The increased cost of energy, the country’s dependence on foreign oil and the environmental impact of current energy use have inspired many companies to “go green.” Federal and state governments are expanding tax credits, tax incentives and grant programs to create economic incentives to help companies produce and/or use energy from renewable sources. Here are a few tips to help your company “go green.” As with all tax advice, be sure to consult with an expert as these laws are subject to various limitations, phase-outs and other nuances.
Federal incentives and credits for general businesses
- Energy-efficient commercial business deduction – Businesses can deduct up to $1.80 per square foot of space in new or existing buildings where they install interior lighting, HVAC or hot water systems.
- Business energy investment tax credit – A 10 percent credit (for geothermal, microturbines or combined heat and power systems) or a 30 percent credit (for solar, fuel cells or small wind turbines) for alternative energy property designed to generate power for the taxpayer’s own use.
- Alternative motor vehicle credit - A tax credit of up to $2,400 for the purchase of a qualifying fuel cell, hybrid, advanced lean burn technology or alternative fuel vehicle. There are various phase-outs depending on the make and model of the vehicle.
- Plug-in electric vehicle credit - A credit of up to $7,500 (depending on type of vehicle) for consumers, including businesses and individuals, who purchase or lease and place in service a qualifying plug-in hybrid vehicle.
- Qualified reuse and recycling property - Businesses can take the equivalent of bonus depreciation for qualified reuse and recycling property that otherwise would not qualify. The machinery or equipment must be used exclusively to collect, distribute or recycle qualified reuse and recyclable materials.
- Fringe benefits for employees – Bicycle commuters are now allowed a $20 per month fringe benefit exclusion and the transit fringe benefit exclusion has been increased to $230 in 2009.
Federal incentives for specific manufacturers and developers
- Energy-efficient appliance credit - Provides manufacturers of appliances a credit for the production of energy-efficient clothes washers ($75–$250), dishwashers ($45–$75) and refrigerators ($50–$200).
- Energy-efficient new homes credit – Provides homebuilders and developers a credit of up to $2,000 for newly constructed homes that meet certain energy-efficiency standards.
- Alcohol fuel (ethanol) producer credit - Businesses can take a 60 cent per 190-proof gallon credit for alcohol produced for use as a fuel or to be blended into fuel. An additional 10 cents per gallon small ethanol producer credit is available, as is a higher credit rate for cellulosic biofuel.
- Biodiesel and renewable diesel credit - Provides up to a $1.00 per gallon credit for qualifying biodiesel and renewable diesel, similar to the ethanol credit. The incentive may be taken as an income tax credit, an excise tax credit or as a payment from Treasury.
- Renewable energy operations credit - Arizona enacted a refundable corporate income tax credit for qualified investment and employment in expanding or locating qualified renewable energy operations in Arizona. The credit is available for tax years beginning on or after December 31, 2009 through December 31, 2014. The credit is 10 percent of the capital investment in projects meeting minimum employment requirements.
- Pollution control equipment credit - Taxpayers may claim an income tax credit for 10 percent of the purchase price of property used in the taxpayer’s business to control pollution. The credit applies to certain qualifying equipment that reduces the pollution resulting from the taxpayer’s operations in Arizona. The maximum credit that a taxpayer may claim is $500,000 per tax year.
Ken Garrett is a partner and the tax practice leader in the Phoenix office of Grant Thornton, LLP. For more information, please contact Ken at 602.474.3456 or at firstname.lastname@example.org