The EPAct Tax Aspects of the U.S. Food Processing Industry

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The food processing industry, one of the largest in the United States, is quickly becoming more energy efficient. Both stiffer competition and supply-side pressures are contributing to this trend. The energy efficient revolution in food is happening in tandem with a major movement towards healthier, more organic products. Many of the nation's most prestigious brands blend these two revolutions - energy and health - into an overall message of sustainability for customers and investors alike. Because of their size, food processing facilities are ideal candidates for sizable EPAct tax deductions for qualifying energy-improving equipment.

EPAct Tax Opportunity

The Energy Policy Act of 2005 (EPAct) provides an immediate tax deduction of up to $1.80 per square foot for building investments that achieve specified energy cost reductions beyond the American Society of Heating and Air-conditioning Engineers (ASHRAE) 90.1 -2001 building energy code standards. A one-time $1.80-per-square-foot deduction is the maximum tax deduction available, but deductions of up to 60 cents per square foot are also available for the three types of building systems: lighting, including lighting controls; HVAC; and the building envelope, which includes roof, walls, windows, doors and floor/foundation (everything on the perimeter of a building that "touches" the outside world). To obtain a tax deduction of 30 cents per square foot for lighting, the wattage must be reduced by 25 percent from ASHRAE 90.1 -2001 levels. The maximum allowable tax deduction of 60 cents per square foot requires a 40-percent reduction in wattage for lighting.

Facilities Go on a Diet

The push toward healthier, more natural products has presaged the food industry's own diet with respect to energy efficiency. Now more than ever, food processing plants are reducing energy usage, becoming greener, and are tying improved facility health into a larger message of sustainability. A 2011 report by Campbell's Soup: Nourishing: Consumers - Neighbors - Employees - Planet, is an example of this new, holistic approach to sustainability.
Meanwhile, Frito-Lay's Casa Grande plant made news recently by nearing net zero status for carbon emissions through a combination of renewable energy usage, energy efficiency, recycling water and eliminating landfill waste. These efforts resulted in the first LEED Gold certification for an existing building within the food processing industry.

The Walmart Effect

An additional pressure contributing to the sustainability movement comes from buyers like Walmart. In accordance with its own sustainability goals, Walmart requires that its suppliers meet specific sustainability criteria in order to partner with them Walmart assesses its suppliers on a fifteen point sustainability questionnaire with the goal of using 100% renewable energy across the board.

Super-Sized Potential

While not the first movers, food processing plants have unique EPAct potential with regard to EPAct. Their unique potential is due to the large size of the typical processing facility as well as the achievability of 197D benefits as they relate to the warehouse building class. EPAct benefits derive from square footage; the larger the building, the larger the deduction. This makes warehouses of all stripes ideal EPAct candidates, especially those with large open spaces that can drive major energy reductions by lighting alone.

Below is table showing the potential EPAct opportunity for a number of the largest food manufacturers in the United States. Benefits are presented for some companies on a firm-wide level and for others on individual plants that have garnered attention for their energy-efficient improvements.

The following table summarizes the potential deductions available to some of America's largest players in the food industry. Opportunities are presented for both individual facilities with documented energy achievement and on a company-wide basis.

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LED Lighting and Large Tax Deductions for Cold Storage

The exponential growth in fresh and organic products is driving a corresponding growth in large cold storage facilities.
Historically these facilities used energy inefficient metal halide lighting that had to be kept on all day due to the length of time it took these lighting products to start up each day to produce lighting. These facilities weren't able to upgrade to energy efficient florescent lighting because fluorescent lighting doesn't perform well in cold temperature environments. However, new technology in the form of instant start very efficient low wattage LED lighting is enabling these facilities to save as much as 90% of their current lighting related electricity bill..

These LED lighting projects often qualify for very large tax deductions sometimes at the $1.20 to 1.80 per square foot level.

Conclusion

As the drive toward sustainability continues to impact food processing facilities themselves, managers of those facilities should be aware of the tax benefits attached to energy-efficient improvements.

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