Four Filters Between Domestic Battery Capacity and Usable Supply

Domestic battery manufacturing capacity in the United States is growing. The aggregate GWh figures in investor decks and press releases suggest a supply base arriving on schedule. A BESS integrator preparing a 48E ITC claim, or a defense prime qualifying a new cell source, might look at the map of announced and operational facilities and conclude that usable supply exists.

Facility location and corporate domicile are necessary conditions for several compliance gates. They are sufficient for none. Between a domestically manufactured cell and a cell that a specific buyer can actually claim credit on, procure against a federal contract, or incorporate into a qualified project, four independent filters operate at four different units of analysis. Each has its own governing document, its own evidence standard, and its own verification path. Passing one establishes nothing about the others.

What follows traces those four filters as they exist in July 2026, applied to three unnamed supplier archetypes, with explicit attention to where the verification trail dead-ends.

Archetype A: A U.S.-incorporated joint venture with a covered-nation parent, importing anode material from China for cells assembled domestically.

Archetype B: A domestic startup, 100% U.S.-owned, licensing cathode IP from a foreign entity under a long-term technology agreement.

Archetype C: A facility converting from EV cell production to ESS, with a changed bill of materials for the new product line.

Filter 1 — Section 301 Tariff Treatment

Unit of analysis: each imported material or component, classified by its own HTSUS subheading.

The September 2024 USTR notice set the Section 301 rate on China-origin lithium-ion non-EV batteries at 25%, effective January 1, 2026, under HTSUS 8507.60 via Chapter 99 heading 9903.91.06. The notice denied requests to exclude particular battery types, stating that the President's direction "broadly covered all lithium-ion batteries."

A buyer sourcing from a U.S. cell manufacturer might treat this filter as irrelevant. The cell is domestically produced. At the finished-cell level, yes. At the component level, potentially wrong. USTR's same notice stated that requests to add input or precursor materials were "beyond the scope" of the President's direction because that direction was limited to complete batteries. But the inputs face Section 301 exposure through their own HTSUS classifications, independent of where the cell is assembled.

Material	HTSUS	Chapter 99 Reference	Section 301 Rate
NMC cathode active material	3824.99.39	9903.88.03	25%
LFP cathode material	2842.90.90 (per CBP ruling N188896)	9903.88.03	25%
Artificial graphite anode	3801.10.50	—	25%
Natural graphite	2504 subheadings	—	25%
PE/PP separator film	3921.19.00	—	25%

Applied to Archetype A's supply chain: the finished cell never crosses the border as a battery. The synthetic graphite anode material does. It enters under 3801.10.50 and faces 25% duty on its own classification. The buyer's delivered cost for that domestically assembled cell includes a tariff burden invisible if the analysis stops at the cell level.

Country-of-origin determination adds a layer. CBP rulings show that processing in a third country can establish substantial transformation: N342514 held that Korean processing of doped and coated single-crystal cathode material made Korea the country of origin; N358366 reached the same conclusion for LFP CAM processed in Korea from foreign-sourced precursors. These rulings are fact-specific. A supplier's public statement that its cathode inputs are "non-China" or "processed in Korea" does not resolve Section 301 treatment unless the HTSUS classification and origin analysis have been established for the actual imported merchandise. The buyer's proof file requires the ruling or the classification analysis. A press release does not substitute.

Has USTR created any BESS-relevant exclusion since September 2024? A Federal Register search of USTR documents through July 10, 2026 returns no product-specific exclusion for BESS-grade cells or modules under 8507.60. The October 2024 exclusion process covered certain manufacturing machinery. The December 2025 extension extended 178 existing exclusions through November 2026. None for 8507.60.

This filter is classification-specific, material-by-material, and currently unmitigated by exclusion.

Filter 2 — FEOC Entity-Level Control Tests

Unit of analysis: the entity, assessed against four prongs.

The FEOC determination under 26 USC 7701(a)(51) evaluates whether a manufacturer or supplier is a foreign entity of concern. Four prongs: incorporation in a covered nation, headquarters in a covered nation, 25% ownership or board-appointment by a covered-nation government, and effective control by a covered-nation government.

Archetype A faces this filter through the ownership prong. If the covered-nation parent holds 25% or more of the JV's equity or appoints 25% or more of its board, the JV is an FEOC regardless of where it manufactures. The cell can be made in Ohio. The entity status is determined by the ownership structure.

Archetype B faces it through a different door. Section 7701(a)(51)(D)(ii) defines effective control to include licensing-agreement rights: the right to direct sources of components or critical minerals, direct facility operations, limit use of intellectual property, receive royalties beyond the tenth year, require long service agreements, or withhold technical data needed for independent production. A licensing arrangement that includes any of these features can trigger the effective-control prong even if the startup is 100% U.S.-owned and U.S.-incorporated.

The verification problem at this step is structural. Treasury is required by Section 7701(a)(51)(D)(iii) to issue guidance on effective control, including anti-evasion rules for impermissible technology-licensing arrangements, by December 31, 2026. As of July 10, 2026, no NPRM, proposed rule, or additional interim guidance on the effective-control definition has appeared in the Federal Register or IRS Internal Revenue Bulletins. Notice 2026-15 provides "limited general guidance" and requests comments. The statutory interim definition in 7701(a)(51)(D)(ii) is operative, but the boundary conditions remain unresolved with less than six months until the statutory deadline.

A buyer evaluating Archetype B cannot currently determine whether a specific licensing arrangement triggers effective control. The governing guidance does not yet exist. The buyer's proof file, at this step, contains an entry that reads: "pending Treasury rulemaking, status indeterminate." That is the current state of the regulatory architecture. The gap is structural.

The independence of these filters bears a concrete illustration. Archetype A could plausibly pass Filter 1 on its anode material if the graphite is substantially transformed in a third country before import, establishing a non-China origin under a fact-specific CBP analysis. It could simultaneously fail Filter 2 on the ownership prong if the covered-nation parent holds 25% or more of the JV. Clearing the tariff gate says nothing about clearing the entity gate.

Filter 3 — 45X Eligible Component MACR

Unit of analysis: direct material costs at the component level, calculated facility by facility by the manufacturer.

The 45X advanced manufacturing production credit, claimed by the manufacturer on Form 7207, provides $35/kWh for battery cells and $10/kWh for battery modules, with electrode active materials eligible for 10% of production cost. These are not trivial sums. For a 100 kWh ESS module where the manufacturer also produces the cell, the combined credit exposure is $4,500 per module. Whether that credit survives depends on the facility-level MACR.

The MACR denominator is direct materials only; labor is excluded. For most lithium-ion cell chemistries, cathode active material dominates the direct-material cost stack, which makes CAM sourcing the decisive variable.

Year	45X Non-PFE Threshold	48E Non-PFE Threshold
2026	60%	55%
2027	65%	60%
2028	70%	65%
2029	80%	70%
2030+	85%	75%

The sharpest step in the 45X schedule is the 10-percentage-point jump landing in 2029.

Notice 2026-15 provides three safe harbors: Identification (trace the material), Cost Percentage (demonstrate the cost ratio), and Certification (rely on supplier certifications). The Certification safe harbor allows reliance on supplier certifications, but Section 7701 conditions that reliance: a taxpayer may not rely on a certification it knows or has reason to know is inaccurate.

This filter is the manufacturer's problem to solve and the manufacturer's credit to claim. It becomes the buyer's problem through an absence. No public registry of facility-level 45X claims exists. Section 6103 tax-return confidentiality prevents disclosure. Form 7207 is filed facility by facility, but the filings are not public. Nothing in Notice 2026-15 or the Form 7207 instructions creates a disclosure obligation from manufacturer to downstream buyer.

All three archetypes present the same problem from the buyer's side. A BESS integrator evaluating whether to source from Archetype A, B, or C has no independent path to verify whether any of their facilities pass the MACR. The buyer can request the information contractually. The buyer cannot compel it statutorily. The buyer cannot verify it against a public record. Based on a review of public filings, investor presentations, and sustainability reports from major U.S. cell manufacturers, including Korean-parented operations, none disclose facility-level MACR calculations, safe-harbor elections, or per-facility 45X claim status. The tax code does not require them to.

Filter 4 — 48E Clean Electricity MACR

Unit of analysis: the buyer's own project-level direct costs for the energy storage technology.

This is where the filters converge on the buyer's own tax position, and the economic stakes are significant. The 48E ITC provides a 6% base credit (30% with prevailing wage and apprenticeship requirements met) on qualified investment, with a 10-percentage-point domestic content bonus adder. For a $50 million BESS project, the difference between qualifying and failing to qualify for the full bonus-eligible credit can exceed $15 million. The proof file carries real economic weight.

Section 48E(c)(3) excludes energy storage technology from credit eligibility if construction begins after December 31, 2025 and the construction includes material assistance from a prohibited foreign entity. Section 7701(a)(52) defines the Clean Electricity MACR as a ratio using the taxpayer's total direct costs attributable to manufactured products and components incorporated into the energy storage technology, reduced by costs attributable to products and components mined, produced, or manufactured by a PFE.

The 48E thresholds are lower than the 45X thresholds in every year (see table above). A manufacturer could pass its own MACR while the buyer's project-level MACR, incorporating other components and system costs, fails. The reverse is also possible. The two calculations share some inputs but are performed by different taxpayers, at different system boundaries, against different thresholds.

Archetype C illustrates the interaction. A facility converting from EV to ESS production may have an established 45X MACR based on its prior material supply chain. If the conversion involves a changed cathode supplier, a different anode source, or a reformulated electrolyte, the manufacturer's MACR must be recalculated for the new bill of materials. Simultaneously, the BESS buyer incorporating those cells must calculate its own Clean Electricity MACR across all components in the energy storage system. BMS boards, thermal management hardware, interconnection busbars, enclosure materials — all enter the buyer's denominator. The cell-level MACR and the system-level MACR are different calculations answering different questions for different taxpayers.

Notice 2026-15 introduces a further complexity that this piece notes but does not fully trace: a taxpayer claiming 48E for qualified interconnection property must calculate a separate Clean Electricity MACR for that property. Failure on the interconnection MACR removes those expenditures from the qualified investment without necessarily disqualifying the facility credit, provided the facility-level MACR is satisfied. The proof file comprises a set of nested, taxpayer-specific calculations, each with its own scope boundary.

The Verification Dead-Ends

These are procurement risks that belong in the proof file as open items.

No public 45X claims registry. A buyer cannot confirm whether a specific facility has claimed 45X, what MACR it reported, or which safe harbor it elected. Section 6103 prevents this. The only path is contractual disclosure from the manufacturer.

Safe-harbor tables not yet issued. Notice 2026-15 contemplates safe-harbor tables that would simplify the Certification safe harbor. The statutory deadline for Treasury guidance is December 31, 2026. No tables have been published.

Effective-control guidance unissued. The boundary between a permissible technology license and an impermissible effective-control arrangement remains undefined by regulation. The statutory interim definition lists specific licensing-agreement rights, but Treasury's implementing guidance, including anti-evasion rules, does not exist.

No downstream verification mechanism. Nothing in 26 USC 48E, Notice 2026-15, or the Form 7207 instructions creates a statutory obligation for a cell manufacturer to certify its PFE/MACR status to a downstream buyer. The 48E taxpayer must substantiate its own Clean Electricity MACR, which requires information about the PFE status of components it incorporates, but the statute gives the buyer no tool to compel that information beyond ordinary contract negotiation.

What the Proof File Requires

A procurement team sourcing domestically manufactured cells for a 48E-eligible BESS project must build and maintain four independent compliance threads. The Section 301 filter requires HTSUS classification and country-of-origin analysis for each imported material, at the component level, refreshed per import entry. The FEOC filter requires entity-level diligence on ownership, board composition, and licensing arrangements against a control definition that is partially unwritten, reassessed per taxable year and whenever the supplier's corporate structure or licensing terms change. The manufacturer's 45X MACR filter requires information the buyer cannot independently obtain or verify, updated per facility per tax year. The buyer's own 48E MACR requires a project-level calculation that depends on inputs from all of the above, performed per qualified investment.

A single document, a single supplier representation, a single compliance check cannot resolve all four. The proof file is the deliverable. As of July 2026, several of its required inputs do not yet have a source.