Tax and Government Incentives Promoting Sustainable Development in California
Green or sustainable building is the practice of creating healthier and more resource-efficient models of construction, renovation, operation, maintenance, and demolition. Research and experience increasingly demonstrate that when buildings are designed and operated with their life-cycle impacts in mind, they can provide great environmental, economic, and social benefits. Elements of green building include:
- Energy efficiency and renewable energy
- Water stewardship
- Environmentally preferable building materials and specifications
- Waste reduction
- Toxics reduction
- Indoor environment
- Smart growth and sustainable development
Green building offers a number of environmental and economic advantages. Although up-front costs can exceed traditional building design costs, improvements in efficiency of energy use eventually offset the higher up-front costs.
To promote green building, federal and state governments have proposed a variety of incentives. The State of California, its subdivisions, and its utilities have a host of incentive programs designed to encourage the implementation of green building practices. From rebates for solar panels to fee waivers for projects exceeding existing energy efficiency standards, there are numerous incentive programs to be considered when deciding if your California construction project would benefit from going green. Due to the large volume of available incentives and the host of factors affecting which programs apply to a given project, an exhaustive listing of available programs here is impractical. The summary below is intended to provide you with an overview of the types of incentives that may apply to your project. Further information is available at http://www.dsireusa.org.
FEDERAL TAX INCENTIVES
A number of federal income tax benefits may be available with respect to an energy-efficient commercial building. Section 179D of the Internal Revenue Code of 1986, as amended ("Code"), allows a deduction for the cost of certain energy-efficient commercial building property placed in service during a taxable year. The amount of the deduction is generally equal to the cost of depreciable interior lighting systems; depreciable heating, cooling, ventilation and hot water systems; and depreciable building envelope property. To qualify for the deduction, this property must be certified as being installed as part of a plan designed to reduce the total annual energy and power costs for respective systems of the building by at least 50 percent in comparison to the minimum requirements of Standard 90.1-2001 of the American Society of Heating, Refrigerating and Air-Conditioning Engineers and the Illuminating Engineering Society of North America.
The lifetime amount of the deduction with respect to any building is limited to $1.80 per square foot. If a building fails to meet the 50 percent certification requirement, but is certified as meeting energy-savings targets to be established by the Internal Revenue Service, the deduction is limited to $0.60 per square foot. In either event, under current law, the deduction is only allowed for buildings that are placed in service before January 1, 2014.
In addition to the deduction for energy-efficient commercial building property, a building owner may be able to qualify for accelerated deductions and federal income tax credits or grants applicable to renewable energy production facilities. For example, section 48 of the Code allows for an income tax credit equal to 30 percent of the cost of any equipment used to generate electricity from solar energy that is placed in service during a taxable year. This is a nonrefundable credit against income tax liability that can be claimed entirely in the year the solar equipment is placed in service. Under current law, a solar facility must be placed in service before January 1, 2017 to qualify for the credit.
Pursuant to the American Recovery and Reinvestment Act of 2009, which was signed by the President in early February, the owner of a qualifying renewable energy facility can elect to receive a cash grant from the Treasury Department in lieu of claiming applicable tax credits. Like the tax credit for solar projects, the amount of the cash grant generally is 30 percent of the cost of equipment used to generate electricity from the renewable resource. This cash grant is available even if the owner of the qualifying facility does not have sufficient tax liability to utilize an income tax credit that otherwise would apply. The cash grant generally applies to equipment that is placed in service in 2009 or 2010, and the amount of the grant is not included in the recipient's taxable income.
In addition to the tax credit or cash grant, certain renewable energy property (including solar) also may qualify for 50 percent bonus first-year depreciation deductions and five-year accelerated depreciation, which can generate significant federal income tax savings.
For more information regarding federal tax incentives for sustainable development, contact the following Stoel Rives LLP attorneys: Kevin T. Pearson (at 503-294-9622 or firstname.lastname@example.org) or Adam C. Kobos (at 503-294-9246 or email@example.com).
CALIFORNIA STATE TAX INCENTIVES
California does not provide any uniform specific state tax benefits for energy efficient commercial buildings analogous to the Federal benefit under Section 107D (discussed above). However, for state income tax purposes, California excludes from gross income certain grants awarded under the 2001 Energy Conservation Act to qualified small businesses and low-income residential property owners for constructing improvements or retrofitting buildings to be more energy efficient. A qualified small business is an independently owned and operated business that is not dominant in its field of operation, the principal office of which is located in California, the officers of which are domiciled in California, and that, together with affiliates, has 100 or fewer employees, and average annual gross receipts of ten million dollars or less over the previous three years.
A taxpayer that receives certain state non-tax incentives also may be eligible to exclude the value of those incentives from income for California state income tax purposes. This exclusion applies to any rebate, voucher, or other financial incentive issued by the California Energy Commission, the Public Utility Commission, or a local publicly owned electrical utility for the purchase or installation of a solar or thermal system, a wind energy system that produces electricity, or a fuel cell generating system that produces energy.
California provides a credit against corporate franchise tax liability for sales or use tax paid upon the purchase of certain equipment used to produce renewable energy resources, or for air or water pollution control mechanisms, so long as the taxpayer is engaged in a trade or business located in a specially designated enterprise zone.
For property tax purposes, reassessment under Proposition 13 does not apply to the construction or addition of any active solar energy system. This provision can prevent the taxable value of the taxpayer's property from being increased when a solar system is installed. Qualifying active solar energy systems are defined as those that "are thermally isolated from living space or any other area where the energy is used, to provide for the collection, storage, or distribution of solar energy." These include solar space conditioning systems, solar water heating systems, active solar energy systems, solar process heating systems, photovoltaic (PV) systems, and solar thermal electric systems, and solar mechanical energy. The system must be installed between January 1, 1999 and December 31, 2016.
For more information regarding California state tax incentives for sustainable development, contact the following Stoel Rives LLP attorneys: Robert Manicke (at 503-294-9664 or firstname.lastname@example.org) or Mark Astling (at 801-5678-6983 or email@example.com).
CALIFORNIA STATE NON-TAX INCENTIVES
California's Feed-In Tariff
For those considering inclusion of renewable power generation in their next winery project, California has created a market for your project's excess electricity. The California feed-in tariff allows eligible customer-generators to enter into 10-year, 15-year or 20-year standard contracts with their utilities to sell the electricity produced by small renewable energy systems—up to 1.5 megawatt (MW)—at time-differentiated market-based prices. Time-of-use adjustments will be applied by each utility and will reflect the increased value of the electricity to the utility during peak periods and its lesser value during off-peak periods. A special, higher-level rate is provided for solar electricity generated between 8 a.m. and 6 p.m.
California Property Tax Exemption
Section 73 of the California Revenue and Taxation Code allows a property tax exclusion for certain types of solar energy systems installed between January 1, 1999, and December 31, 2016. Qualifying active solar energy systems are defined as those that "are thermally isolated from living space or any other area where the energy is used, to provide for the collection, storage, or distribution of solar energy." These include solar space conditioning systems, solar water heating systems, active solar energy systems, solar process heating systems, photovoltaic (PV) systems, and solar thermal electric systems, and solar mechanical energy.
County/City-Specific Financial Incentives for Green Building
Costa Mesa - Fee Waiver for Green Building
Marin County - Green Building Incentive Program
San Bernardino County - Green Building Incentive
San Diego County - Green Building Program
Santa Monica - Building Permit Fee Waiver for Solar Projects
Santa Monica - Expedited Permitting for Green Buildings
Marin County - Green Building Incentive Program
For example, the Community Development Agency of Marin County provides incentives for new construction that incorporates green elements. The incentives were adopted in October 2001 by the Marin County Board of Supervisors. The goal of the program is to enhance energy efficiency and conservation in residential, commercial, and community facilities.
The incentive program includes the following incentives:
- Waiver of the Title 24 (California Building Energy Efficiency Standards) energy fee (new construction projects only)
- Fast-track permit processing
- Free green building technical assistance, design consultation, resources and information for all Marin County residents.
A project must fulfill one of the following requirements to qualify for the first two incentives:
- Exceed Title 24 requirements by 20%, or
- Install an on-site renewable energy system that produces a minimum of 75% of the annual energy use for the building and site amenities.
There is also a rebate program offered by the Marin County Sustainability Team that provides incentives to local residences, businesses and County employees who install solar energy systems. Rebates include $500 for a photovoltaic system, $300 for a solar hot water heater, and $200 for a solar pool heater.
At the other end of the spectrum is Napa County. Although open to alternative energy use and encouraging solar energy by waving permit fees, Napa County currently does not have a formal program of green building initiatives.
City of Healdsburg - PV Incentive Program
Under the City of Healdsburg's PV Buy-down Program, residential and commercial customers are eligible for a $2.52-per-watt AC rebate on qualifying grid-connected PV systems. The incentive level will decrease annually over the 10 year life of the program. Rebates are available on a first come, first served basis.
Local Utility Loan and Rebate Programs
Location warranting, incentives may also be available from your electrical service provider. The following programs are representative of the available local utility incentives:
Lodi Electric Utility - PV Rebate Program
Lodi Electric Utility offers rebates to its residential, commercial, industrial and municipal customers who install photovoltaic (PV) systems. The rebate program was funded with approximately $6 million to support systems installed between January 1, 2008 and January 1, 2018. The total amount available for qualified installations in 2008 is $600,000. Rebates for both residential and non-residential PV systems installed in 2008 are $2.80/watt. This incentive amount will decrease 7% each year after 2008. The maximum rebate is $375,000 per system, with a maximum payment of $75,000 per customer per year until the entire rebate commitment is paid.
Pacific Power - Irrigation Initiative
Pacific Power, through the FinAnswer® Express and Energy FinAnswer® programs, offers incentives for agricultural irrigation customers to help upgrade their system and receive cash incentives. The Energy FinAnswer program provides no-cost pump testing, irrigation system analysis and custom incentives of $0.12 per kilowatt-hour annual energy savings plus $50 per kilowatt average monthly demand savings. In addition, eligible customers can receive cash incentives when replacing worn nozzles or upgrading to premium efficiency motors.
Ukiah Utilities - PV Buy-Down Program
Through Ukiah Utilities' PV Buy-Down Program, residential and commercial customers are eligible for a $2.52-per-watt AC rebate on qualifying grid-connected PV systems up to a maximum system size of 1 MW. In keeping with SB1, the incentive level will decrease annually on July 1 over the 10 year life of the program. Rebates are available on a first come, first served basis and are limited to $6,000 per residential installation and $15,000 per commercial installation.
For more information regarding California state non-tax incentives for sustainable development,
contact the following Stoel Rives LLP attorneys: Jennifer D. McCrary (at 916-319-4668 or firstname.lastname@example.org) or Daniel A. King (at 916-319-4678 or email@example.com).
For more information regarding any aspect of federal or California state incentives for sustainable development, or any aspect of this paper, contact Stoel Rives LLP attorney James A. Zehren (at 503-294-9616 or firstname.lastname@example.org).