1. finance
2. accounting and auditing

Ohio Tax
Workshop K
Reducing Your Taxes …
Utilizing Federal & State
Tax Credits and
Sustainability Incentives
Tuesday, January 29, 2013
3:00 p.m. to 4:00 p.m.
Biographical Information
Dominick Brook, Manager, Ernst & Young LLP
41 S. High St. Columbus, OH 43215
[email protected]
614.232.7376
Fax 866.839.9103
Dominick Brook is a member of the National Tax Practice and is based in Columbus, Ohio.
Dominick specializes in business incentives and tax credits for climate change and sustainability
initiatives. In this role, Dominick serves clients through identifying, negotiating, implementing and
complying with federal, state and local incentives. Dominick’s experience includes conducting 179D
(EPAct 2005) analyses for energy efficient commercial buildings, advising on the submittal
documentation for the world’s largest LEED existing building, as well as securing other federal,
state and utility incentives related to renewable energy and energy efficiency.
Prior to joining Ernst & Young, Dominick worked as a Research Analyst with Ohio University’s
Voinovich School for Leadership and Public Affairs. Dominick led the School’s expansion of
economic development services to southeast Ohio through the development and management of
economic impact analyses and related research. He also served as an Adjunct Instructor of
economics during his time at Ohio University.
Dominick is a member of the Ohio Bar. He holds a Juris Doctor degree, from the Ohio State
University, a master’s degree in Political Science from Ohio University, and a master’s degree in
Economics from the University of Edinburgh, Scotland. Dominick is also a LEED-Accredited
Professional.
Michael L. Bernier, Senior Manager, Tax Credit and Incentive Advisory Services
Ernst & Young LLP, 200 Clarendon Street - 47th Floor, Boston, Massachusetts 02116
[email protected]
617.585.0322
Michael Bernier is a member of Ernst & Young LLP’s Tax Credit Investment Advisory Services
practice. Michael has advised numerous clients on various matters related to monetizable tax
credits including renewable energy, new markets tax credits, low income housing tax credits, and
historic rehabilitation tax credits. He focuses on the business and finance issues for the various
project stakeholders that arise from the monetization of the tax credits.
Clients include private equity and venture capital investors, strategic investors, project developers,
tax equity investors, project lenders (both construction and permanent), and governmental
authorities. Services provided in this area include, financial modeling (project level and corporate
level), strategic advisory, tax advisory, and financial and commercial transaction due diligence. In
the New Market Tax Credit space, Michael has personally written numerous successful applications
helping clients obtain more than $300 million in NMTC allocation. In addition to his NMTC success,
Michael helped clients secure over $200 million of tax credits during the recent round of 48C
application. Michael has also conducted due diligence on behalf of a tax equity investor for a $45
million real estate project along with assisting an allocate monetize the credits from three
allocations totaling over $100
million.
Michael received a B.S. in Accounting and an M.B.A. with a concentration in Finance from Bentley
College. He is a certified public accountant licensed in the commonwealth of Massachusetts.
Biographical Information
Paul A. Naumoff, Partner, State & Local Tax, Ernst & Young LLP
1100 Huntington Building, 41 South High Street, Columbus, Ohio 43215
[email protected]
614.232.7118
Fax 614.232.7939
Paul serves clients on both an area and national basis. Paul serves clients in the North Central Area
State and Local Tax practice, leading a team of forty SALT professionals with specialties in sales and
use taxes, employment taxes, real and personal property taxes, and business incentives and tax
credits. Paul also leads a national network of Business Incentives professionals that is unmatched
within the United States. The extent and depth of their business incentives knowledge is derived from
their collective experience on approximately one thousand economic development incentives and
credits engagements covering forty four states and nearly every major city.
Paul’s fifteen year career includes work in over thirty states with Work Opportunity Tax Credits, Real
and Personal Property Tax Abatements, Foreign Trade Zones, Enterprise and Empowerment Zones
and associated credits, Investment Tax Credits, State Jobs Creation Tax Credits, Training Tax Credits,
Municipal Jobs Creation Tax Credits, State Grant Programs, various Financing Programs, Training
Programs, Sales/Use Tax abatements, Utility rate reductions, Welfare to Work, and Targeted hiring
programs. During his career, Paul has also helped his clients comply with their overall direct and
indirect state and local tax burden in the retail, distribution, manufacturing and financial services
industries.
Prior to joining Ernst & Young, Paul served for two years as a clerk with the Ohio Board of Tax Appeals
which is a quasi-judicial board responsible for all Ohio state and local tax appeals. Paul is a graduate of
the Capital University Law School and has been admitted to the Ohio Bar. In addition, Paul earned a
BS in Finance from Miami University (OH). Paul is also a member of the Ohio State Bar Association’s
Taxation Committee, an affiliate member of the Ohio Society of Certified Public Accountants Taxation
Committee, and is a member of the Ohio Manufacturer’s Association Taxation Committee. He is a
frequent speaker to industry groups on the topics of business taxation and economic development.
Additionally, he has co-authored an article entitled High-Tech and Growing? Here's The Incentive to
Look Where You are Going which was published in the November 2001 edition of The Journal of Multi
State Taxation and Incentives. In 2002, Paul was recognized as a “40 under 40 honoree” in the
Columbus business community.
Utilizing Federal & State Tax Credits
and Sustainability Incentives
January 29, 2013
Paul Naumoff, Principal
Dominick Brook, Senior Manager
Michael Bernier, Senior Manager
Disclaimer
►
Ernst & Young refers to the global organization of member firms of Ernst & Young
Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited,
a UK company limited by guarantee, does not provide services to clients. For more
information about our organization, please visit www.ey.com.
►
Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited and
of Ernst & Young Americas operating in the U.S.
►
This presentation is © 2012 Ernst & Young LLP. All rights reserved. No part of this
document may be reproduced, transmitted or otherwise distributed in any form or by
any means, electronic or mechanical, including by photocopying, facsimile transmission,
recording, rekeying, or using any information storage and retrieval system, without
written permission from Ernst & Young LLP. Any reproduction, transmission or
distribution of this form or any of the material herein is prohibited and is in violation of
U.S. and international law. Ernst & Young LLP expressly disclaims any liability in
connection with use of this presentation or its contents by any third party.
►
Views expressed in this presentation are not necessarily those of Ernst & Young LLP.
Page 2
© 2010 Ernst & Young LLP
Circular 230 disclaimer
Any US tax advice contained herein was not
intended or written to be used, and cannot be
used, for the purpose of avoiding penalties that
may be imposed under the Internal Revenue
Code (IRC) or applicable state or local tax law
provisions.
► These slides are for educational purposes only
and are not intended, and should not be relied
upon, as accounting advice.
►
Page 3
© 2010 Ernst & Young LLP
Today’s agenda
►
►
►
►
►
Page 4
The American Taxpayer Relief Act of 2012
New Markets Tax Credits and State Tax Credit
Monetization
Relevance of Sustainability to businesses
Sustainability incentives
Traditional incentives
© 2010 Ernst & Young LLP
The American Taxpayer Relief Act of 2012
►
On January 2, 2013, President Obama signed the American Taxpayer
Relief Act of 2012
► Delays the Budget Control Act
► Permanently extends many personal tax rates
► Extends over 25 business tax credits including business
investment and renewable energy incentives.
Page 5
The American Taxpayer Relief Act of 2012 –
Extended General Business Incentives
►
New Markets Tax Credit - Act extends for two years
Year
2010
2011
►
►
►
►
Page 6
Ohio Only
$
$
117,000,000 $
150,000,000 $
Ohio Focus
263,000,000
395,000,000
Tax credit for research and experimentation expenses - Act extends
for two years, through 2013
Low-Income Housing Tax Credit Program - extend the expiration date
by changing the deadline to projects that have received an allocation
before January 1, 2014
Work opportunity tax credit - This bill extends for two years, through
2013, the provision that allows businesses to claim a work opportunity tax
credit equal to 40 percent of the first $6,000 of wages paid to new hires of
one of eight targeted groups
Empowerment zone tax incentives - The bill extends for two years the
designation of certain economically depressed census tracts as
Empowerment Zones.
The American Taxpayer Relief Act of 2012 –
Extended Energy Tax Incentives
►
►
►
►
►
Page 7
Alt. Fuel Vehicle Refueling Property Tax Credit – 30% investment tax
credit through end of 2013
Cellulosic biofuel producer tax credit - extends bonus depreciation for
one additional year for facilities placed-in-service before the end of 2013
Incentives for biodiesel, renewable diesel - Act extends for two years,
through 2013
Renewable electricity property wind production tax credit - Act
extends through 2013 and qualifies those whose projects begin before
the end of 2013
Credit for construction of new energy efficient homes. Extends
through 2013, the credit for the construction of energy-efficient new
homes
Today’s agenda
►
►
►
►
►
Page 8
The American Taxpayer Relief Act of 2012
New Markets Tax Credits and State Tax Credit
Monetization
Relevance of Sustainability to businesses
Sustainability incentives
Traditional incentives
© 2010 Ernst & Young LLP
New Markets Tax Credits
►
History
►
►
Type of Credit
►
►
The new markets tax credit (NMTC) is equal to 5% of the “qualified investment” for the first
three years and 6% for the following four years, for a total tax credit equal to 39% of the
qualified investment
Basic provisions
►
►
►
►
►
Section 45D was enacted in 2000 to encourage private sector equity investment in low-income
rural and urban communities that have traditionally been underserved by the capital markets
Seven-year minimum holding period for investors
Investments must be made through a Community Development Entity (CDE) which direct
investment capital to qualified businesses or projects
Qualified communities must have a poverty rate of at least 20%, or report a median income
below 80% of the area or statewide median income
NMTC’s are allocated by the US Treasury in a competitive process
Sample investments include:
►
Page 9
Mixed-use real estate, office parks, manufacturing plants, charter schools, hospitals, retail
centers
NMTC – Application
►
Annual competitive application process
►
►
$3.5B allocated for 2013
Scored across four categories
►
►
►
►
►
►
Business strategy
Community Impact
Management Capacity
Capitalization
Trigger: New job creating project in low income area with capex
of $50M - $200M
Value Prop:
►
Page 10
A hypothetical client which is able to secure a $100 million allocation from
a Department of Treasury will generate a $39 million benefit
NMTC – Post Allocation
►
Overview:
►
►
►
Possible to locate an existing NMTC allocation to leverage the benefits of
the program without participating in the formal application process by
securing a “sub-allocation” from a participating CDE
Trigger: discretionary projects located in low-income communities
with cost between $8 and $30 million
Value prop:
►
A hypothetical client which is able to secure a $10 million allocation from a
CDE will generate a $1.7 million net benefit
►
Client will receive a $2.5 million upfront cash which can be used to fund their
project
►
►
►
If the client meets certain criteria over 7 years the loan will be forgiven
►
Page 11
Client will receive a $3.0 million loan at a below market interest rate (interest only
payments with an interest rate typically below 1%)
Client will have approximately $500,000 of fees
Client will have to pay tax related to forgiveness of debt (approximately $800,000 in
taxes)
Ideal Fact Patterns for your Cap Ex or
Discretionary Incentives clients
►
►
Client constructing or repositioning underutilized real estate
►
Office building
►
Mixed-use (residential rental and retail)
►
Hotels
►
R&D, Distribution, etc.
Manufacturing
►
►
New or necessary capital expenditure upgrades
Healthcare facilities
►
Expansions (providing new services)
►
Clinics
Page 12
Ideal Fact Patterns for your Cap Ex or
Discretionary Incentives clients(cont)
►
Project needs to be located in a Low Income Community
(LIC)
►
►
Project that is highly likely to occur and safe transactions
►
►
►
Most CDE allocatees like to use allocation in $10 million blocks
Project with an economic development story
►
►
CDE will not want to spend time on transactions that won’t happen
Typically does not require meeting a “but for” test
Project costs between $8 and $30 million
►
►
LICs make up nearly 40% of US. Mapping resources are available
Need to consider the multiplier effect
Projects with Job creation (preferably blue collar jobs)
►
Page 13
Moving jobs from non-LIC to a LIC considered job creation
EY Success Story and Value Prop:
NMTC Real Estate Transaction
►
Acquisition/rehabilitation of
historic structure in distressed
CBD
►
►
$12M+ project
►
►
►
►
Venture capital firm
Business incubator
“New economy”/design firms
Historic structure
►
Page 14
$11.5M in NMTC allocation
secured
Tenants with job creation
undertones
►
►
30% occupied prior to rehabilitation
Ability to “twin” with federal
historic rehab tax credit
Real Estate/Bricks & Mortar Transaction
Value Proposition
NMTC/
HRTC
Equity
Leveraged
Lender
►
Client: ~$3.3M in NMTC tax
equity
►
IF
Minus fees, ~$1.8M+ in “free
cash”
NMTC Equity
CDE
SubCDE
HRTC Equity
Sponsor Equity
Lev Loan
Sponsor
Equity
Page 15
Project
LLC
Master
Tenant
EY Success Story and Value Prop:
NMTC “Operating Business”/Cap Ex Transaction
►
►
Relocation of corporate
headquarters to distressed
downtown
$30+M in Tenant improvements
and equipment
►
►
►
Key: job creation in area with
extremely high unemployment
rate
►
►
Page 16
$28.5M in NMTC allocation
secured
Multiple CDEs (3) to reach
$28.5M allocation
1,500 new jobs, 10% annual
growth
Local hiring initiative
Operating Business Relocation/CAPEX Transaction
Value Proposition
Leveraged
Lender
(Sponsor)
NMTC
Equity
►
Client: ~$9M in NMTC tax
equity
►
Minus fees, $3.7M+ in
“free cash”
IF
CDE
CDE
CDE
Sponsor
Equity
Page 17
SubCDE
NMTC Allocation
$28.5M
= NMTC Equity
$9.00M
Interest Expense Deduction
$0.48M
CDE Fees
($1.4M)
Acc./Legal Fees & Distributions
($2.13M)
Year 7 CDE Fee & COD
($2.48M)
Total Benefit
Project
LLC
$3.72M
Monetizing/Purchase of State Tax Credits
►
Overview
►
►
There are over 1,000 tax credit/incentive programs across 44
states
State tax credits can be broadly divided into three categories:
►
►
►
►
►
Allocated: These tax credits are subject to federal allocations and are rarely monetized.
Bifurcated: Tax credits that can be specially allocated amongst partners
Certificated: Tax credits that can be converted to certificates which can be bought and sold
much like bearer bonds with the party attaching the certificates to its tax return in lieu of
payment
We have identified 124 programs over 24 states that are either
bifurcatable or of certificable
Value Prop
►
►
Page 18
Purchaser: Most credits trade for between $0.60 and $0.95 per
credit providing tax savings
Seller: Getting cash today for an asset that can’t be used in the
near term if ever.
Sample state tax credit opportunities
Program
Film Tax Credit
Film Tax Credit
Historic & Donation Tax Credit
Brownfield
Film Tax Credit
Film Tax Credit
State
AK
CT
CT
FL
FL
GA
Asking Price
0.88-.091
0.88-0.91
0.89 - 0.90
0.88-0.90
0.88-0.955
0.85-0.92
Sold as
Yes
Yes
Yes
Yes
Yes
Yes
Credit
1 Year
1 Year
1 Year
1 Year
1 Year
1 Year
Typically
n/ a
n/ a
n/ a
n/ a
n/ a
n/ a
Offset Corporate
Yes
Yes
Yes
Yes
Yes
Yes
Offset Insurance
No
Yes
Yes
No
No
No
Low-Income Housing Tax Credits
GA
0.42-0.46
No
10 Year
15 Year
Yes
Yes
Low-Income Housing Tax Credits
Donation Tax Credit
Historic Tax Credit
Film Tax Credit
Historic Tax Credit
Film Tax Credit
Low-Income Housing Tax Credits
Historic Tax Credit
Low-Income Housing Tax Credits^
Historic Tax Credit
Historic Tax Credit-Mill
Renewable Energy Tax Credit
Business Tax Benefit Certificates
Historic Tax Credit
Renewable Energy (2013)
Business Energy Tax Credit
Film Tax Credit
Mill Restoration Tax Credit
Renewable Energy Tax Credit
Historic Tax Credit
GA
IL
IL
LA
LA
MA
MA
MO
MO
NC
NC
NC
NJ
OH
OK
OR
PR
SC
SC
VA
0.78-0.83
0.93-0.94
0.850
0.89-0.92
0.85 - 0.89
0.940
0.73-0.82
0.91 - 0.93
0.490
0.55-0.65
0.86 - 0.88
0.60-0.63
0.940
0.78-0.83
0.900
0.67-0.74
0.9 - 0.92
0.850
0.60-0.63
0.78-0.82
No
Yes
No
Yes
Yes
Yes
Yes
Yes
No
No
No
No
Yes
No
Yes
Yes
Yes
No
No
No
1 Year
1 Year
1 Year
1 Year
1 Year
1 Year
5 Year
1 Year
10 Years
5 Year
1 Year
5 Year
1 Year
1 Year
1 Year
5 Year
1 Year
5 Year
5 Year
1 Year
1 Year
n/ a
5 Year
n/ a
n/ a
n/ a
n/ a
n/ a
10-15 Years
5 Year
5 Year
5 Year
n/ a
1-5 Years
n/ a
n/ a
n/ a
5 Year
5 Year
5 Year
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes*
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
No
No
No
Yes
Yes
Yes
Yes
No
Yes
Yes
No
No
No
Yes* *
No
Yes
No
Yes
* Of f sets Franchise Tax
* * Of f set s Excise Tax
^ Must acquire bot h invest ment opport unities.
All dat a has been provided direct ly by t hird-part ies and has not been reviewed by Ernst & Young LLP. Accordingly, Ernst & Young LLP t akes no responsibilit y f or t he accuracy of t he dat a provided and any pot ent ial invest or should
undert ake their own due diligence prior t o making any invest ment decisions. Furt her, t he st at e t ax credit market is f luid, as such Ernst & Young LLP does not represent t he availabilit y of t he above-referenced invest ment
opport unit ies.
Page 19
Today’s agenda
►
►
►
►
►
Page 20
The American Taxpayer Relief Act of 2012
New Markets Tax Credits and State Tax Credit
Monetization
Relevance of Sustainability to businesses
Sustainability incentives
Traditional incentives
© 2010 Ernst & Young LLP
Sustainability tax survey results
►
Ernst & Young LLP surveyed 223 senior executives at companies of
various sizes
►
►
►
Page 21
Working together: linking sustainability and tax to reduce the cost of implementing
sustainability initiatives (2012)
Results: room for improvement
►
Of respondents, 17% said their companies are aware of and use available green
incentives, while 37% were unaware of such incentives.
►
Only 16% of companies that either have or are developing an environmental
sustainability strategy said their tax or finance departments are actively involved in it.
►
Of respondents, 30% said they did know whether their companies had a
sustainability leader or not — a sign that sustainability strategies are not being
communicated effectively.
Suggests that businesses may be able to improve their return on investment
on sustainability programs by encouraging greater coordination of efforts
within their organizations and by actively seeking out available incentives
© 2010 Ernst & Young LLP
Drivers of corporate response to climate change
Revenue
generation
Corporate
response
to climate
change
►
►
►
►
New products
and services
Shorter payback
models
New business
models
Innovation
investment
Cost
reduction
►
►
►
►
►
High energy cost;
expected
increase in cost
Operational
efficiencies
IT activity
Reduced waste
Cost of carbon
Government Expectations
regulation
of
stakeholders
►
►
►
►
►
Page 22
Environmental
laws
NGO operating
guidelines
Federal and state
climate change
programs
Regional initiatives
Financial reporting
►
►
►
►
►
Customers
Consumers
Investors
Employees
Media
Mapping incentives issues onto the climate
change response
• Energy efficiency in suppliers
• Energy in transport
• Recycling
• W ater saving
Resource efficient
buildings,plants,
infrastructures
Reduction of
resource intensity
of supply chain
• Energy-efficient buildings
• Energy-efficient plants
• Research into im proved processes
• Investm ent in new technologies
• Fuel-efficient distribution
• Recyclable packaging
Resource-efficient • Research into sustainable
products
products
Reduce
• Green energy
supplies
Low -carbon
• Green energy
energy sources
generation
• ESCO ’s
• JV’s
• W ater
• Education
Sustainable
sourcing of raw
m aterials
• Clim ate/sustainability policies
m
• Non-financialreports
• Audit ofem issions
• Clarity/robustness ofclaim s m ade
Page 23
Sw itch
Innovate
Behavioral
sw itch
• Training w ork force
• Educating custom ers
• Hom e w orking
• Transport
O ffset
Carbon
anagem ent
M anaging
stakeholder
expectations
• Clim ate/sustainability
policies
• Non-financialreports
• Audit ofem issions
• Clarity/robustness of
claim s m ade
© 2010 Ernst & Young LLP
Today’s agenda
►
►
►
►
►
Page 24
The American Taxpayer Relief Act of 2012
New Markets Tax Credits and State Tax Credit
Monetization
Relevance of Sustainability to businesses
Sustainability incentives
Traditional incentives
© 2010 Ernst & Young LLP
Reduce: Energy Efficiency and LEED
Page 25
© 2010 Ernst & Young LLP
IRC Section 179D deduction - Overview
►
►
Federal tax deduction of $0.30 to $1.80 a square foot of
the building up to the total basis of the energy-efficient
property placed in service
Energy-efficient commercial building property includes:
►
►
►
►
►
►
Page 26
Light fixtures and controls, not light bulbs
New or replacement HVAC systems and controls
New buildings or replacements windows, roofs and doors
Property must meet energy efficiency targets (compared
to ASHRAE 90.1-2001) and prescriptive requirements
Effective 1 January 2006 through 31 December 2013
Obama has proposed revising the incentive as part of the
“Better Building Initiative”
© 2010 Ernst & Young LLP
IRC Section 179D: value and benefit
Property
Energy Efficiency (Compared
to ASHRAE 90.1-2001)
Benefit
(per sq. ft.)
Lighting (LPD)
25 – 40% LPD reduction
$0.30 - $0.60
Lighting (Energy Modeling)
20% energy cost reduction
$0.60
HVAC/HW
20% energy cost reduction
$0.60
Building Envelope
10% energy cost reduction
$0.60
Lighting + HVAC/HW + Envelope
50% energy cost reduction
$1.80
Value of 179D deduction @
35% ETR
Lighting Only
HVAC, Building
Envelope, Lighting
200,000 s.f building
$21,000 - $42,000
$126,000
500,000 sq. ft. building
$52,500 - $105,000
$315,000
1,000,000 sq. ft. building
$105,000 - $210,000
$630,000
2,000,000 sq. ft. building
$210,000 - $420,000
$1,260,000
Page 27
© 2010 Ernst & Young LLP
Certification requirements
►
Energy modeling:
►
►
Third-party site inspection:
►
►
►
Model the building with the minimum requirements of ASHRAE Std
90.1-2001 then compare to actual installation to calculate %
reduction in energy costs
After the property has been placed in service
Confirming that the building has met, or will meet, the energysaving targets and prescriptive measures contained in the design
plans and specifications
Letter of certification:
►
Page 28
By “an engineer or contractor that is properly licensed in the
jurisdiction in which the building is located”
© 2010 Ernst & Young LLP
IRC Section 179D deduction:
government allocation
►
►
The 179D tax deduction can be allocated by a government
entity to the designer of a government-owned building
Government-owned building:
►
►
►
Designer:
►
►
Page 29
Federal, state or local government or a political subdivision
May include: public secondary schools; public or state universities
buildings; airports; stadiums; arenas; city parking garages; corrections
institutions (jails)
Person that creates the technical specifications for installation
of energy efficient commercial building property
May include: architect, engineer, contractor, environmental consultant or
energy services provider who creates the technical specifications for a
new building or an addition to an existing building
© 2010 Ernst & Young LLP
Best building types for 179D
►
Large Square Foot Buildings
► WHY – deduction is dependent on square footage
► Corporate HQ’s, Office Towers etc.
►
Parking garages, warehouses, distribution centers
► WHY – single light fixture type – large spaces
► Significant improvement in high-bay lighting since 2001
►
LEED-certified buildings
►
Page 30
WHY – Energy Efficient designs
© 2010 Ernst & Young LLP
State and Utility incentives overview
►
There are three major types of incentive programs:
►
Prescriptive measures - Basic
►
►
►
►
Custom Measures - Intermediate
►
►
►
►
Usually covers what the prescriptive programs don’t, similar pay scale
Customer must define, measure and validate the energy savings
Opportunities for industrial equipment & more creative measures
Demand Response/Load Curtailment - Advanced
►
►
Page 31
$30 per light fixture, $20 per occupancy sensor, $100 per ton HVAC
Generally there is a menu for pre-determined equipment and amounts
Applies to more basic, simple measures - lighting, HVAC, controls
Customer makes a commitment to the utility on an annual basis
When the utility calls, the customer is to shed the agreed upon load
© 2010 Ernst & Young LLP
Page 32
© 2010 Ernst & Young LLP
How to be successful with state and utility
incentives
►
What works
►
►
►
►
►
Page 33
Discussions with actual facility managers, plant managers, energy
teams and design teams will uncover potential opportunities
Layer all available incentives to maximize ROI
Start where electric prices are highest in your portfolio
Start early – many cash programs require pre-approval
Use DSIREUSA.org as a starting point, but verify that programs
are still open
© 2010 Ernst & Young LLP
Ohio Incentives: Utility Incentives
AEP gridSMART Initiative
►
AEP’s gridSMART initiative consists of three programs to help
businesses reduce their energy consumption:
►
AEP Ohio’s Lighting Program
►
►
The Custom Program
►
►
Incentives for purchasing high efficiency equipment and implementing
industrial process improvements and technologies that reduce energy
consumption and summer peak demand.
The Self-Direct Program:
►
Page 34
Standard rebates for a variety of high efficiency lighting projects in existing
buildings, as well as incentives for new construction projects.
Incentives or credit against electric bill for energy efficient projects
completed since 2006.
© 2010 Ernst & Young LLP
Ohio - First Energy’s Mercantile Energy
Efficiency Program
►
►
►
Page 35
Provides either cash rebates or DSE2 Rider Exemptions for performing energy efficient
projects:
► Cash Rebate: 75% of what the project would qualify for under the new FirstEnergy
Utilities Incentive Programs. ($0.05/kWh of annual savings) These rebates are
capped at 50% of the total project cost, $250,000 per project or $500,000 per
customer, whichever is lowest.
► DSE2 Rider Exemption: To receive the exemption from the rider, your project
savings as compared to your annual energy usage must meet or exceed your
utility’s cumulative statutory benchmark
Eligibility Requirements
► must be a commercial or industrial customer
► Consumption must be more than 700,000 kWh per year
Eligible Projects
► Any projects that reduce energy consumption completed from January 1, 2008 up
to and including current projects are eligible
► Energy efficient projects include: Low-voltage tungsten halogen fixture, Occupancy
sensors, High efficiency air conditioners, Energy efficient motors, Heat recovery
from refrigeration systems, Automatic door closers and controls, Other process
improvements that result in energy savings (e.g. production line efficiencies)
© 2010 Ernst & Young LLP
Ohio: Other Sources
►
Jobs Ohio
►
►
Incentives may be available to offset the costs of “green”
alternative fuel installations
Cogeneration eligible considered renewable energy or
energy efficiency for SB221
►
Can be used to satisfy requirements under
►
►
►
►
PUCO
Ohio Air Quality Development Authority
►
►
Page 36
SB221’s renewable portfolio standard (RPS) (12.5% by 2025)
SB 221’s energy efficiency requirement (22% by 2025)
Sale tax exemptions
Loans and grants may be available
© 2010 Ernst & Young LLP
Reduce – LEED Buildings
Page 37
© 2010 Ernst & Young LLP
Green Building (LEED™)
►
LEED – Leadership in Energy and Environmental Design
►
LEED is a green building certification
►
The LEED rating system is a voluntary, consensus-based national
standard for high-performance, sustainable buildings
►
Members of the US Green Building Council (USGBC), representing
all segments of the building industry, developed LEED and continue
to contribute to its evolution
►
The USGBC is not associated with the federal government and is a
non-profit organization
Page 38
© 2010 Ernst & Young LLP
LEED for New Construction
►
LEED-NC is a one-time certification
►
Higher certification levels can be achieved by earning additional
points
►
LEED-NC evaluates and recognizes the performance of buildings in 5
accepted green design categories:
Page 39
►
Sustainable Sites
►
Water Efficiency
►
Energy & Atmosphere
►
Materials & Resources
►
Indoor Air Quality
© 2010 Ernst & Young LLP
A sample of LEED incentives in the US
King County, WA –
Grants
Indianapolis & Marion
County, IN – 30%
Rebate
OR – Business Energy
Tax Credit
IA – Tax Credit
NY – 10% increase on
other incentives
Il – Partial Funding
NV – Partial Abatement
of property tax
MD – Baltimore,
Carroll, Howard &
Montgomery Counties
Property Tax Credit
NM – Sustainable
building tax credit
Honolulu, HI – property
tax abatement
Chandler, AZ – LEED Fee
Reimbursement
Page 40
VA – Separate Class of
Taxation
Monroe County, NY – tax
abatement extension
Southern California
Cities – Financial
Incentives
Anchorage, AK –
Permitting Fees Refund
Cincinnati, OH – 100%
property tax exemption
Chatham County, GA – Property
Tax and County Tax Abatement
SLC, UT – Expedited
Plan Reviews
Longmont, CO – Fee
Rebates
Harris County, TX –
Partial Tax Abatement
El Paso, TX – Grants for
Commercial Buildings
Florida Cities – Financial
Incentives, Higher Densities
© 2010 Ernst & Young LLP
LEED for New Construction
►
►
►
►
►
Page 41
Density Bonus
Expedited permitting
Fee Waivers/rebates
Grants/tax incentives
Utility Rebates
© 2010 Ernst & Young LLP
LEED for existing buildings (LEED-EB)
►
►
LEED has concentrated in new construction but existing
buildings certified under LEED-EB have proven to lower
operational costs
The most important aspect when considering LEED EB is
energy efficiency
►
►
►
Page 42
Measured through EPA’s Energy Star Portfolio Manager
If a prospective building’s energy efficiency is at top quartile
performance, LEED-EB is much easier to achieve and /or a higher
LEED level may be pursued
Buildings that are already energy efficient may require
very little beyond the required documentation, and
adoption of policies and procedures to meet LEED-EB
requirements
© 2010 Ernst & Young LLP
Incentives for LEED for Existing Buildings
►
Incentives available for the retrofit and adoption of policies
and procedures in areas of three states:
►
►
►
►
Other incentives:
►
►
►
►
►
►
►
Page 43
New Mexico (Income Tax Credit)
Maryland (Property Tax Credit)
Virginia (Reduce Property Tax Rate)
Grants
Registration and certification fee reimbursement
Enhanced market values
Higher rents
Branding/Marketing
Utility Rebates
179D/48
© 2010 Ernst & Young LLP
Switch- Renewable Energy/Alternative Fuels
Farm Picture
Page 44
© 2010 Ernst & Young LLP
Renewable Energy Investment Tax Credit
(IRC §48)
►
►
►
Equal to the energy percentage (30% or 10%) of the basis of each
energy property placed in service during the tax year
30% Tax credit for:
► Geothermal*; Fuel Cells; Solar Energy; Wind*; Closed and open
loop biomass*; Hydropower*
10% Tax credit for:
► Micro-turbine; Combined heat and power’ and Thermal groundwater energy
* Also eligible for a Production Tax Credit under IRC Section 45
Page 45
© 2010 Ernst & Young LLP
Renewable Energy Investment Tax Credit
(IRC §48)
►
Most people are familiar with this benefit as for utility scale
project but fail to realize that it can apply to them
►
Co-generation is more common than people think but is not
obvious
►
►
►
Fuel cells are becoming more common in fork lifts and other small
machinery
►
Page 46
We have had multiple clients that installed on-site generation for
manufacturing facilities which failed to realize that the systems were
eligible co-generation systems eligible for a 10% tax credit
We had one client build a 51 MW co-generation system when only
projects below 50 MWs are eligible for the ITC
We had one client that bought 30 new fork lifts for their manufacturing
docs and didn’t realize that they had fuel cells
© 2010 Ernst & Young LLP
State and Utility Incentives
►
Vary greatly by state:
►
►
►
►
►
►
Page 47
Corporate tax credits
Sales tax exemptions
Property tax exemptions
Utility rebates/production incentives
Grants
Loans
© 2010 Ernst & Young LLP
Third party ownership of renewable energy
equipment
►
A large market is developing in leasing renewable energy
equipment and/or selling electricity to a third party host
from renewable energy equipment
►
Allows for a client to:
►
►
►
Page 48
Be green
Fix a variable expense (often at a savings to what they are currently
paying)
Avoid any up front capital spend
© 2010 Ernst & Young LLP
Innovation – R&D and Advanced Energy
Manufacturing
Page 49
© 2010 Ernst & Young LLP
Innovation
►
Internal product development
►
►
►
►
►
Joint development efforts
►
►
►
Contract research
LEED certifications
Process improvement
►
►
►
Page 50
Alternative energy
More efficient products
Cleaner products
Battery technologies
Reduce emissions, reduce scrap
Cleaner manufacturing process/line
EPA Superfund program
© 2010 Ernst & Young LLP
Innovation Incentives
►
Additional opportunities around capital expenditure plans
►
►
►
Page 51
R&D Loans and Credits
State Energy Program Funding
Traditional Incentives – Job creation tax credits, Cap-Ex related
incentives, property tax abatements, sales tax abatements
© 2010 Ernst & Young LLP
Clean Development Mechanism summary
What is the Clean Development Mechanism (CDM)?
• A mechanism under the Kyoto Protocol that allows developed
countries with a GHG reduction target to invest in projects that
reduce emissions in developing countries.
•
•
•
CDM investments give rise to a project revenue stream via the sale
of CERs, or Certified Emission Reduction units from the CDM.
Standardized CDM project cycle must be complied with, as well as
the requirement for the project to meet the ‘additionality’ concept
As of September 2011, there are 6,930 projects in the CDM pipeline,
3,492 of which are registered
Page 52
© 2010 Ernst & Young LLP
Offset projects – Clean Development
Mechanism
Set targets for reducing emissions
►
Kyoto Protocol is the first international treaty in
which nations of the world agreed to undertake
targets in emission reduction
►
Nations agreed on an average
reduction of 5.2% of 1990 levels of
emissions of Greenhouse Gases
(GHGs)
Classification of signatory countries
►
The Protocol recognized the concept of ‘common
but differentiated responsibilities’ in reducing
emissions
►
Kyoto
Protocol
Copenhagen
Cancun
Annex I countries received targets to
reduce emissions by 2012 (commitment
periods) while Non- annex I countries
did not have a target
►
The Protocol proposed flexibility mechanisms to enable participation of both Annex I and Non-annex I countries in
jointly reducing emissions globally
►
Three flexibility mechanisms proposed –
►
Clean Development Mechanism (CDM)
►
Joint Implementation (JI)
►
International Emissions Trading (IET)
Flexibility Mechanisms to facilitate Low Carbon Growth
Page 53
© 2010 Ernst & Young LLP
Clean Development Mechanism procedure:
Availing carbon credits
Key CDM process steps are demonstrated in the diagram below
1
Project
implementation
Project
Identification
Project
Construction
Project
Operation
2
Kyoto approvals
3
CDM project
promoter
CDM
Documentation
Validation
by DOE
Endorsement
by DNA
Registration
with UNFCCC
CER Transaction
CER
ERPA
Buyer
of CER
Generation of
Carbon credits
Verification/
Certification by DOE
UNFCCC / EB
Issues CERs
Page 54
© 2010 Ernst & Young LLP
Today’s agenda
►
►
►
►
►
Page 55
The American Taxpayer Relief Act of 2012
New Markets Tax Credits and State Tax Credit
monetization
Relevance of Sustainability to businesses
Sustainability incentives
Traditional incentives
© 2010 Ernst & Young LLP
Qualifying Events for Traditional Incentives
►
Create new business operations
►
►
►
►
►
Expand, realign or relocate existing facilities
►
►
►
►
►
►
Construction/purchase/lease of new facilities
Purchase of new machinery/equipment
Infrastructure improvements
Hiring and training of new employees
Construction/purchase/lease of new/expanded facilities
Purchase of new machinery/equipment
Infrastructure improvements
Hiring/retention of new/existing employees
Training of new/existing employees
Maintain existing facilities
►
►
►
Slide 56
Retaining existing workforce
Hiring due to employee turnover
Training of new and existing employees
Traditional Incentives: Opportunities
New business operations
Expand, realign or relocate existing facilities
Maintain existing facilities
Tax
Incentives
• Sales & Use tax
exemptions/refunds
• Federal and state EZ
Credits
• Federal and state
research and
development credits
• Capital investment
tax credits
Slide 57
Hiring
Incentives
Training
Benefits
• Wage rebates, job
• Training grants for
creation grants and
prospective
credits, employment
training
related tax
expenditures
incentives
• Development and
• WOTC/WtW
implementation of
training programs
• State point-of-hire
through state
credits
agencies
• Hiring and employee
• Training tax credits
screening
(retroactive or
assistance
prospective)
Non-Tax
Incentives
• Infrastructure
grants/assistance
• Low cost financing
for capital
expenditures
• Utility discounts
• Waiver of permit
fees
• Expedited permits
• Free or discounted
land/building
Property
Tax Relief
• Negotiate real and
•
personal property tax
exemptions
• Structure Industrial
•
Revenue Bonds
(IRBs) for favorable
property tax treatment •
• Secure Tax Increment •
Financing (TIF)
arrangements
•
• Property tax
abatement
“Green”
Incentives
Energy
efficiency/GHG
reduction incentives
and credits
Incentives for LEEDcertified buildings
§179D deductions
R&D and Manu.
incentives for green
products
Incentives for
production of green
products
Business Incentives Types
►
Statutory
►
►
►
►
Available as of right by meeting defined requirements
Some require pre-approval or prior certification
Must be identified and documented in order to realize the incentive
Examples:
►
►
►
►
►
Federal Empowerment Zones
State Enterprise Zones
Federal Work Opportunity Tax Credit (WOTC)
State Training Grants
Discretionary
►
►
►
Customized financial incentives packages that are negotiated with state
and local government agencies
Given at the discretion of the controlling government agency
Examples:
►
►
►
Slide 58
State machinery and infrastructure grants
State hiring and retention tax credits
Local income tax abatements and relocation assistance
Questions
Page 59
© 2010 Ernst & Young LLP
The presenter would like to thank you for
your participation and feedback!
►
Paul Naumoff
►
►
►
►
Columbus, Ohio
+1 614.232.7142
[email protected]
Dominick Brook
►
►
►
►
Michael Bernier
►
►
►
Page 60
Columbus, Ohio
+1 614.232.7142
[email protected]
Boston, Massachusetts
+1 617 585 0322
[email protected]
© 2010 Ernst & Young LLP