of eligible front-loading CCWs for the years 2007– 

2010. 

�	 Note 16 of the LVM’s 2007 Form 10-K shows that the LVM’s effective tax rate for 2007 

was reduced by 7.8 percent due to the Federal tax credit.2 

�	 In its 2008 10-K, the LVM recorded a $2.4 million credit from the program which 

reduced its effective Federal tax rate by 11.2 percent.3 DOE assigned this tax credit 

benefit to the LVM’s 2008 fiscal year. 

�	 The LVM’s Form 10-Q filed on May 11, 2009, stated that the LVM expects its effective 

Federal tax rate will be lowered by 2.7 percent in 2009.4 DOE annualized the expected 

earnings before taxes to estimate the total benefit the LVM is likely to receive for all of 

2009. Table 13C.4.1 shows the total benefit for the LVM for 2007 through 2009. 

Table 13C.4.1 Federal Production Tax Benefit to the LVM for 2007–2009 

2007 2008 Q1 2009 2009 

(estimate) 

Earnings before Taxes 

($ millions) 16.754 21.992 3.356 14.224 

Federal Production Tax 

Credit ($ millions) 1.31 2.4 0.02 0.39 

13C.5 SHIPMENTS PROJECTIONS 

To estimate the tax credit the LVM will receive in 2010, DOE used revenues posted in 

LVM SEC filings and previously collected data as shown in appendix 13A of the technical 

support document (TSD) accompanying today’s supplemental notice of proposed rulemaking 

(SNOPR). To calculate annual front-loading and top-loading shipments over the period, DOE 

estimated annual revenues for each washer segment and divided those revenues by an estimated 

average manufacturing production cost (MPC) for each platform. The average manufacturing 

cost was derived using extrapolated historical data. 

For 2009, DOE used the reported projections of tax credit for 2009 by the LVM’s first 

quarter 10-Q report to estimate front-loading shipments for 2009. For 2010 segment revenues, 

DOE estimated an increase of revenues from 2009 to 2010 of 1 percent. The projected revenues 

for 2009 and 2010 were disaggregated by equipment class using the same process used for 2004 

through 2008 revenues to estimate future shipments. Table 13C.5.1 shows DOE’s estimates of 

the total CCW shipments for the LVM in the years used for the tax credit calculations. 

13C-3
 

EERE-2006-STD-0127 COMMENT 66.2
 Table 13C.5.1 Estimated Total CCW Shipments by Equipment Class for the LVM by Year 

Type of 

Washer 

Year 

2004 2005 2006 2007 2008 2009 2010 

TopLoading* 86,800 89,800 101,100 119.600 115,600 112,800 112,100 

FrontLoading* 17,700 18,700 22,900 32,900 43,600 40,200 40,600 

* Total shipments are rounded to the nearest hundred 

For the LVM’s 2007 fiscal year, DOE estimated the number of washers eligible for a tax 

credit on the basis of a 3-calendar year period per the EPACT 2005 benefits (title I section 1334 

(c)(1)(B) of EPACT 2005). As noted in Table.13C.2.1, the EIEA 2008 legislation changed 

multiple eligibility requirements. For the 2008, 2009, and 2010 tax credit benefits, DOE used the 

EIEA 2008 eligibility requirements. For all years, DOE assumed that every front-loading washer 

sold by the LVM qualified for the Federal production tax credit. 

13C.6 ESTIMATED LVM TAX CREDIT 

To calculate the eligible tax credit amounts for each calendar year, DOE multiplied the 

estimated qualifying total clothes washer shipments by a corresponding credit per unit. EPACT 

2005 allows a $100 credit per qualifying washer for 2007. Therefore, DOE multiplied $100 by 

the qualifying shipments for 2007 to calculate the eligible tax credit for that year. For 2008, the 

LVM reported a $2.4MM tax credit in its SEC Form 10-K.5

 DOE estimated additional eligible 

front-loading unit shipments on the basis of the total tax credit and an estimated individual unit 

shipment credit of $150 per front-loading washer. For 2009, and 2010, EIEA 2008 allows either 

a $150 or $250 tax credit depending on the energy conservation characteristics of the washer. 

According to the ENERGY STAR website, the LVM introduced new washers in 2008 that 

qualify for the higher-tier tax credit.6 DOE estimated an average tax credit of $200 per frontloading washer for the 2009 and 2010 LVM fiscal year. The average credit was used because 

DOE could not determine the number of shipments of each type of qualifying washers with 

certainty.

 Table 13C.6.1 shows DOE’s estimates of the tax credit for each eligible year. 

Table 13C.6.1 Estimated Tax Credit for the LVM for Eligible Years 

Year 

Category 2007 2008 2009 2010 

Tax Credit using $100 per 

qualifying unit 

Tax Credit using $150 per 

qualifying unit 

Tax Credit using $200 per 

qualifying unit 

$1.3 million 

$2.4 million 

$385,000 $0 

13C-4


EERE-2006-STD-0127 COMMENT 66.2
DOE estimates that, in total, the LVM is eligible to receive approximately $4.1 million in 

tax credits from the EPACT 2005 and EIEA 2008 legislation from 2007 to 2010. DOE used a 1­

percent CCW revenue growth from 2009 to 2010 to determine the 2010 qualifying front-loading 

shipments. DOE estimates the LVM will not have a sufficient increase in shipments of 

qualifying washers to obtain any tax credit in 2010. 

13C.7 TAX CREDIT SENSITIVITY ANALYSIS 

DOE also developed different scenarios for 2010 to estimate a range of tax credit impacts 

based on different macro-economic factors. 

�	 For the first scenario, DOE estimated the necessary increase in CCW revenue for the 

LVM to receive any benefit from the Federal production tax credits in 2010. DOE 

estimated that the LVM would have to increase its CCW revenues by 2.6 percent in 2010 

in order to receive any benefit from the tax credit program. The reasonable increase in 

revenues corresponds to an approximately 4-percent increase in total front-loading 

washers from 2009 to 2010. 

�	 For the second scenario, DOE estimated the necessary increase in CCW revenue for 2010 

that would approximately double the total calculated tax credit benefit of EPACT 2005 

and EIEA 2008 tax credits from 2007 to 2010. For this scenario, DOE estimated that 

increase in CCW revenue that would be required from 2009 to 2010 to increase the total 

benefit from approximately $4.1 million to $8.0 million from 2007 to 2010. DOE 

estimated that the LVM would need to increase its CCW revenue by approximately 24 

percent in 2010 to receive an estimated $3.9 million in that year, which would bring its 

total benefit from 2007 to 2010 to approximately $8.0 million. 

13C.8 IMPACTS ON INDUSTRY NET PRESENT VALUE 

To determine the impacts of the tax credit on the industry net present value (INPV), DOE 

implemented the tax credit in the Government Regulatory Impact Model (GRIM). The 

calculated tax credit was added as a cash flow item in the base case and standards case. Table 

13C.8.1 through Table 13C.8.6 provide the INPV estimates for the CCW industry under the two 

shipment scenarios analyzed with incorporation of tax credits. In all the results, DOE added the 

entire benefit to the CCW industry in the base case and standards case. Therefore, the impacts 

on INPV in the results for just top-loading or front-loading are optimistic because the entire 

Federal production tax credit estimates for the CCW industry are added to INPV in the base and 

standards cases while only part of the total CCW industry is evaluated. 

13C-5
 

EERE-2006-STD-0127 COMMENT 66.2
 

 

 

 

Table 13C.8.1 Changes in Industry Net Present Value for Top-Loading Commercial 

Clothes Washers (Preservation of Gross Margin Percentage Markup – Base-Case 

Shipments) 

Preservation of Gross Margin Percentage Markup with Base-Case Shipments 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 

INPV (2008 $ 

millions) 33 37 37 30 30 30 

Change in INPV 

(2008 $ 

millions) - 4 4 (4) (4) (4) 

(%) - 11.02% 11.02% -10.79% -10.79% -10.79% 

Table 13C.8.2 Changes in Industry Net Present Value for Top-Loading Commercial 

Clothes Washers (Preservation of Gross Margin Percentage Markup – Price Elasticity of 

Demand Shipments) 

Preservation of Gross Margin Percentage Markup with Price Elasticity of Demand 

Shipments 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 

INPV (2008 $ 

millions) 33 36 36 28 28 28 

Change in INPV 

(2008 $ 

millions) - 3 3 (6) (6) (6) 

(%) - 8.30% 8.30% -17.28% -17.28% -17.28% 

Table 13C.8.3 Changes in Industry Net Present Value for Front-Loading Commercial 

Clothes Washers (Preservation of Gross Margin Percentage Markup – Base-Case 

Shipments) 

Preservation of Gross Margin Percentage Markup with Base-Case Shipments 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 

INPV (2008 $ 

millions) 29 29 27 27 25 12 

Change in 

INPV 

(2008 $ 

millions) - 0 (2) (2) (5) (17) 

(%) - 0.00% -7.90% -7.90% -15.62% -57.82% 

Table 13C.8.4 Changes in Industry Net Present Value for Front-Loading Commercial 

Clothes Washers (Preservation of Gross Margin Percentage Markup – Price Elasticity of 

Demand Shipments) 

Preservation of Gross Margin Percentage Markup with Price Elasticity of Demand Shipments 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 

INPV (2008 $ 

millions) 29 29 27 27 24 12 

Change in 

INPV 

(2008 $ 

millions) - 0 (2) (2) (5) (17) 

(%) - 0.00% -7.92% -7.92% -16.15% -59.12% 

13C-6
 

EERE-2006-STD-0127 COMMENT 66.2
 

 

Table 13C.8.5 Changes in Industry Net Present Value for Top-Loading and Front-Loading 

Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – BaseCase Shipments) 

Preservation of Gross Margin Percentage Markup with Base-Case Shipments 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 

INPV (2008 $ 

millions) 62 66 63 57 54 42 

Change in INPV 

(2008 $ 

millions) - 4 1 (5) (8) (20) 

(%) - 5.93% 2.23% -7.76% -12.65% -32.88% 

Table 13C.8.6 Changes in Industry Net Present Value for Top-Loading and Front-Loading 

Commercial Clothes Washers (Preservation of Gross Margin Percentage Markup – Price 

Elasticity of Demand Shipments) 

Preservation of Gross Margin Percentage Markup with Price Elasticity of Demand 

Shipments 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 

INPV (2008 $ 

millions) 62 65 62 55 52 39 

Change in INPV 

(2008 $ 

millions) - 3 0 (7) (10) (23) 

(%) - 4.47% 0.76% -11.25% -16.39% -36.98% 

The results from the GRIM show that the estimated tax credit has minimal impact on 

CCW INPV. Depending on the shipment scenario and equipment class analyzed, the tax credit 

lowers the impacts of energy conservation standards by up to 1 percent. This small decrease is 

not enough to mitigate all of the impacts on the CCW industry due to energy conservation 

standards. 

13C-7
 

EERE-2006-STD-0127 COMMENT 66.2
REFERENCES 

1

 SEC documents for the LVM are available online at: http://www.sec.gov/cgi-bin/browseidea?action=getcompany&CIK=0001063697&owner=exclude&count=40 

2

 Alliance Laundry Systems Form 10-K for 2007, p. 103. Available online at: 

http://www.sec.gov/Archives/edgar/data/1063697/000119312508053028/d10k.htm 

3

 Alliance Laundry Systems, Form 10-K for 2008, p. 96. Available online at: 

http://www.sec.gov/Archives/edgar/data/1063697/000119312509048716/d10k.htm 

4

 Alliance Laundry Systems, Form 10-Q for the quarterly period ending March 31, 2009, p. 15. 

Available online at http://sec.gov/Archives/edgar/data/1063697/000119312509107306/d10q.htm 

5

 Alliance Laundry Systems, Form 10-K for 2008. Op. cit., p. 91. 

6

 ENERGY STAR-Qualified Commercial Clothes Washers. Available online at: 

www.energystar.gov/index.cfm?fuseaction=clotheswash.display_commercial_cw. 

13C-8
 

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