Going Green Can Yield Tax Savings

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1 Going Green Can Yield Tax Savings In response to increased energy costs and dependence on foreign oil, many companies are going green in the current economy. This act of corporate citizenship can help reduce a company s energy consumption and open the door for favorable tax incentives and credits designed by the government to promote energy sustainability. Federal Credits and Incentives Energy Efficient Commercial Building Deduction (Section 179D) The design and construction of energy efficient commercial buildings is encouraged under the provisions of Internal Revenue Code Section 179D. Eligible properties must be placed in service by the owner after December 31, 2005 and before January 1, Taxpayers can deduct $1.80 per square foot of building space in new or existing structures in which interior lighting, HVAC or hot water systems, or building envelope property has been installed that reduces the total energy and power costs by at least 50% when compared to the baseline standard. Partial deductions are available for individual building systems. If the energy efficient property is installed in property owned by a governmental entity (or subdivision thereof), the deduction can be allocated to the person primarily responsible for the design. Certification by a party independent from the taxpayer is required to establish the amount of the deduction. Business Energy Investment Tax Credit (Section 48) The recently passed stimulus bill provides a 10% or 30% tax credit for the cost of purchasing alternative energy property. Taxpayers can apply to the IRS to take this tax credit as a grant. 30% credit: o Qualified fuel cell property (Capped at $1,500 per ½ kw capacity) o Qualified solar property used to provide energy for heating or cooling o Qualified small wind turbines (100 kw or less) 10% credit Qualifying Property: o Qualified equipment for producing geothermal energy o Qualified combined heat and power systems o Qualified microturbines (less than 200 kw, capped at $200 per kw capacity)

2 Alternative Motor Vehicle Credits (Section 30B) This credit is designed to encourage taxpayers to purchase alternative fuel vehicles and fuel-efficient vehicles. The credit ranges from $400 to $4,000. Both businesses and individuals can take this credit at the time of purchase under the following requirements: Vehicles must have a gross vehicle weight rating (GVWR) from 8,500-26,000 pounds Must be purchased before 01/01/2015 Credit is available for the following vehicles: o Fuel cell vehicles o Hybrids and heavy hybrids o Advanced lean burn vehicles o Plug-in hybrids, including three wheeled vehicles o Alternative fuel trucks and vans that run on natural gas Alternative Refueling Property Credit (Section 30C) This credit provides for a 50% credit of up to $50,000 for installing clean fuel vehicle refueling property that will be used in a trade or business. To qualify, the fuel must be composed of at least 85% ethanol, natural gas, compressed natural gas, liquefied natural gas, or a mixture of biodiesel and diesel fuel containing at least 20% biodiesel. Plug-In Electric Vehicle Credits (Section 30D) A tax credit of up to $7,500 is available for new plug-in electric vehicles acquired after December 31, The vehicle must have a GVWR of less than 14,000 lbs. The actual credit varies based on a number of factors. Qualified reuse and recycling property (Section 168(m)) For qualified reuse and recycling property that does not qualify for bonus depreciation, this incentive allows businesses to take the equivalent of bonus depreciation on this property. Qualifying property for this depreciation includes machinery and equipment used in collecting and recycling qualified reuse and recyclable materials. In addition, depreciation is allowed for software used to operate reuse and recycling equipment. Favorable Tax Depreciation (Section 168) Certain alternative energy technologies are classified as 5-year depreciable property under Modified Accelerated Cost-Recovery System (MACRS). Because of this, the following types of alternative energy technologies can be fully depreciated more quickly than traditional energy production technologies: Solar energy Wind energy

3 Geothermal energy Microturbine Geothermal heat pump Tax Incentives and Credits for the Energy Industry Advanced Energy Manufacturing Tax Credit (Section 48C) Designed to grow the domestic manufacturing industry for clean energy, this provision offers a 30% credit for investment in new, expanded, or re-equipped advanced energy manufacturing projects. Eligible investments include: Technologies that create energy from renewable resources Renewable fuel refining technologies Advanced lighting or smart grid systems Property to capture carbon dioxide Energy storage technologies (fuel cells, microturbines) Renewable Electricity Production Credit (Section 45) This federal provision allows a 2.2 cent per kw tax credit for producing or selling electricity from wind, geothermal or closed-loop biomass energy sources. The provision also allows for a 1.1 cent per kw for other eligible energy technologies. The credit generally applies to the first 10 years of operation. Tax Incentives and Credits for Specific Manufacturers and Developers Renewable bio-fuels (Section 40) This federal provision allows the following tax credits for producing renewable fuels: $0.45 per gallon credit for ethanol produced from corn $0.60 per gallon credit for alcohol fuel other than ethanol $1.01 per gallon credit for ethanol produced from cellulosic sources Energy Efficient Appliance Manufacturing Credit (Section 45M) This provision allows for a corporate tax credit to manufacturers of energy efficient appliances. The following credits are available: Clothes washers ($150-$250) Dishwashers ($75) Refrigerators ($100-$200)

4 Tax Incentives and Credits for Individuals Residential Energy Efficient Home Improvements Credit (Section 25C) Consumers who purchase and install energy efficient windows, insulation, doors, roofs, and heating and cooling equipment in existing homes are eligible to receive a tax credit for 30% of the cost. The maximum credit amount is $1,500. The improvement must be placed in service after January 1, 2009 through December 31, Residential Renewable Energy Property Credit (Section 25D) Individual taxpayers who purchase and install certain renewable energy property in their homes are eligible for a tax credit of up to 30% of the cost. The credit is available through Eligible property includes: Solar water heaters Geothermal heat pumps Fuel cells Wind turbines State and Local Tax Credits North Carolina Renewable Energy Corporate Tax Credit North Carolina offers an income tax credit up to 35% of the cost of eligible renewable energy property that is constructed, purchased, or leased by the taxpayer in North Carolina. In general the credit applies to the commercial and industrial sectors, and the energy system must be new and in compliance with all performance and safety standards. The maximum incentive is $2.5 million per installation. In addition, the credit must be taken in five equal installments, and the credit may not exceed 50% of the taxpayer s state tax liability in the applicable tax year. Renewable Energy Equipment Manufacturer Tax Credit North Carolina provides an income tax credit for costs incurred in the construction of a facility to manufacture renewable energy property. Costs that qualify for the credit include construction and equipment costs. The credit is for 25% of the amount of eligible costs and must be claimed in five equal installments beginning with the year the facility is placed in service. Recycling Facilities Amortization North Carolina provides for amortization of equipment and facilities used for the purpose of recycling or resource recovery from solid waste.

5 Recycling Property Tax Exemption North Carolina provides an exemption from property tax for equipment and facilities used exclusively for recycling and resource recovery. Renewable Energy Personal Tax Credit North Carolina offers an individual income tax credit equal to 35% of the cost of eligible renewable energy property purchased and placed in service in North Carolina. The maximum credit is $1,400- $10,500, depending on the technology, and $2.5 million for systems used for a business purpose. The credit cannot exceed 50% of the taxpayer s state tax liability. Sales Tax Holiday North Carolina has enacted a sales tax holiday for purchasing certain Energy Star-certified products. Energy Star appliances sold between 12:01 a.m. on the first Friday of November and 11:59 p.m. on the following Sunday will receive a 100% sales tax exemption on the purchase. South Carolina Biomass Energy Corporate Tax Credit South Carolina offers a corporate tax credit of 25% of costs incurred by the taxpayer for the purchase and installation of equipment used to create energy for commercial use from a fuel consisting of at least 90% biomass resources. Biomass includes non-commercial wood, by-products of wood processing, demolition debris containing wood, agricultural waste, animal waste, sewage, landfill gas, and other non-petroleum organic materials. The tax credit is limited to $650,000 per taxpayer year. Energy Efficient Manufactured Homes Incentive Tax Credit (Personal tax credit) South Carolina offers a $750 nonrefundable tax credit for an individual who purchases a manufactured home that meets the U.S. Environment Protection Agency s or Energy Star energy-saving standards. Energy Efficient Manufactured Homes Sales Tax Incentive South Carolina allows a 100% sales tax exemption for manufactured homes purchased between July 1, 2009 and July 1, 2019 if the home has been designated by the U.S. EPA and the U.S. Department of Energy as meeting energy-efficient requirements. Solar Energy and Small Hydropower Tax Credit South Carolina offers an income tax credit of 25% ($3,500 maximum) for costs incurred in purchasing and installing a solar energy system or small hydropower system. A solar energy system includes all controls, tanks, pumps, heat exchangers, and other equipment used directly and exclusively for the solar energy system. A small hydropower system involves consists of a turbine in a pipeline or in an irrigation canal and must meet several specific requirements.

6 Hydrogen Fuel Cell Sales Tax Exemption South Carolina provides a sales tax exemption for the purchases of devices, equipment, and machinery that are: operated by hydrogen or fuel cells; used to generate, produce, or distribute hydrogen and designated specifically for hydrogen or fuel cell applications; or used predominantly for the manufacturing of, or research and development involving hydrogen or fuel cell technologies. Contact Us If you have any questions or would like additional information, please contact: North Carolina Bobbi Jo Lazarus blazarus@elliottdavis.com South Carolina Travis Bogan tbogan@elliottdavis.com This publication is for informational purposes and does not contain or convey tax advice. The information should not be used or relied upon in regard to any particular situation or circumstances without first consulting a tax advisor.