DOE Expands Technical Assistance for Tribal Energy Projects

The Energy Department on January 30 announced the second round of the Strategic Technical Assistance Response Team (START) Program, which provides federally recognized Tribal governments with technical assistance to accelerate clean energy project deployment. Additionally, the Energy Department plans to seek information from tribes interested in launching or expanding utility services in their own communities, which will help establish a new START Utility Program (START-UP). Additional details on this effort will be available on the Office of Indian Energy website in the coming weeks.

Over the past year, the START program has helped nine Tribal communities advance their clean energy technology and infrastructure projects, from solar and wind to biofuels and energy efficiency. The second round of technical assistance awards will build upon the initial successes of the START program and further help Native American and Alaska Native communities increase local generation capacity, enhance energy-efficiency measures, and create local entrepreneurial and job opportunities. In the contiguous United States, Energy Department and national laboratory experts will provide technical assistance on tribes' clean energy project development. In Alaska, the Energy Department and the Denali Commission will help rural Alaska Native communities conduct energy awareness and training programs and pursue new renewable energy and energy efficiency opportunities. Applications are due by March 15, 2013.

Some Pending Mississippi Economic Development Bills

The Mississippi Legislature is considering a whole host of bills that could impact Mississippi businesses.  Here are a few worth noting:

Strengthening Mississippi Academic Research Through Business Act (“SMART Business Act”) - Encourages private businesses to invest their research dollars in Mississippi universities.  The proposal offers a rebate equal to 25% of the research costs to companies who enter into a written agreement with a university for research and development.

Employee Pass-Through Jobs Tax Credit - In lieu of a business utilizing the jobs tax credit, the business may pass all or a portion of the tax credit to one or more employees of the company.

Headquarters Relocation Tax Credit - Provides a tax credit in the amount of actual relocation costs incurred by a business in relocating its corporate headquarters to Mississippi.

Expansion Relocation Tax Credit – Provides a tax credit in the amount of actual relocation costs to existing businesses expanding their workforce in the State of Mississippi.  The businesses must qualify for the jobs tax credit provided in the Economic Development Reform Act and must relocate employees to Mississippi from outside the State.

Maximizing Depreciation Deductions for Business Real Estate

When buying business real estate, for your own occupancy or for rental to others, you should take steps that maximize the income tax depreciation deductions that you can claim for the property. Here are a few suggestions.

Separating improvements from land. Not all of the cost of acquiring real estate is depreciable. Specifically, the cost of improvements to land is depreciable, but the cost of the land itself is not. Clearly, then, it is desirable to identify and document, at the time that you acquire real estate, the part of your overall acquisition cost allocable to improvements. Thus, when you buy a property, you should either retain a qualified real estate appraiser to make an allocation between land and improvements based on a detailed written analysis, or, if you have enough valuation expertise and knowledge of the locality, write your own detailed analysis and allocation. Also, regarding the allocation, you should be aware that the cost of improvements includes not only the cost of buildings, but also the cost of items such as landscaping and roads, and even some costs of grading and clearing.

Turning land into a deductible asset. Even though land isn't depreciable, there are ways to obtain deductions, for your land cost, that provide a similar tax benefit. One technique is to enter into a long-term lease of the land rather than buy it. If you lease the land, the rents you pay under that “ground lease” are deductible.  A different technique, but one which also can turn land into a deductible asset, is the acquisition of an interest in land known as an “estate-for-years.” Under an estate-for-years, you would own the land, but not forever, while an individual or entity “unrelated” to you would own the interest in land that begins when your estate-for-years ends. As the owner of the estate-for-years, you would be allowed to “amortize” (deduct ratably) the cost of the estate-for-years over its duration. Thus, for example, if your estate-for-years is for 50 years, you would be allowed to deduct each year 1/50th of the cost of the estate-for-years.

Separating personal property from buildings. Most business buildings must be depreciated over a period of 39 years, with somewhat more favorable treatment for residential rental real estate (27.5 years) and for certain other types of buildings or building improvements. On the other hand, most personal property (furniture, equipment, etc.) is depreciable over considerably shorter periods. Furthermore, most new personal property is eligible for additional first-year depreciation (bonus depreciation) equal to 50% or 100% of its cost (depending on when the property was acquired and placed in service). In contrast, among buildings or building improvements, only certain leasehold improvements qualify for bonus depreciation. As you can see, if a specific item is classified as personal property rather than as a part of a building, the depreciation deductions for that item will be available sooner and, in economic terms, have a greater “present value” to the property owner. Thus, in the same way that it is desirable to properly allocate between improvements and land, it is important to take steps to identify and document, at the time that you acquire real estate, the items that are personal property and the items that are building parts. For some items, the distinction follows “common sense”, an ordinary chair is personal property, a weight-bearing brick wall is part of a building. However, for many items, for example, lighting fixtures, signs, floor coverings, wall coverings, plumbing, electrical systems and heating and cooling systems, the distinctions are governed by tax rules that can be complex, can involve projections as to the future use of the items, and may even necessitate consultation with engineers or other construction experts. Also, after the personal property and building items are separately identified, they must be separately valued, either by an appraisal, a breakdown of construction costs or both.

Third Circuit Denies Rehearing in ‘Historic Boardwalk Hall' Tax Credit Case

The U.S. Court of Appeals for the Third Circuit Oct. 22 denied a petition for a rehearing en banc in the closely watched Historic Boardwalk Hall case in which the court held that an investor in a syndicated partnership that shared in federal historic rehabilitation tax credits was not a bona fide partner (Historic Boardwalk Hall LLC v. Commissioner, 3d Cir., No. 11-1832, filed 10/22/12).

HBH filed a petition for rehearing Oct. 10, arguing that the Third Circuit's decision was contrary to the U.S. Supreme Court's holding in Commissioner v. Culbertson, 337 U.S. 733 (1949), because it constituted “a holding that a partner who has no right to a return of its capital contribution either directly or indirectly from a partnership nonetheless has no risk with respect to its capital, and therefore is not a partner for federal income tax purposes.”

In 2011, the U.S. Tax Court had held that a partnership formed to allow Pitney Bowes to invest in the historic rehabilitation of the East Hall of the Atlantic City, N.J., convention center was entitled to claim historic rehabilitation tax credits because the partnership was not a sham lacking economic substance.

The Third Circuit reversed Aug. 27, 2012, holding that Pitney Bowes was a partner in form, not in substance, and could not claim the tax credits regardless of whether the transaction otherwise had economic substance.

New Public-Private Partnership to Support U.S. Manufacturing Innovation

The Obama Administration announced on August 16 the launch of a new public-private institute for manufacturing innovation. The new partnership, the National Additive Manufacturing Innovation Institute, was selected through a competitive process to receive an initial award of $30 million in federal funding, matched by $40 million from the winning consortium. The consortium includes manufacturing firms, universities, community colleges, and non-profit organizations from the Ohio-Pennsylvania-West Virginia "Tech Belt."

On March 9, 2012, President Obama announced his plan to invest $1 billion to catalyze a national network of up to 15 manufacturing innovation institutes around the country that would serve as regional hubs for manufacturing. The President called on Congress to act on this proposal and create the National Network of Manufacturing Innovation. Five federal agencies—the Departments of Defense, Energy, and Commerce, the National Science Foundation, and NASA—jointly committed to invest $45 million in a pilot institute on additive manufacturing. Additive manufacturing is a process of making three-dimensional solid objects from a digital model.

New York, NYC Biotechnology Credit Extended

L. 2012, S7462 (c. 429), effective 08/17/2012, extends the authorization for New York City to provide a biotechnology credit against the general corporation tax, unincorporated business tax, and banking corporation tax until January 1, 2016. Previously this credit was only authorized until January 1, 2013.

California Postpones Action on Technology Transfer Agreement Tax Rules

California's State Board of Equalization postpones issuance of regulations governing taxation of software technology transfer agreements from November to at least January 2013 due to universal opposition from the business community to the board's draft proposals so far. SBOE is working toward regulations on taxation of TTAs in the wake of a January 2011 state appellate court ruling in Nortel Networks Inc. v. SBOE. In that case, the court said SBOE exceeded its authority when it excluded all prewritten software from TTAs, which are exempt from sales tax. At an SBOE meeting, Tax Policy Division Chief Susan Buehler tells the five board members that a second interested-parties meeting is being moved from September to January to give board staff and interested parties more time to submit comments and work toward agreement. Formal regulations will be proposed after the next interested-parties meeting.