Take advantage of green tax planning opportunities
- 1. Green tax incentives and credits for businesses and individuals Federal and state planning ideas
- 2. Green tax incentives and credits for businesses and individuals 1 Contents Page Introduction 2 Federal incentives 3 State and local incentives 6 Appendix A: Energy credits and incentives 8 Appendix B: Alternative fuel credits and incentives 11 About Grant Thornton 13 © 2009 Grant Thornton LLP. All rights reserved.
- 3. Green tax incentives and credits for businesses and individuals 2 Introduction Due to the increased cost of energy and dependence on foreign oil and the environmental impact of current energy usage, many companies have elevated the concept of “going green” to the top of their agenda. Increasingly, companies are seeking ways to exhibit their corporate citizenship toward a green future. This “green” focus is also being followed by the government, which is using tax incentives to drive corporate behavior. Both federal and state governments are expanding tax credits, incentives and grant programs to help companies produce energy from renewable sources and to encourage businesses to “go green.” Many of these credits and incentives are designed to foster sustainability programs. In this context, “sustainability” refers to a business using renewable energy sources to sustain its business operations. Businesses can also take advantage of many of the energy tax incentives meant for consumers or the energy industry. © 2009 Grant Thornton LLP. All rights reserved.
- 4. Green tax incentives and credits for businesses and individuals 3 Federal incentives Green incentives and credits for ordinary businesses Energy-efficient commercial business deduction (Section 179D) 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, or building envelope property that reduces power use to 50 percent compared to a reference building. A $0.60 per square foot deduction is available for certain lesser reductions. Certification is required and the provision expires for property placed in service after 2013. Business energy investment tax credit (Section 48) Provides taxpayers a 10 percent or 30 percent credit for alternative energy property designed to generate power for the taxpayer’s own use. The recently passed stimulus bill also allows businesses to apply to the IRS to take this credit as a grant. Property qualifying for the 30 percent credit includes: • Qualified fuel cell property that generates electricity • Solar property used to generate electricity, for heating or cooling, or to provide solar process heat (10 percent credit after 2016) • Qualified small wind turbines Property qualifying for the 10 percent credit includes: • Solar property used to illuminate a building using fiber optic distributed sunlight (expires after 2016) • Equipment for producing or distributing geothermal energy • Qualified micro turbines (small combustion turbines) • Combined heat and power systems • Equipment that uses the ground or ground water to heat or cool a structure (expires after 2016) Alternative motor vehicle credit (Section 30B) Section 30B provides a 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. © 2009 Grant Thornton LLP. All rights reserved.
- 5. Green tax incentives and credits for businesses and individuals 4 Plug-in electric vehicle credit (Section 30D) Section 30D provides a credit for consumers, both businesses and individuals, who purchase or lease and place in service a qualifying plug-in hybrid vehicle. The credit is available in three forms: • $7,500 maximum credit for qualifying cars and trucks; • 10 percent credit up to $2,500 for low-speed vehicles, motorcycles and three-wheeled vehicles; and • 10 percent credit up to $4,000 for plug-in vehicle conversions. Alternative refueling property credit (Section 30C) Section 30C provides a 50 percent credit (30 percent for hydrogen) of up to $50,000 ($200,000 for hydrogen) for installing qualified clean-fuel vehicle refueling property to be used in a trade or business. Clean-burning fuels are at least 85 percent composed of ethanol, natural gas, compressed natural gas, liquefied natural gas, liquefied petroleum gas or hydrogen – or any mixture of biodiesel and diesel fuel containing at least 20 percent biodiesel. Qualified reuse and recycling property (Section 168(m)) Businesses can take the equivalent of bonus depreciation for qualified reuse and recycling property that otherwise would not qualify for bonus depreciation. Qualified property reuse and recycling property is machinery or equipment that is used exclusively to collect, distribute or recycle qualified reuse and recyclable materials. It also includes software necessary to operate such equipment. Fringe benefits for employees (Section 132) There are two new “green” provisions allowing increased fringe benefits. Fringe benefits provided to employees are not taxed as income, even if the employer offers the employee a choice between cash compensation and the fringe benefit. • Bicycle commuters are now allowed a $20 per month fringe benefit exclusion. • The fringe benefit exclusion for transit is increased from $120 to $230 in 2009. Incentives for specific manufacturers and developers Energy-efficient appliance credit (Section 45M) Section 45M 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 (Section 45L) Section 45L 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 (Section 40) Businesses can take a 60 cents per 190-proof gallon credit for alcohol produced for use as a fuel or blending into fuel. An additional 10 cents per gallon small ethanol producer credit is available, as is a higher credit rate for cellulosic biofuel. © 2009 Grant Thornton LLP. All rights reserved.
- 6. Green tax incentives and credits for businesses and individuals 5 Biodiesel and renewable diesel credit (Section 40A) Section 40A provides up to a $1.00 per gallon credit for qualifying biodiesel and renewable diesel, similar to the Section 40 ethanol credit. The incentive may be taken as an income tax credit, an excise tax credit or as a payment from Treasury. Incentives geared to energy industry Renewable electricity production credit (Section 45) Section 45 provides a per-kW credit for producing and selling electricity from renewable sources such as wind, solar, hydro, geothermal and biomass. Typically, it is used by the utility industry, but it is also used by some manufacturers and businesses that produce excess electricity from renewable sources and sell it back to the grid. The new stimulus bill allows taxpayers who place property in service that would qualify for this credit to elect to claim the Section 48 credit instead. The new stimulus bill also will allow taxpayers to apply to take this credit as a grant. Advanced energy manufacturing credit (Section 48M) Section 48M provides a new 30 percent credit for investment in qualified property used in qualified advanced energy manufacturing projects. It is one of the only credits created specifically for energy property manufacturers (rather than the taxpayer placing energy property in service). Treasury must establish a certification program within 180 days of enactment and may allocate up to $2.3 billion in credits. Alternative fuel credit (Sections 6426 and 6427) Sections 6426 and 6427 provide various per gallon credits for alternative fuels, including alcohol or ethanol. Personal incentives for individuals Residential energy-efficient home improvements credit (Section 25C) Individuals can take a 30 percent credit of up to $1,500 for installing in their homes energy-efficient property, such as water heaters, furnaces, boilers, heat pumps, air conditioners, building insulation, windows, doors, roofs or circulating fans used in a qualifying furnace. Residential energy-efficient property credit (Section 25D) Individuals can take a 30 percent personal tax credit for energy-efficient property, such as solar water heaters, geothermal heat pumps, fuel cells or wind turbines. © 2009 Grant Thornton LLP. All rights reserved.
- 7. Green tax incentives and credits for businesses and individuals 6 State and local incentives States offer numerous incentives to promote the production and use of renewable energy. These incentives, which vary widely among states, include corporate income tax deductions, exemptions and credits. States provide property tax assessment relief and exemptions, as well as sales tax exemptions and refunds. Many states also offer grant and rebate programs. Incentives for businesses Many states encourage businesses to develop renewable energy and to improve energy efficiency. For example, several states provide both credits and incentives for the construction or remodeling of energy efficient properties, and many local utilities offer significant incentives (including cash rebates for building owners) as well. State tax credit programs can help finance the costs of renewable energy projects such as solar equipment and wind farms and can provide dollar-for-dollar reductions of tax liability for the owners or lessees of these facilities. Some programs (the Pennsylvania Resource Enhancement and Protection (REAP) program, for example) allow the matching of a developer and investor, allowing both sides to benefit from the transaction. Frequently, a potential developer is capital constrained and has limited or no tax liability (and therefore, little use for the tax credit). As a remedy, a third-party investor can be found to provide the financing in exchange for the tax credit. States offer a wide variety of green credits and incentives. For example, Florida provides a corporate income tax credit based on the taxpayer's production and sale of electricity from a new or expanded Florida renewable energy facility. Florida also provides sales tax exemptions for solar energy systems and equipment, machinery and other materials for renewable energy technologies. In addition, Florida offers rebates under the Solar Energy System Incentives Program and grants through the Renewable Energy and Energy-Efficient Technologies Grants Program. Florida also has numerous local incentive programs. The multistate green credit matrix in Appendix A provides a convenient method for identifying information and state programs related to renewable energy and energy efficiency. The matrix details a variety of state energy credits and other tax incentives available to businesses throughout the United States, including: • Corporate income tax deductions, exemptions and tax credits; • Excise tax, green building, production leasing, lease purchaser and other incentives; © 2009 Grant Thornton LLP. All rights reserved.
- 8. Green tax incentives and credits for businesses and individuals 7 • Industry recruitment and support; • State and local bond, loan, grant and rebate programs, and private grant programs; • Utility grant, loan and rebate programs, and utility rate discounts; • Personal income tax deductions and tax credits; • Property tax assessment relief and exemptions; and • Sales tax exemptions and refunds. A particular state may offer numerous types of tax credits and incentives to encourage renewable energy and energy efficiency. Personal incentives for individuals Alternative fuel and vehicle incentives State laws include provisions to encourage the production and use of alternative fuels. States promote the use of alternative fuels with credits, grants, loans, rebate programs, tax refunds, tax deductions, tax reductions, incentives and exemptions. To encourage the use of alternative fuel vehicles, states offer credits, grants, loans, rebate programs, incentives and exemptions. States provide numerous tax incentives for alternative fuels and alternative fuel vehicles. For example, Illinois has grants available under the Renewable Fuels Development Program Act and rebates available under the Alternate Fuels Act. New York offers an alternative fuels credit, biofuel production credit and funding programs for alternative fuels and alternative fuel vehicles. The matrix in Appendix B details the availability of alternative fuel credits, grants, loans, rebate programs, tax refunds, tax deductions, tax reductions, incentives and exemptions. The matrix also lists the available credits, grants, loans, rebate programs, incentives and exemptions for vehicles. The information contained herein is general in nature and based on authorities that are subject to change. It is not intended and should not be construed as legal, accounting or tax advice or opinion provided by Grant Thornton LLP to the reader. This material may not be applicable to or suitable for specific circumstances or needs and may require consideration of nontax and other tax factors. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Grant Thornton LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, re-keying or using any information storage and retrieval system without written permission from Grant Thornton LLP. © 2009 Grant Thornton LLP. All rights reserved.
- 9. Green tax incentives and credits for businesses and individuals 8 Appendix A: Energy credits and incentives Renewable energy and energy efficiency credit incentives Type of incentive AK AL AR AZ CA CO CT DC DE FL GA HI IA ID IL IN KS Corporate deduction Corporate exemption Corporate tax credit x x x x x Excise tax incentive x Green building incentive x x x x Industry recruitment/ support x x x x Leasing/lease purchase x x Local bond program x Local loan program x x x Local grant program x x Local rebate program x x x Other incentive x Personal deduction x x x x Personal tax credit x x x x Private grant program x x x Production incentive x x x x x x x Property tax assessment x x x x Property tax exemption x x x x x x x x x x Sales tax exemption x x x x x x x Sales tax refund x State bond program x State grant program x x x x x x x x State loan program x x x x x x x x x State rebate program x x x x x x x Utility grant program x x x x x Utility loan program x x x x x x x x x x x Utility rate discount x Utility rebate program x x x x x x x x x x x x x x AK AL AR AZ CA CO CT DC DE FL GA HI IA ID IL IN KS © 2009 Grant Thornton LLP. All rights reserved.
- 10. Green tax incentives and credits for businesses and individuals 9 Renewable energy and energy efficiency credit incentives KY LA MA MD ME MI MN MO MS MT NC ND NE NH NJ NM NV Corporate deduction x x Corporate exemption x Corporate tax credit x x x x x x x x Excise tax incentive Green building incentive x Industry recruitment/ support x x x x x Leasing/lease purchase x Local bond program Local loan program x Local grant program Local rebate program x Other incentive Personal deduction x x Personal tax credit x x x x x x x x Private grant program x Production incentive x x x x x x x x Property tax assessment x x x x Property tax exemption x x x x x x x x x x Sales tax exemption x x x x x x x x x Sales tax refund State bond program x x State grant program x x x x x State loan program x x x x x x x x x x x x State rebate program x x x x x x x x Utility grant program x x x x Utility loan program x x x x x x x x x x Utility rate discount x x Utility rebate program x x x x x x x x x x x x x x x KY LA MA MD ME MI MN MO MS MT NC ND NE NH NJ NM NV © 2009 Grant Thornton LLP. All rights reserved.
- 11. Green tax incentives and credits for businesses and individuals 10 Renewable energy and energy efficiency credit incentives NY OH OK OR PA RI SC SD TN TX UT VA VT WA WI WV WY Corporate deduction x Corporate exemption x x Corporate tax credit x x x x x x x Excise tax incentive Green building incentive x x x x Industry recruitment/ support x x x x x x x x Leasing/lease purchase x Local bond program Local loan program x Local grant program x x x Local rebate program x Other incentive Personal deduction Personal tax credit x x x x x x Private grant program x x Production incentive x x x x x x x x x x Property tax assessment x x x x x Property tax exemption x x x x x x x x x x Sales tax exemption x x x x x x x x x x x Sales tax refund State bond program State grant program x x x x x x x x x x x x State loan program x x x x x x x x x x x State rebate program x x x x x x Utility grant program x x x x Utility loan program x x x xx x x x x x x x x Utility rate discount x Utility rebate program x x x x x x x x x x x x x x x NY OH OK OR PA RI SC SD TN TX UT VA VT WA WI WV WY © 2009 Grant Thornton LLP. All rights reserved.
- 12. Green tax incentives and credits for businesses and individuals 11 Appendix B: Alternative fuel credits and incentives Alternative fuel and vehicle credits and incentives Federal AK AL AR AZ CA CO CT DC DE FL GA HI IA ID IL IN KS Alternative fuel Credits x x x x x x x x x Grants x x x x x x x x x Loans x x x Rebate programs x Tax refund Tax deduction x Tax reduction x Incentives x x x x x x x x x Exemptions x x x x Vehicle credit Credits x x x x x x x Grants x x x x Loans x Rebate programs x x Incentives x x x x x x x x Exemptions x x x Federal AK AL AR AZ CA CO CT DC DE FL GA HI IA ID IL IN KS © 2009 Grant Thornton LLP. All rights reserved.
- 13. Green tax incentives and credits for businesses and individuals 12 Alternative fuel and vehicle credits and incentives KY LA MA MD ME MI MN MO MS MT NC ND NE NH NJ NM NV Alternative fuel Credits x x x x x x x x x Grants x x x x x x x x Loans x x Rebate programs x Tax refund x Tax deduction Tax reduction x x x Incentives x x x x x x x x x Exemptions x x x x Vehicle credit Credits x x x x x Grants x x Loans x Rebate programs x Incentives x x x x x Exemptions x x KY LA MA MD ME MI MN MO MS MT NC ND NE NH NJ NM NV Alternative fuel and vehicle credits and incentives NY OH OK OR PA RI SC SD TN TX UT VA VT WA WI WV WY Alternative fuel Credits x x x x x x x x Grants x x x x x x x x Loans x x x x Rebate programs Tax refund x x Tax deduction x Tax reduction Incentives x x x x x x Exemptions x x x x Vehicle credit Credits x x x x x x x Grants x x x x x x x Loans x x x x x Rebate programs x x Incentives x x x x Exemptions x x NY OH OK OR PA RI SC SD TN TX UT VA VT WA WI WV WY © 2009 Grant Thornton LLP. All rights reserved.
- 14. Green tax incentives and credits for businesses and individuals 13 About Grant Thornton The people in the independent firms of Grant Thornton International Ltd provide personalized attention and the highest quality service to public and private clients in more than 100 countries. Grant Thornton LLP is the U.S. member firm of Grant Thornton International Ltd, one of the six global audit, tax and advisory organizations. Grant Thornton International Ltd and its member firms are not a worldwide partnership, as each member firm is a separate and distinct legal entity. Tax professional standards statement This document supports the marketing of professional services by Grant Thornton LLP. It is not written tax advice directed at the particular facts and circumstances of any person. Persons interested in the subject of this document should contact Grant Thornton or their tax advisor to discuss the potential application of this subject matter to their particular facts and circumstances. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed. To the extent this document may be considered written tax advice, in accordance with applicable professional regulations, unless expressly stated otherwise, any written advice contained in, forwarded with, or attached to this document is not intended or written by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed under the Internal Revenue Code. © 2009 Grant Thornton LLP. All rights reserved.
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