By Byron Loftin, managing partner, Solbrana Financial
Businesses are always looking for the next competitive edge. By enhancing how products are built, expanding offerings and working to reduce operating costs, companies vie for greater flexibility and investment opportunities. Taxes can make up the most significant operating costs of a successful enterprise. In the United States alone, it has been documented that more than 50% of available tax credits and incentives go unclaimed annually. Very few organizations have the bandwidth to identify, understand, obtain, execute and comply with the reporting requirements of every incentive. Successful companies turn to experts who perform these functions each day.
Ryan is one of the largest firms in the world focused solely on business taxes. The firm’s industry experts unlock more than $2.5 billion in tax savings annually for their clients. With simple upgrades like energy-efficient lighting, top-of-the-line windows and other building improvements, Ryan can help business owners realize significant savings by identifying and securing every available federal credit and incentive offered.
“Many companies are looking for savings by cutting budgets or outsourcing key functions, while the answer may be right above their heads — on the roof,” said Ian Boccaccio, principal and global income tax practice leader at Ryan. “Building out a bona fide solar roofing system will reduce energy costs, qualify the taxpayer for additional tax credits and potentially expedite the deductibility of components of the roof.”
The roof is one of the most vital components of a building structure. It protects 80% of assets while typically being only 20% of the overall investment. The roof, from an accounting perspective, appears to be one of those sunken capital investments that bears no fruit down the road. It depreciates over decades, and all it does is sit on top of a building, right? It’s no wonder the roof is one of the first places property owners turn to cut funds. Is it really worth having a $15/sq.-ft roof that can withstand the apocalypse? Or could that money be better invested in a new forklift, office furniture or product research?
We can’t just get rid of roofs. They’re absolutely needed, and a slew of mission-critical systems reside there — electrical HVAC, communications, plumbing and more. But how can businesses make roofs work for them?
Simple. Go solar.
A roof by itself is classified as “Section 1250 property” and, per the IRS, must be depreciated over 39 years. On the flip side, rooftop solar systems fall into “Section 48 energy property” and qualify for the investment tax credit (ITC). This allows for a substantial tax credit at the end of the year, and it can be depreciated immediately.
Why aren’t more commercial businesses taking advantage of this tax credit through solar arrays? It turns out the economics are difficult. Solar is built to operate for more than 25 years, and it needs to remain active and untouched during that time for a building owner to receive the maximum benefit. This means, however, that the roof must be addressed. The $200,000 solar system requires a $100,000 investment into the roof — similar to how a house needs a solid foundation to build upon. The project then becomes too costly to generate an acceptable return on investment (ROI) for the building owner. But what if the ITC could be applied to a portion of the cost of a new roof?
For the past 15 years, solar manufacturers have attempted to reclassify a roof in the eyes of the IRS. Solyndra was the first company to successfully receive a Private Letter Ruling (PLR), proving its solar solution of harnessing light reflected off the roof made the roof an integral and inseparable part of the solar array. Uni-Solar integrated solar panels onto single-ply roofing membranes, further proving the validity of the concept when it received a PLR a few years later. Unfortunately, both companies are now defunct due to unrelated issues. A few members of the solar industry abused the PLRs, causing pushback and forcing the industry to search for a new approach. But now, a new system has been created in the form of an integrated rooftop attachment.
Solbrana Financial has developed a new method for integrating the roof with integral solar components to take advantage of the ITC. The patented Solar Roof System (SRS) uses the U-Anchor 2000 from Anchor Products as an integral component of the system. The anchor is attached to the roof and adhered to the membrane for a waterproofed extension of the roof. Solar racking systems can then mount to the anchor. With the SRS installed, pressure from wind loads and other forces are transferred down through the roof through the anchors. The Solbrana method allows companies to significantly upgrade the quality of their new roof and allows a portion of it to be reclassified as an energy property under tax codes. Before now, an ROI on a new roof could never be realized.
Law firm Foley & Lardner LLP provided a technical memorandum and opinion on the validity of this approach.
“Solbrana’s method for integrating the solar into the roof is a reliable approach that truly has legs to reshape the way roofs are procured in the future,” said John Eliason, partner with Foley & Lardner.
Global tax services firm Ryan has partnered with Solbrana to help businesses understand how to quantify portions of a solar roof system into solar ITC qualifications to improve profitability and cash flow for property owners. Through this approach, property owners can maximize their financial investment and reduce dependency on the grid. Businesses can function more efficiently without the cumbersome overhead of a new roof while also safeguarding the operations and assets within that facility.
Currently the ITC sits at a 30% credit through the end of 2019. If the ITC is not extended by Congress, it will eventually drop to a 10% rate by 2022 for commercial and utility solar projects. To receive the highest tax benefits from installing a new roof and going solar, the time to act is now. Additionally, with a looming module shortage on the horizon, clients who install the roofing component of SRS this year can still claim the full ITC within new safe harbor guidelines. Start discussions today to see where your business stands and what can be done to avoid leaving money on the table.
Byron Loftin is managing partner of Solbrana Financial. Find more information on the Solar Roof System on Solbrana’s website.