The EPAct Tax Aspects of Warehouse Club Energy Cost Savings
During the economic downturn the big three retail warehouse clubs namely BJ's Warehouse Club, Costco Wholesale, and Sam's Club have gained market share. Consumers at all economic levels enjoy the discount pricing available from the club food and merchandise offerings. While gaining market share, these organizations confront food commodity price increases and strive to do everything they can to control costs. Recently, on October 9, 2011 Costco announced that rising product costs required them to raise the annual club membership fee. The warehouse club facilities are essentially large retail warehouses where today's lighting and HVAC technologies offer tremendous energy cost savings. The IRC Section 179D tax savings are based on square footage which means theses facilities have particularly large tax savings opportunities.
EPAct Section 179D
Under Code Sec. 179D, as enacted by the Energy Policy Act of 2005 (EPAct), building owners who make qualifying energy-reducing investments can obtain immediate tax deductions of up to $1.80 per square foot.
If the building project doesn’t qualify for the maximum of $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 and the Building Envelope. The building envelope covers every part of the building’s exterior perimeter that touches the outside world including roof, walls, insulation, doors, windows and foundation.
Energy efficient lighting offers a quick economic payback and easily achievable tax savings. Moreover many of these stores still have now federally banned probe start metal halide lighting and T-12 lighting that should be replaced. The lighting related electrical cost savings from these upgrades is typically 40% to 60% and often less than two year economic payback.
Energy Efficient HVAC for Retail Distribution Centers
The HVAC technologies that will typically produce favorable EPAct tax deduction results for these types of facilities are 1. chillers in facilities less than 150,000 sq ft and 2. Very high energy efficient chillers, 3. Energy Recovery Ventilation (ERV) 4. Demand Control Ventilation (DCV) and for facilities 150,000 square foot or greater combinations of very efficient chillers ERV and or DCV.
The actual case studies results for similar air conditioned facilities across the country are as follows:
The facilities represented above that qualify for the full $1.80 per square foot EPAct tax deduction typically account for this result is by combining energy efficient lighting along with the specified HVAC.
The magnitude of potential tax savings available from the top three clubs is as follows:
3115 EPAct Tax Planning
In Rev Proc 2011-14 IRS announced that building owners who previously missed their EPAct tax deductions can now use the tax accounting procedure to catch up missed EPAct tax deductions. This means that both new stores built since January 1, 2006 and stores with post January 1, 2006 retrofits can recoup missed EPAct tax deductions and report them on a current tax return. For example a club facility that previously retrofitted its lighting and is now is now upgrading its HVAC to EPAct qualifying levels could now claim both deductions on its current year tax return.
By utilizing today's technologies, the big three retail warehouse clubs have tremendous energy cost and tax savings opportunities. These savings are there for the taking and club membership is not required.