REITs Get the GREEN (Energy) Light on EV Charging Stations

By Joe Petosa, MBA, Justin Warren, CPA and Darren Bushey, CPA

Real Estate Investment Trusts (REITs) are generally exempt from corporate federal income tax, provided they satisfy certain requirements regarding the income they produce, assets they hold and distributions they make, among other criteria. The REIT industry questioned how REIT tax status might be impacted if receiving income from electric vehicle charging stations (EV Stations). The Internal Revenue Service (IRS) provided its first guidance about this for REIT status testing purposes in Private Letter Ruling (PLR) 202413004, issued March 29, 2024.

Below, we review relevant REIT tax law and unpack the facts of this ruling to share some insight.

First, The Law

A REIT must meet and maintain certain income requirements to be taxed as a REIT. The income test, completed on an annual basis, would be to prove that at least 95% of its gross income is derived from real-property sources, dividends, interest, securities and certain mineral royalty income and 75% of gross income is derived from real property-related sources.

A REIT is also generally restricted from the types of services it can provide to tenants. Receiving income from non-customary services could give rise to what the IRS classifies as impermissible tenant service income (ITSI). If a property’s rents exceed 1% ITSI, all rents from that property would be considered ITSI for the REIT. As a general note, ITSI can sometimes be circumvented through an independent contractor, from whom the REIT does not derive or receive any income, or a separate legal entity called a taxable REIT subsidiary (TRS).

The Facts of the Case

In the case reviewed in IRS PLR 202413004, the taxpaying entity (Taxpayer) intended to:

• Acquire and develop several properties to be used as industrial storage facilities, with some providing EV Stations.
• Engage a third-party independent contractor to provide tenants with certain utility services, including furnishing power to an EV Station, at no markup to tenants.
• Limit the general public’s access to their EV Stations.
• Remit any income received for use of the EV Station to the third-party utility provider.
• Install EV Stations only at locations where it is standard and customary for similar properties in the area.

The Ruling

The IRS concluded that since the Taxpayer will 1) charge a tenant solely for the electricity drawn from the EV Station without a separate access fee and 2) install EV Stations only at locations where it is customary for similar properties in the area, any income the Taxpayer receives related to the EV Stations will not be considered ITSI as defined in IRS Section 856(d)(7). Thus, income generated from the storage facilities with EV Stations, in this case, would qualify as rents from real property.

What’s Next?

With the use of electric vehicles becoming more prevalent, EV Stations have become very common in recent years within the real estate industry. IRS PLR 202413004 addresses the applicability of such amenities for REIT testing concerns.

Contact Us

If you have any questions on REIT testing issues for unique services provided at a property, such as EV Stations, or have any other tax issues, please reach out to your designated PKF O’Connor Davies tax advisor or any of the following:

Joe Petosa, MBA
Director
jpetosa@pkfod.com

Justin Warren, CPA
Director
jwarren@pkfod.com

Darren Bushey, CPA
Partner
dbushey@pkfod.com