A look at tax credits available to companies that go green

While green IT can bring immediate cost savings, it can also make a company eligible for tax breaks and other incentives

As if significant savings on electricity bills weren't enough, IT managers have another reason to embrace environmentally friendly IT practices: a bevy of federal, state and local tax incentives that could tip the scales to make green IT projects financially attractive.

However, companies have been slow to take advantage of the available incentives, essentially leaving money on the table. One reason is that many tax incentives are for solar energy, which is still expensive. Another reason is that CIOs -- who don't often talk with tax experts -- may not be aware of what's available.

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Among the federal tax incentives is the Energy-Efficient Commercial Buildings Tax Deduction, part of the Energy Policy Act of 2005. (Subsequent legislation extended this deduction through 2013.)

Companies can claim a tax deduction of $1.80 per square foot on new or existing buildings by installing interior lighting, heating, cooling, ventilation or hot water systems that reduce a building's total energy and power costs by 50 percent or more.

"If an IT manager is looking to retrofit or construct a data center, this particular incentive is absolutely appropriate -- almost a given," says Jenny Bravo, a director at Deloitte Tax LLP. "A 50 percent reduction [in energy and power costs] for a well-planned data center is absolutely doable."

If a building doesn't qualify for the full deduction, it could be eligible for a partial one. For example, if a building doesn't meet the requirement for 50 percent energy savings, it could still qualify for a $0.60-per-square-foot deduction if renovations reduce energy costs by at least 16.66 percent.

In addition, the American Recovery and Reinvestment Act of 2009 -- as the federal government's economic stimulus package is officially known -- extends or modifies existing incentives for renewable energy investments. The ARRA extends the duration of the 30% tax credits for solar energy, fuel cells and microturbines for eight years. It also establishes new 10 percent tax credits for small wind-energy systems, geothermal heat pumps, and combined heat and power systems.

Incentives for green IT

A survey of 752 IT managers found that only 44 percent of them get some form of incentive for improving energy efficiency. The 331 respondents who do receive incentives cited the following types:

  • Part of employee's performance appraisal: 39 percent
  • Green award or certificate for the organization: 34 percent
  • Internal award for the responsible staff member(s): 22 percent
  • Utility rebate for the organization: 20 percent
  • Federal tax credit for the organization: 20 percent

Base: 331 IT managers who receive incentives; multiple responses allowed.

Source: CDW Corp. Energy Efficient IT Study, August 2009

The business energy investment tax credits are available for systems up and running by Dec. 31, 2016. The ARRA also allows businesses to receive federal cash grants for new installations, which can lure organizations that aren't eligible for tax credits.

State tax breaks
Tax incentives from state governments can also make a green IT initiative look better on a financial spreadsheet. "Rarely do you see companies, if they're looking at a return on investment, find a federal incentive robust enough to move forward. They need to have a state incentive as well," says Bravo.

For example, New York and Oregon offer tax incentives for green buildings. North Carolina offers a 35 percent tax credit for renewable energy equipment expenditures, such as solar space heating. And Virginia allows local jurisdictions to exempt or partially exempt solar energy equipment or recycling equipment from local property taxes.

Despite these tax breaks, IT managers say solar energy still isn't affordable for most data centers.

In 2005, Highmark, a Pittsburgh-based medical insurer, built a green data center that was certified by the U.S. Green Building Council. Mark O'Gara, Highmark's vice president of infrastructure management, says the company initially evaluated the pluses and minuses of incorporating solar power into the data center's design but determined that "the economics of solar power still aren't quite there."

"We did the analysis on current electricity rates for retrofitting some solar panels, and the ROI didn't pan out from an investment perspective," O'Gara says.

A lack of awareness -- and a lack of internal communication between CIOs and company tax experts -- is also to blame for some companies' failure to take advantage of tax breaks.

"IT guys aren't thinking about tax law. They're not plugged into what utilities in their region are doing in terms of incenting investments in energy efficiency," says Christopher Mines, an analyst at Forrester Research Inc. For this reason, Mines recommends creating an ad hoc team of various department heads to discuss green IT projects and spread the word on how government incentives can strengthen the business case for them.

O'Gara acknowledges that while "there's an opportunity for the government to be an evangelist" for green IT tax incentives, it's the CIO's responsibility to find out what types of credits and deductions are available.

Some organizations aren't eligible for tax credits at all. For example, American College Testing in Iowa City has a new data center that features a geothermal cooling system, but as a not-for-profit organization, ACT doesn't qualify for federal or state corporate tax credits. However, its motivation for building the environmentally friendly building had little to do with the bottom line. The green design "just made sense for our project," says Tom Struve, ACT's assistant vice president of central services. "And it really didn't add all that much to our costs."

Phil Nail is of similar mind. He's the CTO at Affordable Internet Services Online, a Romoland, Calif.-based Web hosting company that's completely solar-powered. But Nail says AISO's green IT initiatives preceded the introduction of energy investment tax credits.

Not that he has any regrets. "We don't look at [our green IT initiatives] as, 'If we don't get these tax incentives, then we're not going to do it,' " Nail says. "We just do it anyhow. It's the nature of how we are and the nature of our business."

Cindy Waxer is a freelance writer in Toronto. Contact her at cwaxer@sympatico.ca.

This story, "A look at tax credits available to companies that go green" was originally published by Computerworld.

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