Content about Energy conservation

CHICAGO — Uncle Sam, in the form of our tax laws, wants to reward every laundry business that improves the energy efficiency of the building housing its business or plant. In fact, all so-called “commercial buildings” may qualify for this unique tax deduction. Even those that only partially improve energy efficiency may qualify, albeit with a smaller deduction.

While there is some question whether tenants can claim this credit, new guidelines from the Internal Revenue Service make it easier than ever to claim even the partial deduction.

ENERGY-EFFICIENT COMMERCIAL BUILDING DEDUCTIONS

Our tax rules allow a deduction for a portion of the costs of installing energy-efficient systems in a commercial building. The maximum deduction is generally $1.80 per square foot, less the total amount of any deductions claimed in earlier years. Qualified systems include interior lighting, heating, cooling, ventilation, hot water systems, and the building’s envelope. Best of all, the deductions don’t expire until Dec. 31, 2013.

The deduction of up to $1.80 per square foot is available to owners or tenants of new or existing commercial buildings that are constructed or reconstructed to save at least 50% of the heating, cooling, ventilation, water heating, and interior lighting energy costs.

Partial deductions of 60 cents per square foot are also available for improvements to any building system that reduces total heating, cooling, ventilation, water heating and interior lighting energy use by a specified—and recently changed—percentage.

COMMERCIAL BUILDING DISCRIMINATION

It is no secret that our tax rules have long treated commercial property less favorably than residential property. Today, however, tax breaks are available that create significant incentives for making “commercial” buildings more energy-efficient.

The incentive comes in the form of a tax deduction. The unique Energy Efficient Commercial Building Deduction (EECBD) is already rewarding many commercial building owners—and tenants.

Under EECBD, a laundry or dry cleaning business can claim tax deductions for new or renovated buildings that save 50% or more of projected annual energy costs for heating, cooling and lighting compared to model national standards. Partial deductions are available for efficiency improvements to individual lighting, HVAC and water heating, or envelope systems.

Commercial property is generally defined as property intended for use by retail, wholesale, office, hotel or service users or for manufacturing or other industrial purposes. Examples include shopping centers, office buildings, hotels and motels, resorts or restaurants, and, of course, laundry and dry cleaning buildings and plants.

THE REFERENCE BUILDING

Before any laundry owner can claim the EECBD deduction for energy-efficient systems installed in a commercial building, they must obtain certification. Although guidance issued by IRS explains how to calculate a building’s square footage, when a building is considered placed in service, and more, a licensed contractor or engineer must verify the building or portion of the building being submitted is better than the American Society of Heating, Refrigeration and Air Conditioning Engineers’ (ASHRAE) Standard 90-1-2001.

For purposes of the EECBD, the “Reference Building” is a building that is located in the same climate zone as the laundry or dry cleaning plant building and is otherwise comparable to it except that its interior lighting systems, heating, cooling, ventilation, and hot water systems, and building envelope meet the minimum requirements of the ASHRAE 90.1-2001 standards.

WRITE-OFF COMPLEXITIES

Rather than a deduction for the actual cost of the systems or equipment purchased to make a commercial building at least 50% more energy efficient, a flat tax deduction of up to $1.80 per square foot is available. Remember, however, the improvement must save at least 50% of the heating, cooling, ventilation, water heating and interior lighting energy cost. A partial deduction of 60 cents per square foot can be taken for improvements made to one of three building systems—the building envelope, lighting or heating, and cooling system.

The deduction applies to “energy-efficient commercial building property,” defined as depreciable property installed as part of a building’s (1) interior lighting systems, (2) heating, cooling, ventilation and hot water systems, or (3) the building’s envelope as part of a certified plan to reduce the total annual energy and power costs to a reference building that meets specified minimum standards.

The Department of Energy maintains a list of the software that must be used to calculate power consumption and energy costs for purposes of certifying the required energy savings necessary to claim the deduction. With only buildings covered by the scope of the ASHRAE Standard 90-1-2001 eligible, seeking professional assistance is almost mandatory.

The person or organization that makes the expenditure for construction is generally the recipient of the allowed tax deductions. This is usually the building’s owner, but for some HVAC or lighting efficiency projects, it could be the tenant.

Thursday in Part 2: Write-off complexities, partial deduction basics, and who gets the credit?

Information in this article is provided for educational and reference purposes only. It is not intended to provide specific advice or individual recommendations. Consult a tax adviser for advice regarding your particular situation.

CHICAGO — The specter of ever-rising utility costs should be enough to spur the average laundry owner to track this expense and explore ways to minimize it.

In response to a series of questions from American Coin-Op, Gary Dixon, national sales manager for Huebsch, and Kent Walters, national sales manager for Maytag® Commercial Laundry, discuss the role that tracking energy usage and maximizing its effectiveness plays in a successful self-service laundry, and offer some important tips for corralling costs.

Often, the battle against rising utility costs starts with your equipment.

Q: How may a coin laundry owner track their operation’s level of energy efficiency?

Walters: Owners looking to determine their store’s level of energy efficiency need to compare the cost of utilities vs. revenue. If the cost of the store’s utilities is above the industry average—20-25% of total revenue—a store owner should investigate ways to decrease the cost of utilities, starting with equipment.

Dixon: First, I would suggest that the laundry owner establish a baseline. Many manufacturers, along with the local distributor, can provide an estimated energy usage per turn. The laundry owner could then adjust these calculations to reflect their specific energy costs and turns per day.

Second, compare utility bills after every change that is made to the store’s operation. If utility rates and the number of turns remain constant within the period in question, but you notice the bill increasing or decreasing, it is a quick indication that the changes you made may have had a negative or positive impact.

Q: Is tracking energy efficiency as simple as comparing this month’s utility bills to last month’s?

Dixon: It can be, but you will always have to wait for the bill to arrive. However, control technology has really advanced over the last five years. There are features such as advanced leak detection that can help you get an early jump on problems before they impact your utility bills.

Walters: No, comparing month to month isn’t the recommended way to determine a store’s energy efficiency. Usage varies by time of year and other factors. It is better to look at your utility bills over time and compare them to the net income and what percent of revenues the utilities make up.

Q: In your experience, how likely is it that a laundry owner is tracking his or her store’s efficiency?

Walters: Those who have become owners in the last four or five years seem to better understand the need to track a store’s energy efficiency, and how it affects the bottom line. The more efficient the operations, the greater the revenue for the store owner. The significant increase in utility costs has also caused long-time owners to pay attention to the costs.

Dixon: In the April issue of American Coin-Op, survey results indicated that “utilities” topped the list of problems causing business owners the most grief (State of the Industry: Operators Soldier On Amidst Lagging Economy, Increasing Costs). So, based on that feedback, I believe the majority of store owners are cognizant of the impact that utilities have on their bottom line. Yet, many are not tracking their store’s efficiency. I don’t believe it is because they do not want to, but more about how they can utilize available tools to do it effectively. Here is where a good relationship with a local distributor can be priceless.

Q: Why is it even important to track this?

Dixon: There are two reasons: first, there is the obvious impact on a store’s profitability. We can probably expect utility costs to continue to rise. Therefore, tracking a store’s efficiency is a variable that is important to monitor. The second is customers.

Again, in the April issue, survey results indicated that “lack of customers” and “equipment maintenance/repair” were on the top-five list of problems causing business owners the most grief. A great story to differentiate a business may be to announce that it is concerned about natural resources and is going “green.” This may attract customers who are like-minded. In addition, this may require the purchase of newer equipment that will allow the store owner to track and tweak energy consumption. Newer equipment certainly is more energy-efficient and may attract customers to a location. In addition, newer equipment tends to command a higher vend price.

Walters: Tracking energy efficiency is essential for store owners looking to increase revenue and improve their bottom line. By educating themselves on utility costs and what percentage of their current revenue is going toward energy, water, etc., an owner can determine the store’s energy efficiency.

Q: Discuss some of the laundry equipment features that contribute to greater efficiency today. What features have been improved over the years?

Walters: Regarding dryers, a tempered glass door, better seals, and a solid dryer drum help keep warm air in the drum, which forces more heated air through the load to reduce dryer use. Fast-drying axial airflow system, increased insulation and double-paned windows keep heat contained in the dryer basket, enabling clothes to dry more quickly with a lower Btu output.

Looking at washers, a higher spin speed, or G-force, removes water from clothes. The more water extracted during the spin cycle, the less time (and energy) is needed to dry a load of laundry.

Meeting energy- and water-efficiency standards (i.e. Modified Energy Factor (MFE), CEE Tier, Water Factor (WF) and ENERGY STAR® requirements) play a considerable role in washer energy efficiency.

Dixon: Laundry equipment has and will continue to evolve as technology becomes available. Today’s products use less electricity and Btu. Some of these changes have been mandated by government regulation, but most have been developed by manufacturers to offer product differentiation. However, the real excitement is in the control technology.

It is now possible to regulate up to 30 different water levels, the temperature of the water, spin speed and detect leaks. Auditing software makes it possible for the laundry owner to make changes quickly if necessary. You no longer need to wait for the utility bill to arrive to discover that you may have a problem.

Check back Monday for Part 2!