Tag Archives: tax incentives

Tax Incentives - AZRE Magazine July/August 2010

Tax Incentives for Green Construction Projects

It Saves to be Green – Tax Incentives

Though famous for saying, “It’s not easy being green,” Kermit the Frog may be singing a different tune in today’s economy, where going “green” often comes with significant opportunities for tax incentives and savings.

Both the federal government and many states, including Arizona, provide a range of tax credits and other financial incentives for builders to go green. Key among these incentives are federal’s energy-efficient commercial buildings tax deduction and energy investment tax credit, and the State of Arizona’s commercial and industrial solar tax credit and renewable energy tax incentive program. Unfortunately, many builders and real estate professionals have been slow to reap the benefits of these green project incentives, often leaving cash on the table.

Federal Level

Energy-Efficient Commercial Buildings Deduction

Enacted as part of the Energy Policy Act of 2005, the federal energy-efficient commercial buildings deduction provides owners with an immediate tax deduction for all or part of the cost of installing certain energy-efficient property. The deductible amount is up to $1.80 per square foot for the installation of interior lighting, heating, cooling, ventilation, hot water or building envelope systems that are installed as part of a plan to reduce the amount of power used by 50 percent or more, in comparison to a reference building as defined in the Treasury Regulations. The deduction is available for property that is “placed in service” before Dec. 31, 2013, and covers “green” projects such as the installation of automatic lighting controls, efficient insulation, and the use of recycled water for cooling and restroom facilities.

Energy Investment Tax Credit

The federal energy investment tax credit is aimed at encouraging taxpayers to produce and use energy sources other than oil or gas. Under the Internal Revenue Code (IRC), businesses are entitled to claim a 10 percent or 30 percent credit for installing systems that generate energy for the business’ own use. A 30 percent credit is available for the installation of equipment using solar energy to generate electricity or to heat or cool a building, fuel cells that generate electricity, and small wind energy property. A 10 percent credit is available for the installation of a solar system for lighting a building, certain combined heat and power systems, and equipment using groundwater for heating or cooling. In order to claim the credit, the taxpayer must either construct or reconstruct the property, or be the first user of the property, and the residence must satisfy certain performance and quality standards set forth in the Treasury Regulations.

State Level

Arizona Commercial/Industrial Solar Energy Tax Credit

Under Arizona Revised Statutes (ARS), an income tax credit is available to businesses that install one or more solar energy devices in an Arizona facility. The tax credit is equal to 10 percent of the cost of the solar energy device, with up to $25,000 of tax credit available for a single building. The credit is available through the Arizona Department of Commerce (ADOC), which is authorized to certify up to $1 million in solar energy credits per year. Solar energy devices qualifying for the credit generally include devices designed to provide heating, cooling or daylighting, or to produce electrical power from solar energy.

Arizona Renewable Energy Tax Incentive Program

Effective Jan. 1, 2010, the State of Arizona began offering a tax incentive program aimed at encouraging renewable energy product manufacturers to relocate to Arizona, or expand their local operations. The program provides income and property tax incentives to businesses in the solar, wind, geothermal or renewable energy industries that make certain qualifying investments in manufacturing or headquarter operations in Arizona. Qualifying businesses may receive a refundable income tax credit, as well as real and personal property tax reductions. The credit is available through the ADOC, which is authorized to certify up to $70 million in income tax credits for a five-year period, beginning on Jan. 1, 2010.

The green tax credits and incentives highlighted above represent only the surface of potential tax and financial benefits available to companies committed to green construction. However, because the ability to claim tax incentives and credits for green projects often involves some pre-planning, certification or record keeping requirements, consulting with a professional tax adviser prior to undertaking a green construction project is advisable.

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Article written for AZRE by Kelly C. Mooney, J.D., L.L.M., who is a shareholder in the Tax Department at Gallagher & Kennedy P.A. She practices in the area of federal tax law, with an emphasis on the taxation of individuals, corporations, partnerships, tax-exempt entities, estates and trusts, and civil tax controversy matters.



AZRE Magazine July/August 2010

USA Energy Guide

Green News Roundup – Alternative Energy, USAEnergyGuide & More

I’m always on the lookout for developments in the local sustainability industry. USAEnergyGuide was started by three Arizona entrepreneurs passionate about the environment. Realizing that rebate and tax incentives are hard for consumers to navigate, they jumped at the opportunity to create a site that would be simple and user-friendly.

Originally only for Arizona residents, the site has recently expanded to include California and Texas with plans to add more states in the future. USAEnergyGuide is your free online source used to calculate rebates and savings that you can receive by switching to more sustainable forms of energy.

I had the pleasure of meeting with two of the company’s founders — Michael Barber, director of operations and Ken Bonham, director of business development — who took the time to answer a few questions I had about their company.

What led to the creation of USA Energy Guide?
One of our Founders was going through the process of researching how much it would cost to install solar panels on their home, how much they would save on a monthly and yearly basis and what the tax incentives and rebates were, but couldn’t find a site that answered all these questions. So, we sat down and mapped out how we could make this process easier for consumers.

What challenges did you encouter and how were these overcome?
Similar to many startups we had the classic chicken and egg scenario. In order for the company to be successful, we needed installers who matched our qualification criteria and qualified leads (consumers) who were interested in being contacted by these installers. We worked to introduce ourselves to every installer in the markets we served so they could understand how we could help them be successful and also focused on connecting to consumers via social media. Along the way, various local media outlets stumbled across our site and did stories on us. The press stories and word of mouth helped us overcome both these initial challenges.

What are the company’s full line of  services?
For consumers, we provide simple ways to understand how much money alternative energy would save them, what rebates and incentives are available in their geographic area and all associated rebates for the products they are interested in. For installers, we provide leads to consumers and business owners who are qualified and ready to purchase these products.

What is your favorite aspect of the industry/company?
Our favorite aspect of the sustainability and alternative energy industry is that it is rapidly expanding and changing every day. There are new advances in solar technology and energy efficiency regularly, and more and more consumers are trying to understand how they can minimize their impact on the environment. This makes every day different and pushes our team to understand how we can help both our customers — installers and consumers — reach their goals.

What kind of a role do you think sustainability plays in today’s Arizona economy?
Right now, the sustainability industry in Arizona is only in its infancy. As costs for alternative energy technology decrease and consumers’ interest in living a greener lifestyle increase, the industry has nowhere to go, but up. However (and this is big however), the industry’s Achilles heel is support from local, state and federal governments. Without broad based government support to spur continued growth, the industry could die a quick death.

What has been the company’s greatest achievement to date?
From the beginning our greatest achievement has been providing information to consumers they couldn’t easily find before. Along with this, it’s the stories we hear from people who have used our site, found qualified installers and are now enjoying solar panels or solar water heaters in their home.

What are your future plans for the company?
While we have been primarily focused on the solar and energy efficiency industries, the sustainability industry goes well beyond those two verticals. We have big plans to not only expand the site beyond those verticals, but become a community where visitors can find a wealth of information across a wide variety of sustainability topics, both on a national and local level.


Wall Street Rescue 2010

Wall Street’s Rescue Package Is Changing Tax Laws For Businesses

The recent financial rescue package signed into law by President Bush on Oct. 3 contains not just $700 billion in federal assistance, but also a number of tax measures that are significant for Arizona businesses.

Renewable energy tax incentives
The renewable energy tax incentives extension was widely anticipated by the industry. Many states, including Arizona, are adopting or expanding their renewable energy standards, and these provisions are designed to make the conversion to renewable energy more tax-efficient.

The 30 percent investment tax credit, particularly the eight-year extension of the Section 48 credit for solar energy, is especially important given Arizona’s potential for solar and alternative energy-related businesses. These incentives are expected to not only continue current investment levels, but also to attract new business investment in Arizona’s alternative energy efforts.

It’s key to note that the energy tax incentives apply to businesses that use them — not to solar energy manufacturers. For example, mixed-use developments adding solar panels to parking garages, construction firms building LEED (Leadership in Energy Efficient Design)-certified structures, and retail centers adding solar roof panels will benefit from the incentive.

Another aspect of the energy credit changes is the elimination of the public utility exception. Two years ago, the Arizona Corporation Commission ruled that regulated electric utilities must generate 15 percent of their energy from renewable resources by 2025. However, utilities have been unable to benefit from this incentive. Regulated utilities may now obtain a 30 percent investment tax credit from their investment in qualifying property.

For instance, if APS purchases solar panels and installs them on your property to provide your electricity, APS will be allowed to take the credit. This provision allows public utilities to own and operate solar and other energy tax credit facilities and include them in their rate base for rate-making purposes.

Research and development credit
The bill extends the research and development tax credit through the end of 2009, increases the alternative simplified research credit from 12 percent to 14 percent for the 2009 tax year, and repeals the alternative incremental research credit for the 2009 tax year.

Given the current economic conditions, this retroactive extension potentially creates both cash benefits and earnings-per-share benefits. Businesses will need to consider the financial statement effect of the research credit now available for 2008, as well as the effect of the retroactive extension on their estimated tax payments for the 2008 tax year. Fiscal-year taxpayers who have already filed their 2007 tax year returns should consider filing amended returns to claim research credits for the period for which the credit had expired. In light of increasing IRS scrutiny, consider your approach and your documentation for the research credits you take. This retroactive extension also provides the opportunity to consider a pre-filing agreement with the IRS for the research credit for the 2008 tax year and beyond.

Alternative minimum tax (AMT)
The AMT is a separately computed tax that eliminates many deductions and credits that are allowed in computing regular tax liability for individuals, estates and trusts. In recent years, Congress has repeatedly enacted a temporary “patch” that significantly raised the applicable AMT exemption amounts. The AMT exemption amounts are phased out for higher-income taxpayers.

The AMT patch for 2008, without which more than 20 million taxpayers would have been hit with AMT liability early next year when filing their 2008 returns, was included in the financial rescue legislation. The legislation also increases the AMT refundable credit amount for individuals with long-term unused credits for prior year minimum tax liability, eliminates the income phase-out, and abates any underpayment of tax (including interest) outstanding on Oct. 3 related to AMT that was generated from the exercise of incentive stock options.

Changing tax law, increased IRS audits and the direct negative ramifications that follow from financial statement restatements mean that achieving certainty in tax positions is more important than ever. Many taxpayers are planning upfront and substantiating all their positions. As companies experience flat or negative results, tax considerations become more important to the bottom line. Tax departments are being asked to find efficient ways to maximize cash and strengthen balance sheets. The new legislation can benefit businesses in this challenging time.

Wayne Hoeing is a partner with Ernst & Young LLP in the firm’s Phoenix office.