The EPAct Tax Aspects of Resurging U.S. Manufacturing Investments

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Recently there has been resurgence in manufacturing facilities investment by multinational corporations, who sense a strengthening U.S. demand for products such as automobiles and energy infrastructure. For some, this marks the first time they’ve entered the U.S. market, while others are returning after spending years building manufacturing facilities abroad. As these companies complete the design stage for their new buildings, they have the opportunity to platform substantial energy savings while earning EPAct tax and alternative energy credits.

The EPAct Tax Opportunity

Pursuant to Energy Policy Act (EPAct) Section 179D, multinationals making qualifying energy-reducing investments in their new or existing manufacturing facilities can obtain immediate tax deductions of up to $1.80 per square foot.

If the building project doesn't qualify for the maximum $1.80 per square foot immediate tax deduction, there are tax deductions of up to $0.60 per square foot for each of the three major building subsystems: lighting, HVAC (heating, ventilating, and air conditioning), and the building envelope. The building envelope is every item on the building’s exterior perimeter that touches the outside world including roof, walls, insulation, doors, windows and foundation.1

New Large U.S. Manufacturing Plant Investments

Major household brand names like Whirlpool, Caterpillar, Volkswagen, and Toyota are not the only companies seizing the opportunity to invest in manufacturing facilities in the U.S. Up and coming companies, like Brazilian denim manufacturer Santana Textiles, are also making headway in the U.S. market. Below is a table presenting some of the most recent new manufacturing facilities announcements, along with their potential EPAct tax deductions.

Major New U.S. Manufacturing Projects Potential EPAct Tax Deductions

For each of these companies, implementing an energy efficient design to meet the EPAct targets will be made easier by the fact that they must comply with current more rigorous state building energy codes. Those codes set a standard that is often similar to what is required to qualify for the EPAct tax deductions. With new construction it is typically very easy to adjust designs to meet the EPAct tax savings requirement.

Because EPAct tax deductions drive off of square footage, these facilities are prime candidates for the program. In order to achieve the EPAct target energy reductions, they should consider a mix of LED or other energy efficient lighting, energy efficient HVAC, building controls, a white roof, and extra insulation.2

Non-Conditioned Building Tax Opportunities

The manufacturing facilities presented in the table have a good opportunity to generate very large EPAct tax deductions. Most industrial building facilities are non-conditioned, meaning the actual manufacturing portion of the building is typically heated but not air conditioned.3

In these buildings it is lighting rather than HVAC that makes up the largest portion of energy cost. Accordingly by combining energy efficient lighting with energy efficient heaters at the EPAct standard level obtaining $1.20 to $1.80 EPAct tax deductions is very achievable.

Intersecting LEED and EPAct

Going one step further, these multinationals can have their facilities become LEED certified by driving down their energy consumption. LEED (Leadership in Energy and Environmental Design) is the fast-growing marquee standard for sustainable buildings. LEED is the certification system established by the U.S. Green Building Council (USGBC). The four certification achievements start at the LEED certified level and proceed to the higher LEED silver, gold and platinum levels. On April 27, 2009, the new LEED 2009 system replaced the previous LEED rating point system for certifying LEED buildings and produced extra LEED points for energy efficiency. Therefore, energy efficient building projects that are completed post-2009 have a better platform for achieving LEED status.4

Importantly, achieving LEED certification offers multinational corporations who typically make public disclosure of their sustainability efforts a major reportable accomplishment. It also enables companies to take advantage of many state and local incentive programs to help finance the project. But, perhaps most importantly, it is much easier to model a new plant for tax savings when it is LEED certified since all of energy performance characteristics of the lighting, mechanicals and building envelope are already in the architectural CAD drawings and the required compliance documents.

Solar P.V. Opportunities with Large Roofs

The large flat roofs associated with large manufacturing buildings make them ideal solar P.V. installation candidates. Solar P.V. installations completed before December 31, 2016, are eligible for 30% tax credit and five-year MACRS depreciation. With new facilities, designers have the opportunity to incorporate roofs that have solar P.V. load bearing capability and to minimize the installation of any roof building equipment thereby maximizing solar P.V. system size. With this approach integrated solar P.V. system and roof warranties are easily obtainable.

Conclusion

A resurgence in U.S. large square footage manufacturing plant investment is a welcomed development. The ability to operate these new facilities with much lower energy related operating costs coupled with tax incentives can serve to make these large investments more profitable. The best outcome would be demonstrated success leading to more of these important job-creating initiatives.

Citations

1 - Goulding, Charles, Jacob Goldman & Nicole DiMarino. “EPAct Tax Deductions for Lighting Gain Wider Use.” Building Operating Management. July 2008. Pg 68-74.

2 - Charles Goulding, Kenneth Wood and Raymond Kumar, “Optimizing the 3,2,1 LED Lighting Tax Deduction Countdown,” July 2010 .” Corporate Business Taxation Monthly.

3 - Goulding, Charles, Goulding, Taylor, Aboff, Amelia. “How LEED 2009 Expands EPAct Tax Savings Opportunities.” Corporate Business Taxation Monthly. September 2009. Pgs. 11-13.

4 - Goulding, Charles, Goldman, Jacob, Thomas, Malcom. “The Energy Tax Aspects of Warehouses and Distribution Centers.” Corporate Business Taxation Monthly. October 2009. Pgs. 15-16, 35-36.

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