How lateral thinking can maximize the benefits of green tax credits and incentives

Getting specialized help pays off in overlooked incentives How to apply for grants, funding and other incentives varies hugely agency by agency and depends largely on the size and scope of your needs. However, there is some good news: Because virtually all of the applications are electronic, once you have established your best fit, the websites are relatively easy to navigate, and the requirements are presented in a straightforward way. That said, where there are government-led grant applications, there will always be fine print and red tape. This is another situation in which a tax specialist can be worth his or her weight in carbon-emission offset credits.

If you’ve gone it alone thus far, once you’ve identified the kind of incentive that’s right for your business, consult with a green tax specialist to make sure you’ve got the most up-to-date information at your fingertips. Then, together, you can collect the required documentation, and start the process. Remember, it’s largely about thinking laterally — what kind of incentive can grow my business over both the short term and the long term?
The government finds itself in a rather unusual position: It is trying to give away money but isn’t getting any takers. Well, not no takers — but it seems that relatively few companies are aware of the significant local and federal incentives, tax breaks and cash grants that their sustainability efforts could be buying them.

According to a recent Grant Thornton LLP survey about sustainability at food and beverage companies, only 19% of surveyed businesses reported reaping the benefits of local “green tax” initiatives, and a minuscule 7.8% reported taking advantage of federal programs such as pollution credits. Shockingly, 31% of companies weren’t even aware that there were incentives available to them. That’s a lot of money being left on the table.

Get informed Tim Schram, Grant Thornton managing director in the State and Local Tax practice, agrees. “Companies need to understand the value of the incentives they can earn,” he says. “If they work it right, businesses can actually earn significant dollars through some of these programs — it turns into real money.”

Also, Schram notes, the range of incentives is growing all the time as the green landscape evolves, which is why it’s important for companies embarking on the sustainability journey to consult with a tax professional early on to determine their best matches. In addition, some — mostly federal — incentives dry up if a business already has programming up and running, so it’s advantageous to do your due diligence ahead of the game.

That’s all well and good. But, apart from possible tax advantages, or benefits from the immediate financial incentive of an injection of grant cash, why should a business invest in these sustainability efforts at all? Simply put, it’s the business way of the future, and even the government is willing to bet on it.

“Incentives such as discretionary cash grants, state and local incentives, and federal tax credits can offset sustainability investments, making them even more attractive,” says Schram. By taking advantage of these numerous green credit opportunities, businesses can offset costs and improve return on investment. “For companies looking to grow and cut costs, this is a great time to invest in capital projects — such as retrofitting facilities or upgrading production equipment to achieve zero carbon footprint — that foster sustainability.”

Further, according to the same sustainability survey, 67.5% of companies believe sustainability is critical to growth — more than double the number that are aware of the financial easements available to help them achieve their goals. And, because the initial financial outlay of investing in new green products and equipment is often the largest roadblock to sustainability success, it only makes sense to partner with a local, state or federal organization for a mutually beneficial investment.

How to find, apply for and use green tax credits and incentives Many state and local governments offer support to companies’ sustainability efforts, across all industries but particularly in manufacturing verticals. These tax credits and incentives are designed to encourage:
  • A reduced reliance on fossil fuel, through investments in energy-efficient equipment;
  • An increased usage of renewable energy sources such as wind, solar and geothermal; and
  • A general improvement in environmental efforts.
Not only are these activities good for the planet … they are good for your own company’s bottom line.
Step 1. It’s about thinking laterally Of course, top-level growth includes saving on heating, cooling and transportation costs. And reducing packaging saves on paper-and-plastic outlays, as well as storage and delivery expense. But partnering with governmental agencies can bring about much larger savings, as well as a huge net increase in growth. For example, the New York State Energy Research and Development Authority (NYSERDA), which is a public benefit corporation, “offers objective information and analysis, innovative programs, technical expertise, and funding to help New Yorkers increase energy efficiency, save money, use renewable energy, and reduce reliance on fossil fuels.”1

Case in point, Steven Winter Associates. In 2007, this environmentally friendly building design, construction and operation firm partnered with NYSERDA as a Multifamily Performance Partner. Since then, the firm “has seen significant growth, largely resulting from affordable housing building owners enrolling in the program.” 2

Another example can be found in New Jersey, where, under the state’s SmartStart Buildings program, qualified businesses can receive up to $4 million in cash grants to fund significant investments in measurable energy efficiencies at existing industrial locations.

But the benefits that can come to qualified companies don’t stop with the funding. Once you’ve installed the new equipment or adopted the new policies and procedures, further growth opportunities may appear that you didn’t initially foresee.

“We worked with one company,” says Schram, “that engaged in a sustainability program to reduce their waste. It turned out that the byproduct of this method was methane gas, which the company was then able to burn as fuel for their plant.” In this case, not only did the company benefit in the anticipated manner, but they were also able to — laterally — further reduce their carbon footprint and save on energy costs as well.

Step 2: Finding the right fit Want a comprehensive list of incentives? A good list of informative sources for a host of state and federal sustainable building incentives can be found at and also provides many useful federal resources to encourage you to take advantage of lateral-thinking programs that could be the right fit for your company. Just as every business is different, so too are the needs for sustainability aids. Companies responding to Grant Thornton’s sustainability survey seem to be taking advantage of some savings opportunities already, whether or not they are tied to incentives. For example, 65% reported that their company’s sustainability efforts benefited from savings through energy efficiency, and 46% reported savings through source reduction. Nearly one in five (19%) reported saving through local green tax incentives and a further 8% through federal programs. And, of the 31% of respondents who were unaware of credits and incentive opportunities, wholesalers, especially, were in the dark about them (48%).

Companies looking for a good place to start might be well served to look into one or more of the following most widely used state and regional sustainability credit and incentive programs, including:
  • California Self-Generation Incentive Program (SGIP): As far back as 2001, California initiated a state rebate program for businesses that produced electricity with wind turbines and fuel cells. SGIP offers incentives in the amount of $1/W to $4.50/W for renewable energy systems. Projects using systems manufactured in California receive an additional 20% of the base incentive. Under the program, projects receiving other incentives funded by California investor-owned utility ratepayers receive an incentive discounted by the amount of the other incentives. Projects receiving incentives funded by a non-investor-owned utility ratepayer receive an award discounted by a rate of 50% of the other incentives.
  • ReCharge New York power program: Apart from the aforementioned NYSERDA, New York offers local businesses the ability to buy low-cost power based on a commitment to maximize energy efficiency, job retention and creation, capital investment commitments and other factors through the ReCharge New York power program. This statewide economic development power program for qualified businesses and not-for-profit corporations is designed to retain and create jobs through allocations of low-cost power. Participating New York businesses can save up to 20% in electricity costs. The program offers an award period of seven years and is backed by a dedicated block of sustainable hydropower. The program is available to qualified companies and not-for-profit organizations.
  • Tennessee Valley Authority (TVA): This government-owned corporation and its distributors offer a competitive utility savings opportunity for businesses in their service territory that are investing in a new or existing facility. Major states within the TVA service territory include Georgia, Kentucky, Tennessee, North Carolina, Virginia, Alabama and Mississippi. The TVA’s Valley Investment Initiative is an incentive program that reduces a business’s monthly power bill by 5% to 10% for an award period of up to five years. The award is based on an energy-efficiency commitment, job creation and retention, capital investment commitments, average wages paid and the business’s load factor.
  • Georgia sales and use tax exemption: In 2012, Georgia Governor Nathan Deal eliminated the sales and use tax on energy used in manufacturing sectors. The exemption applies to energy used directly or indirectly in qualifying manufacturing plants and will phase out over a four-year period. In addition, “competitive projects” located or expanding in Georgia may be eligible for immediate phase-out of state sales and use tax. This exemption does not include the generation of electricity.
These programs are simply a few examples, rather than an exhaustive list of credits and incentives. Opportunities differ by state and municipality, so consider taking a comprehensive approach to maximizing government incentives to offset your sustainability-related investments. Think creatively about how you might be eligible for help. Finally, remember that these offerings are often holistic incentives. They are not largely business-category specific, which is of benefit to you, because you will have more areas of potential funding to pursue.

Extra credit Like showers in the spring, it seems that every year the R&D tax credit expires and arguments both for and against its renewal flare up. Many federal green credits also have expiration dates and will need to be renewed by Congress.

Regardless of political footballing, however, the United States remains at the top of the list of 21 countries when it comes to using the tax code to influence sustainable corporate activity. Factors determining placement on the index included federal tax incentives for energy generally — among them specific incentives for energy efficiency, renewable energy and green buildings.

The federal government offers significant R&D tax credits that allow companies of all sizes to offset expenses, because it allows for “technological research” among its criteria. Technological research, according to the American Institute of CPAs (AICPA), is broadly defined and — as long as the work is done within the United States — applies to sustainability efforts, including:

• Creating new methods for minimizing contamination, scrap, waste and spoilage;
• Increasing energy efficiency of water, fuel and utilities through introduction of new technologies; or
• Developing processes to convert waste to energy.

Work with a professional to determine if you are eligible to receive the credit. Detailed criteria are provided in Regs. Sec. 1.41-4(a), but broadly speaking, companies employing technical personnel or engineers to develop or improve products or processes should be eligible.
Step 3: Research, research, researchIt’s easy to get sucked into hours of tangential online research if you’re not targeting your focus very clearly. Therefore, before you start the work, it’s a good idea to assign a dedicated person (or team) from your own company to manage the project, from research to application to the resulting program rollout. Here are a few ideas to guide your efforts:

  • Brainstorm the areas where your business falls short in sustainability and document where you have the most potential for growth. These ideas can be very granular at this stage (and often they should be).
  • Once you have the best ideas on the table, begin cutting. When instituting a major shift like this, it’s a good idea to limit your initial list of “to-dos” to a manageable number of target areas. Areas of focus should be: best fit for our company; best incentive package to limit initial financial outlay; best long-term ROI.
  • Create a detailed action plan, with targeted and measurable dates and deliverables. In other words, treat this area of growth as you would any other initiative in the physical space, rather than seeing it as a “maybe,” or “potential,” or interesting intellectual exercise.
  • Partner with an accountancy firm or consultant to pursue the incentives that are right for you.
Schram advises: “Don’t be afraid to be aggressive. Challenge yourselves and your budgets to identify where the funding will come from, in order to increase ROI.” The best sustainability strategies are not just done for the public good — they also make good sense, from a financial perspective.”

2 Ibid.