Tax Incentives Make Sustainability More Rewarding
All too often, businesses launch sustainability initiatives for good financial reasons but overlook tax incentives
that could make their decision even more advantageous. Authors Howard Wagner and Scott Tarney explain why and how businesses should review their sustainability initiatives to take full advantage of the many incentives now available at the federal, state, and local levels.
Howard M. Wagner, CPA, Scott Tarney, Crowe Horwath LLP
"Going green" is no longer just a matter of improving a company's image or fostering good community relations. In many cases it's also a matter of good economic sense. Most top managers today recognize the significant financial and strategic benefits that come with managing operations in a way that minimizes long-term environmental impact.
For a variety of reasons - including cost savings, customer expectations, competitive advantage, and logistical considerations - more and more companies are devoting time and resources to the effort to reduce waste, restrict or clean up emissions, decrease energy consumption, increase recycling, and shift to alternative energy sources such as wind, solar, and biofuel.
If you are engaged in any program of this nature, there is a good chance your company is eligible to receive some type of incentive - probably several - from federal, state, or local governments. These incentives might take the form of property tax abatements, sales tax exemptions, income tax credits, discretionary grants, low-interest financing, or one or more of many other available incentive programs.
In many cases, companies are already undertaking these efforts for competitive or strategic reasons. As such, it simply makes sense for companies to structure such programs in a way that makes them eligible for any available incentives. The tax benefit, when combined with cost savings, competitive advantage, and the prestige of a green label, can help make sustainability more financially feasible.
Activities That Qualify for Incentives
What types of activities might be eligible for incentives? Literally hundreds of programs can qualify for advantageous tax treatment. Examples include:
•Installing pollution control equipment;
•Investing in energy-efficient buildings or components;
•Manufacturing products from recycled materials;
•Investing in systems to capture items from a company's waste stream for recycling or use by others;
•Undertaking environmental remediation activities;
•Adapting manufacturing or other processes to use alternate energy sources such as solar, wind, geothermal wind, and biomass; and
•Producing alternative fuels for vehicles or using alternative fuels to power a company's own fleet.
The types of incentives offered to encourage such activities represent just about every type of government sponsored tax benefit imaginable, including investment-, production-, or consumption-based income tax credits; accelerated depreciation for certain capital expenses; property tax reductions or abatements; and exemptions from state or local sales taxes for the purchase of relevant equipment or components. What's more, the virtually endless list of incentives is constantly changing as some expire and others are added.
At the federal level, many sustainability incentives are fairly well-publicized.
High-profile examples include fuel credits for producers, sellers, and users of alcohol-based or biodiesel fuels in vehicles. Tax credits related to energy-efficient building design and construction are also fairly well-known, at least within their industries and in certain geographic regions. Examples include tax credits for installing equipment that uses solar energy to generate electricity or to heat or cool a structure.
Businesses are also eligible for an immediate deduction of expenses attributable to qualified energy-saving improvements to certain commercial buildings. The requirements for such incentives are, necessarily, detailed and technical in nature, but compliance is usually well worth the effort. In many cases, cost- and energy-saving equipment that makes long-term economic sense can be even more beneficial simply if it meets the requirements of the various incentive programs.
The array of federal incentives continues to expand regularly. The most prominent example occurred when the Emergency Economic Stabilization Act of 2008 was expanded to incorporate an entire section named the Energy Improvement and Extension Act of 2008. This legislation, signed into law in early October 2008, extended several important incentives that were due to expire and introduced a new program to encourage the design and development of pollution control systems, alternative energy systems, and processes to capture excess energy from a manufacturing process.
The final legislation devotes nearly 150 pages of text to the extension, modification, and creation of new energy and emissions-related incentives. These range from tax credits for electricity produced from marine renewable resources, wind power, and geothermal heat pump systems to incentives for carbon dioxide sequestration, biodiesel and other alternative fuels, plug-in electric drive motor vehicles, idling reduction units for heavy trucks, alternative fuel vehicle-refueling facilities, energy-efficient commercial buildings and residences, and many more. The act also provides for accelerated depreciation for purchases of equipment used to collect, distribute, or recycle a variety of commodities.1