States Offer Rich Incentives for Going Green

August 30, 2010 – Vol.15 No.24

States Offer Rich Incentives for Going Green.
Is Your Company Leaving Money on the Table with Unrealized Credits and Incentives?

by Ramon Reynoso and Steve Heusinger

State and local governments are offering generous “green” incentives to promote energy efficiency and renewable energy, including solar power. Despite tight budgets, most state tax incentive programs have survived or increased, providing an exceptional opportunity for companies to improve the environment while enhancing their bottom line.

Many states are looking to bolster their economies by attracting green jobs. In addition to the federal government’s $2.3 billion of new incentives for renewable energy, states are creating their own incentives to attract these new jobs. Legislatures in many states are requiring minimum investments, as well as looking at the quality and quantity of jobs that will be created. Many states are using federal stimulus money to fund their incentive programs.

Green incentives present companies with both opportunities and challenges. The applicable regulations are often complex, and the programs themselves are in a constant state of flux. State and local governments are continuously revising and adding new rules to existing programs.

The more than 1,200 separate state and local energy efficiency incentives include corporate, sales, and property tax savings, as well as rebates and loans. There are another 800-plus state and local renewable energy incentives that can also provide corporate, sales, and property tax savings, as well as rebates, grants, loans, industry support, and production. Unfortunately, many companies fail to take advantage of these programs.

Taxing jurisdictions automatically assume there will be a percentage of credits companies are eligible for that will go unclaimed—some that are subsequently used to fund other programs. According to numerous reports and quotes from state and federal agencies and tax practitioners, there are billions of dollars in unclaimed credits.

Consider the following all too common scenario: The Acme Widget Company can locate its new $20 million factory creating green jobs and 100 high-paid, new employees in a state offering to reimburse up to 50% of Acme’s “qualified training expenses,” up to $5,000 for each new employee, and to grant Acme a state income tax “Jobs Credit” of $1,000 per each new employee for the first five years of operation. The company includes the $500,000 training grant and the $500,000 in state income tax credits in its financial projections. The company and the state’s governor issue a press release announcing the new jobs. Construction of the new plant begins, and the company shifts its focus to other strategic matters.

As the new employees are hired, no one tells HR how to document its training activities as required by the state’s program. Acme’s tax manager leaves for another company, and no one tells the new tax manager about the state income tax Jobs Credit. Acme files a federal tax return and 20 state tax returns. During the frenzy of the next “busy season,” the new tax manager does not claim the Jobs Credit on the company’s state tax return.

Eventually, the company realizes that both the amount of income tax paid and the training expenses associated with the new plant are higher than projected. The company contacts the state economic development officials and is referred to the compliance officer at the Department of Labor (who administers the training grant) and a taxing officer from the State Department of Revenue (who administers the Jobs Credit). At this point, the company learns that it is no longer entitled to either incentive because it has missed filings and failed to compile information required to comply with the applicable regulations.

In the preceding example, Acme left $1 million on the table because no one had overall responsibility for ensuring that the training grant and Jobs Credit were realized. Training grants, in particular, often come with burdensome administrative requirements and are often unrealized.

Ironically, while many companies employ consultants to identify and negotiate incentives and credits, they often forget that extensive follow-up and record keeping are required to actually realize the benefits of these programs. Just as specialists can help companies identify tax savings opportunities, it also takes specialized expertise to make sure these benefits actually flow to the bottom line.

Identifying credits and incentives is only the first step in making sure that they ultimately flow to the bottom line. Credits and incentives programs should be audited and reviewed frequently to ensure companies receive the credits and incentives they earn.

Contact:

Ramon Reynoso
Director, Tax Credit Services
Ryan
ramon.reynoso(at)ryan.com

Steve Heusinger
Principal, Tax Credit Services
Ryan
stephen.heusinger(at)ryan.com

Links:

Ryan
http://www.ryan.com

Database of State Incentives for Renewables and Efficiency.
http://www.dsireusa.org

Ryan is the leading tax services firm in North America, with the largest transaction tax practice in the United States and Canada. Headquartered in Dallas, Texas, the Firm provides a comprehensive range of state, local, federal, and international tax advisory and consulting services on a multi-jurisdictional basis, including audit defense, tax recovery, credits and incentives, tax process improvement and automation, tax appeals, and strategic planning. With a multi-disciplinary team of more than 800 professionals and associates, Ryan serves many of the world's most prominent Fortune 1000 companies.