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 (4-28-2009)
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State and Local Incentives
Compared to federal incentives, many state and local government incentives are less well-known. For example, many states have enacted some form of legislation to provide incentives related to alternative energy use or energy efficiency. Some states provide a direct subsidy based on the amount of kilowatt hours of energy generated by the use of alternative fuel sources. Corporate income tax benefits might also be offered, either in the form of a credit or through the immediate expensing of a cost rather than depreciating it as a capital investment.
Arkansas, Kentucky, New Jersey, Tennessee, and Virginia offer significant state income tax credits (from 10 to 50 percent) for the purchase of equipment that is used to gather, process, or manufacture products out of postconsumer waste. Many states also offer sales tax exemptions or reduced property tax rates for purchasing and using recycling equipment.
State sales tax, income tax, and property tax benefits are also available for pollution control facilities and related equipment in many areas. For example, Arizona, Georgia, and Oregon offer tax credits for the purchase of such equipment, while West Virginia allows taxpayers to expense the total amount paid or incurred during the tax year for the acquisition, construction, or development of water or air pollution control facilities.
Many states offer incentives for brownfield remediation and development in the form of income tax credits or outright grants for environmental remediation activities.
Some also offer credits to investors in projects on redeveloped land. As a general rule, the remediation activities need to be approved by the U.S. Environmental
Protection Agency (EPA), a state environmental agency, or both.
Governments at both the state and local levels sometimes offer outright grants that can be used to build new manufacturing, distribution, or research facilities in specific communities, or to expand or retrofit existing facilities in order to make them more energy-efficient and sustainable. Property tax abatements are another popular type of discretionary incentive. Many communities offer more complex incentives, such as tax increment financing, which can be used to finance land acquisition, improve infrastructure, renovate buildings, and acquire machinery and equipment.
Not all incentives relate to the installation of facilities and equipment. Some of the most often overlooked incentives are training subsidies and grants, which can help companies defray the startup costs of a new location or a sustainability-related expansion or upgrade.
An Organized, Disciplined Approach
With so many incentives available for such a diverse array of activities, how can the tax or finance officer be sure his or her company is taking full advantage of available incentives? Since many of these incentives have pre-certification requirements, it is important to ensure that sustainability initiatives are designed from the outset to take advantage of these incentives rather than attempting to qualify after an initiative is in process and it is too late.
An organized, disciplined approach is needed as part of an organizationwide strategic commitment to sustainability. By taking three important steps, a finance or tax executive can begin to establish such an environment.
1. Become Familiar With What Is Out There.
Even a few minutes of effort online will give you an appreciation of the virtually endless list of incentives available for green initiatives. Various Web sites operated by the U.S. Department of Energy and the EPA are a good place to start. A number of privately operated Web sites also offer listings and links to dozens of recycling incentives at all levels of government.
2. Improve Communication.
In many companies, engineers, facility managers, compliance officers, and others in the operations end of the business are implementing a wide range of sustainability-related programs. Unless the tax and finance departments are made aware of these efforts, however, the available incentives could go uncollected because of required pre-certification processes. Conversely, unless the finance and tax officers alert the operations and engineering groups to the importance of seeking out and qualifying for such incentives upfront, the engineers have no basis for incorporating incentive opportunities into their decision-making processes.
Part of the problem is that the various departments speak different languages - at least in terms of their professional dialogue and priorities. This problem can be overcome only through a concerted effort and a strong, deliberate, and visible commitment from the senior executive levels of the company to open up the lines of communication.
Another challenge for many finance and tax professionals is simply ensuring that they are involved with the corporate sustainability effort so they can add value. The tax or finance department should be represented on any internal working group that addresses decisions related to sustainability, site determination, or expansion.
3. Get Qualified, Professional Advice.
As even a cursory review of the available incentives illustrates, it's virtually impossible for a finance or tax executive to get a complete grasp of the entire range of incentives that might be applicable to a company. Even companies with large and efficient finance and tax departments can benefit from the services of an objective and independent adviser with specific knowledge of tax incentives at the federal, state, and local levels.
In most cases, an adviser performs a comprehensive review of the potentially applicable sustainability incentives and helps the company identify unclaimed benefits for completed projects. Often the adviser can also help the organization prepare the necessary certifications for incentives and advise how to structure and implement sustainability initiatives for the maximum possible future benefit.
Take Full Advantage
As companies re-evaluate their sustainable business practices in light of volatile energy costs and changing customer demands, it is important that they take advantage of all available tax incentives and other government support programs. Such initiatives represent an opportunity for the corporate tax department to provide direct, bottom-line benefits to the organization by ensuring that sustainability efforts achieve the maximum return on investment.Howard Wagner is an executive with Crowe Horwath LLP in the Louisville, Ky., office. He can be reached at 502.420.4567 or firstname.lastname@example.org.
Scott Tarney is an executive with Crowe Horwath LLP in the Columbus, Ohio, office. He can be reached at 614.469.4001 or email@example.com.
1Final text of amended H.R. 1424 (pp. 113-261).
Originally published in MidMarket Advantage, a publication of Crowe Horwath LLP. Reprinted with permission.