BDO, FTCH link to mine tax breaks
Companies that have built or renovated a facility in the last couple of years or plan to do so before 2014 might qualify for a healthy payback on energy-efficiency investments in that project, thanks to IRS Section 179D.
The federal Energy-Efficient Commercial Building Deduction can also be a powerful sales tool for companies that supply and install energy-efficient lighting, HVAC, plumbing, insulation and windows.
Two Grand Rapids firms have joined forces to make sure their clients and prospective clients aren't missing the boat on Section 179D. In late September, the Grand Rapids office of accounting firm BDO Seidman LLP announced a strategic collaboration with Fishbeck, Thompson, Carr & Huber Inc., a civil engineering, environmental, architectural/engineering and construction management firm.
The new alliance will help the two firms' clients — in Michigan as well as other states — by identifying and securing tax benefits resulting from reducing energy consumption and adopting other sustainable business activities.
Section 179D was passed in 2005 and covers energy-efficiency investments made since Jan. 1, 2006. The law later was extended though 2013.
“Our collaboration with FTC&H, a nationally recognized expert in green building design, will provide a whole new level of value for our clients, helping them to navigate the evolving and, at times, complex set of energy tax incentives offered at the federal, state and local levels," said Matt Becker, partner at BDO Seidman.
Becker said a good example of how Section 179D works is the installation of energy-efficient lighting in a new or renovated commercial structure.
"If you install lighting in the facility that meets the requirements of the Internal Revenue Code to be considered energy efficient, you're allowed to depreciate the cost of that lighting on an accelerated basis," said Becker, adding that it amounts to an immediate deduction as opposed to depreciation over time.
"I think it's a great example of Congress using the Internal Revenue code as an attempt to legislate behavior," quipped Becker.
He noted that 179D requires that qualifying projects be certified.
"We work with FTC&H to provide the certification for the accelerated deductions," said Becker, and some clients have already benefited from the collaboration.
If a new or renovated structure includes installation of interior lighting, HVAC or hot water systems, or a building envelope that reduces power use by 50 percent or more, the potential deduction is $1.80 per square foot, up to the cost of the energy-efficient equipment.
If the energy reduction is less than 50 percent but at least 20 percent for lighting and HVAC and at least 10 percent for the building envelope, then the potential deduction is 60 cents per square foot.
The percentages of energy reductions are measured against a hypothetical similar structure incorporating ASHRAE 90.1-2001 standards for advanced energy design. Specific details of those standards can be found on the American Society of Heating, Refrigerating, and Air-Conditioning Engineers’ Web site: www.ashrae.org
Becker said there are probably many businesses in West Michigan that are eligible to receive these incentives that either aren't aware of them or aren't sure how to take advantage of them.
One company that is aware of Section 179D is GR Spring & Stamping, which recently installed energy-efficient lights inside its stamping plant at 706 Bond St. NW, and is now installing them in its leased factory space on Alpine Avenue in Walker at the former Lear plant, now known as Avastar Park. Both plants are roughly 110,000 square feet.
"I think our payback (on the cost of the lights) will be four to five months, with all the credits," said Chairman Jim Zawacki. Of course, that's not counting the lower energy costs company will pay for lighting over the long run.
Kendall Electric Inc. of Grand Rapids was the distributor for the new lights.
"They helped us fill out all the forms" for the Section 179D, said Zawacki, which he said was greatly appreciated because the forms were "awesome" in size and complexity.
Zawacki said he realized after the first plant was re-lit that they could have specified West Michigan-made energy-efficient lights from Light Corp. of Grand Haven. Products from Light Corp. are now going into the Walker plant.
Light Corp., a division of Shape Corp., designs and manufacturers LED lighting systems and energy-efficient fluorescent lighting for the office furniture industry, as well as lighting fixtures with wireless technology for use in industrial, warehouse and architectural applications.
Application for the Section 179D deduction can be made after the fact for equipment installed as far back as Jan. 1, 2006, although that might entail the expense of filing an amended tax return for that year.
John Eberly, a senior electrical engineer at FTC&H, said sometimes a business organization's facility management department "is doing the right thing to reduce energy, and the accounting people are looking for ways to save on their taxes — but they don't always connect.” He said there's a lot of opportunity out there for organizations that could qualify but haven't yet taken their deduction, or haven't included energy-efficient equipment in plans for a new or remodeled facility.
BDO Seidman has 37 offices across the nation and more than 400 independent alliance firm locations. It is the U.S. affiliate of BDO International, the fifth largest global accounting and consulting organization with more than 1,000 member firm offices in 110 countries.
The accounting firm, which is almost 100 years old, has a nationwide Business Resource Network that enables the firm to provide specialized client services. FTC&H is now a member of that network — "We're the only A&E firm in it," said Eberly.
David Shull, A.I.A., is the main contact for the Business Resolution Network at FTC&H.
FTC&H, based in Grand Rapids but active nationwide, was established more than 50 years ago and has a staff of more than 360, providing civil engineering, environmental, architectural/engineering and construction management and related services to both public and private clients. It ranks 248th in the nation on the Engineering News-Record's Top 500 Design Firms list for 2009.
BDO Seidman has a tax practice that relies on the engineers on staff, but the Section 179D certification process can involve extensive engineering detail, so FTC&H had been working with BDO for several months, Eberly said.
"There's a rather technical approach to certifying this work," said Eberly. "We have all the capability and we do that all the time on the engineering side, where they (BDO) do similar work but not as detailed. That began our opportunity to work together."
"Our teaming up with BDO is an example of a technical group working with a financial group to come up with a better solution," said Eberly. "We can't emphasize enough how happy we are to be part of this organization. It's going to give us a lot of opportunities."
Section 179D also allows the designer or installer of the energy-saving system to claim the deduction if the building is owned by a federal, state or local government entity.
"What happens in practice is, the contractor or architect comes in and says, 'You should put in this energy-efficient lighting, and by the way, would you mind having us keep the tax benefits?'" said Becker. "If the (government) organization is street smart, they will ask for a reduction in cost."
Eberly noted that the investment required to meet the ASHRAE 90.1-2001 standards can add significantly to the cost of construction, so a designer or installer that will be keeping the tax deduction on a government building "has to make sure they are serving their client's interest," not just promoting energy efficiency to pocket the tax benefit.
Aside from IRS Section 179D, other business investments that can benefit from an informed tax strategy include LEED certification, production of renewable energy devices such as solar, wind, geothermal, biomass and fuel cells, production of manufacturing equipment to make renewable energy, and development of processes related to energy efficiency, environmental improvements and pollution control.
“While a number of our peers are marketing ‘green tax incentive’ services, we believe BDO’s offering is unique, given the breadth of seasoned expertise we have assembled for our clients’ benefit,” added Becker.
“As companies increasingly make sustainable practices a key component of their business strategy, BDO’s collaboration with FTC&H will enable them to ‘close the loop’ — making their efforts in sustainability more financially viable and therefore truly sustainable.”