APPENDIX 13C. FEDERAL PRODUCTION TAX CREDIT 

TABLE OF CONTENTS 

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

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

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

13C.4 ESTIMATED LVM FEDERAL TAX CREDIT BENEFITS......................................13C-2
 

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

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

13C.7 IMPACTS ON INDUSTRY NET PRESENT VALUE...............................................13C-5
 

LIST OF TABLES 

Table.13C.2.1 RCW and 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-5 

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-5 

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-6 

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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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 

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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 

Program 

Effective Date Rolling 

Average 

Basis 

Tier 

Efficiency 

Requirements 

Tax 

Credit 

per 

Start End unit

min. 

MEF 

max. 

WF 

Residential 

EPACT 

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

EIEA 

2008 

2008 2008 

2 years 1 (top-loading) 1.72 8.0 $150 

2008 2009 2 (top-loading) 1.8 7.5 $250 

2008 2010 2 years 1 (all washers) 2.0 8.0 $150 

2008 2010 2 years 2 (all washers) 2.2 4.5 $250 

Commercial 

EPACT 

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

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 domestically-produced 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 substantially 

since 2006. 

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 

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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 for the quarter ending March 31, 2009 stated that the LVM 

expected its effective Federal tax rate would be lowered by 2.7 percent in 2009.4 The 

LVM’s Form 10-Q for the quarter ending on September 30, 2009 revised its estimated 

annual effective tax rate to 28.3 percent, attributing the adjustment primarily to higher 

energy tax credits earned in the United States.5

 In comparison, 10-Q for the quarter 

ending on March 31, 2009 showed the LVM expected an annual effective tax rate of 36 

percent for all of 2009.4

 Based on the revised estimated annual effective tax rate, DOE 

attributed this additional 7.7 percent decline in the annual effective tax rate to additional 

tax credits earned under EIEA. For the total Federal benefit under the program for all of 

2009, DOE added the additional 7.7 percent benefit expected from the 10-Q filed on 

September 30, 2009 to the expected 2.7 percent Federal tax rate benefit found in the 10-Q 

for the quarter ending on March 31, 2009. The effective Federal tax rate is estimated to 

be lowered by 10.4 percent from the Federal production tax credits for all of 2009. 

•	 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* Q2 2009* Q3 2009* 2009 

(estimate)** 

Earnings before 

Taxes ($ millions) 16.754 21.992 3.356 -5.424 11.017 11.436 

Federal Production 

Tax Credit ($ 

millions) 

1.31 2.4 - - - 1.19 

*LVM reported earnings before taxes from Q1 through Q3 

**2009 annualized earnings before taxes 

13C.5 SHIPMENTS PROJECTIONS 

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

the LVM’s SEC filings, the LVM’s reported estimate for North American commercial laundry 

market growth, and previously collected data shown in appendix 13A of the technical support 

document (TSD) accompanying today’s final rule. To calculate annual front-loading and top13C-3
 

EERE-2006-STD-0127 COMMENT 69.1
 

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 the tax credit for 2009 by the LVM’s 

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

revenues, DOE used the LVM’s estimate for the compound annual growth rate for the North 

American commercial laundry market (2.7 percent) as the projected revenue increase from 2009 

to 2010. 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. 

 Table 13C.5.1 Estimated Total Shipments by Equipment Class for the LVM by Year 

Type of 

Washer 

Year 

2004 2005 2006 2007 2008 2009 2010 

TopLoading* 86,800 89,800 101,100 119.600 115,600 115,000 115,100 

FrontLoading* 17,700 18,700 22,900 32,900 43,600 44,200 46,100 

* 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.6

 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.7

 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. 

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

Category 

Year 

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 

$1.31 million 

$2.4 million 

$1.19 million $0.43 million 

DOE estimates that, in total, the LVM is eligible to receive approximately $5.3 million in 

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

2.7-percent CCW revenue growth from 2009 to 2010 to determine the 2010 qualifying frontloading shipments. DOE estimates the LVM will have a sufficient increase in shipments of 

qualifying washers to obtain a slight benefit from the tax credits in 2010. 

13C.7 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.7.1 

through Table 13C.7.6 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. 

Table 13C.7.1 Industry Net Present Value for Top-Loading Commercial Clothes Washers 

including Federal Production Tax Credits (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) 35 38 38 31 31 31 

Change in INPV 

(2008 $ 

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

(%) - 10.64% 10.64% -10.41% -10.41% -10.41% 

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Table 13C.7.2 Industry Net Present Value for Top-Loading Commercial Clothes Washers 

including Federal Production Tax Credits (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) 35 37 37 29 29 29 

Change in 

INPV 

(2008 $ 

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

(%) - 8.01% 8.01% -16.80% -16.80% -16.80% 

Table 13C.7.3 Industry Net Present Value for Front-Loading Commercial Clothes Washers 

including Federal Production Tax Credits (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) 30 30 28 28 26 13 

Change in 

INPV 

(2008 $ 

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

(%) - 0.00% -7.59% -7.59% -15.00% -55.53% 

Table 13C.7.4 Industry Net Present Value for Front-Loading Commercial Clothes Washers 

including Federal Production Tax Credits (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) 30 30 28 28 26 13 

Change in 

INPV 

(2008 $ 

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

(%) - 0.00% -7.60% -7.60% -15.52% -56.81% 

Table 13C.7.5 Industry Net Present Value for Top-Loading and Front-Loading 

Commercial Clothes Washers including Federal Production Tax Credits (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) 63 67 65 58 55 43 

Change in INPV 

(2008 $ 

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

(%) - 5.82% 2.18% -7.61% -12.41% -32.25% 

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Table 13C.7.6 Industry Net Present Value for Top-Loading and Front-Loading 

Commercial Clothes Washers including Federal Production Tax Credits (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) 63 66 64 56 53 40 

Change in 

INPV 

(2008 $ 

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

(%) - 4.38% 0.74% -11.11% -16.15% -36.36% 

The results from the GRIM show that the estimated Federal production 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 substantially mitigate the impacts on the CCW industry due 

to energy conservation standards. 

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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-Q for the quarterly period ending September 30, 2009, p. 

13. Available online at 

http://www.sec.gov/Archives/edgar/data/1063698/000119312509229598/0001193125-09-

229598-index.htm 

6

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

7

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

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

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