This year, various bipartisan legislative efforts have been advanced to incentivize the mining of rare earth metals. Rare earths are a group of 17 elements (such as Neodymium, Thulium, Yttrium, Lanthanum and Terbium), many of which are germane to producing electronic components and other industrial uses. Rare earths are widely viewed as critical to the future growth of the global economy, and as demand for them continues to rise, ensuring a proper supply of these elements is imperative.
The Rare Earth Magnet Act
On August 13, 2021, Representatives Eric Swalwell (D-CA) and Guy Reschenthaler (R-PA) introduced the “Rare Earth Magnet Manufacturing Production Tax Credit Act” (the “Rare Earth Magnet Act”) (H.R. 5033). If enacted, the Rare Earth Magnet Act would create a new tax credit for the production of rare earth magnets, which would appear in Section 45U of the Internal Revenue Code of 1986, as amended (the “Code”). The proposed tax credit would equal $20 per kilogram of rare earth magnets manufactured in the United States. The tax credit would increase to $30 per kilogram if all of the component rare earth material of these magnets is produced within the United States.
Under the Rare Earth Magnet Act, the proposed tax credit would begin to phase out for rare earth magnets produced after December 31, 2030. Further, the credit would not be available for a rare earth magnet if any component rare earth material used to produce the magnet was produced in a non-allied foreign nation. Finally, the Rare Earth Magnet Act would include a direct pay option, and the provisions would be effective for taxable years beginning after December 31, 2021.
The Rare Act
Additionally, on April 20, 2021, Representatives Lance Gooden (R-TX) and Vicente Gonzalez (D-TX) introduced legislation (H.R. 2688) to encourage the domestic production of rare earth elements and other critical minerals (the “Rare Act”) by providing for a variety of incentives and deductions, including the following:
- Providing for full expensing under Section 168(k) of the Code for property used to extract critical minerals and metals within the United States;
- Providing for permanent, full expensing (under a new Section 168(n) of the Code) for nonresidential real property used for mining critical minerals and metals within the United States;
- Providing for a deduction for the purchase of critical minerals and metals extracted within the United States under a new Section 177 of the Code;
- Increasing the rate of percentage depletion under Section 613(b)(1) of the Code for critical minerals and metals from deposits in the United States; and
- Establishing a grant program for the development of critical minerals and metals.
Takeaway
As rare earths are increasingly used in technological and industrial applications, ensuring domestic supply will be important to the growth of the US economy. Potential legislative changes that are designed to encourage domestic production and manufacturing of rare earths and other critical metals ought to be carefully reviewed and analyzed.
