Growth | March 2010 | By Deborah L. Cohen

Incentives for Green

Senior finance executives should take advantage of tax incentives that are available for green building initiatives.

Quick serves of all sizes are hopping on the green-construction bandwagon, installing everything from energy-efficient lighting and kitchen equipment to solar roof panels. But whether or not these sustainability improvements result in increased tax savings—and a quicker return on investment—is largely a question of whether CFOs and their tax officers take an active role in planning, development, and education.

At CKE Restaurants Inc., parent of the Carl’s Jr. and Hardee’s chains, improved communication surrounding sustainability moves could go a long way toward giving senior finance officers more control over the process. The company’s strategy includes the addition of an integrated, Web-based project-management system to help coordinate new store build outs, retrofits, and other large capital improvements.

The online tool brings the operations, real estate, supply chain, facilities, and information technology departments together in a virtual space, allowing them to track each other’s progress on ongoing projects, share best practices, and raise a hand for help when necessary.

Equally important is that it affords finance and tax representatives a bird’s eye view of the action and the ability to intercede when necessary, says Chip Seigel, CKE’s senior vice president of legal and head of a company-wide green team. An electronic paper trail is available with the touch of a button, and new information about tax incentives can be disseminated to all of the teams in real time.

“Accuracy is key. We want to make sure all the numbers are right,” says Seigel, whose company brought in the consulting firm Ecos as an adviser for sustainability strategies about two years ago. “As the project is going along, we can see what’s working and what’s not working.”

Seigel says the new online initiative could go a long way toward boosting ROI of green efforts. The Carpinteria, California–based company operates about 3,000 domestic restaurants, 25 percent of which are company-owned. Like many quick serves, it is constantly renovating older stores and adding new ones.

Prompted by increasing initiatives at the federal, state, and local levels, including new and extended provisions under the American Recovery and Reinvestment Act of 2009, more quick serves are tuning in to methods such as these to make their green efforts reap financial benefits early on. The Recovery Act alone authorized the Department of Treasury to award some $2.3 billion in tax credits for qualified investments in energy production.

The Energy Efficient Commercial Buildings Deduction, passed as part of the 2005 Energy Reduction Act, provides another important incentive. It allows for a deduction of up to $1.80 per square foot of real estate, depending on whether lighting, HVAC, and building materials used in the construction qualify under its guidelines.

There are also many rebate programs offered by utility companies for businesses that make their buildings more energy efficient. Restaurant facility managers point out that these regional power providers often provide education as part of their customer service.

“2010 is probably going to be our most legitimate effort,” says Steve Krekus, director of construction for Rosemead, California–based Panda Restaurant Group Inc., which operates Panda Express. The chain of more than 1,300 restaurants has a hit list of some 175 green improvements it is evaluating, from water-saving fixtures to improved cooking hood systems and HVAC.

“A dollar is $1 so if it goes back to the bottom line, finance is very interested,” says Krekus, adding that his department “has a very good relationship” with the company’s tax representatives.

Such a relationship is critical amid the complicated and constantly changing tax landscape. For instance, thorny issues at the federal level still weigh on spending decisions. Legislation dictating standards for carbon emissions is pending; the U.S. House of Representatives passed a bill in June calling for nearly 20 percent reductions of greenhouse gases by 2020, and the Senate is considering similar legislation, making it increasingly likely that companies will have to carefully consider decisions that could impact their carbon footprint.

Dan Milojevich, director of facilities for the Costa Mesa, California–based El Pollo Loco, says that senior finance executives should keep a careful eye on tax opportunities.

“Where is the tax incentive? What does it hit? Is it a leased or purchased asset? There are a lot of different ramifications that the finance side has to deal with,” he says.

Jenny Bravo, director of Deloitte Tax LLP and enterprise sustainability tax leader for consulting firm Deloitte & Touche LLP, says good communication between tax departments and those responsible for planning sustainability initiatives is the driving force ensuring tax-savings opportunities are not missed. Tax representatives must be included early on in the planning stages of construction, she says.

“Many tax incentives require upfront approval, especially at the state level, so the ‘bringing them in at the end’ scenario really leaves dollars on the table.”

“Most of the time, tax is not at the table when those decisions are being made,” Bravo says. “Many incentives require upfront approval, especially at the state level, so the ‘bringing them in at the end’ scenario really leaves dollars on the table.”

Investment in costly renewable-energy technologies like solar or wind power, for instance, can appear cost-prohibitive until such incentives are factored in, Bravo says. But some of those projects may qualify for as much as 30 percent in federal tax incentives and up to an additional 30 percent at the state level. The offerings can vary dramatically from one state to another, she says.

“Suddenly you’re looking at maybe a $50,000 solar project rather than a $100,000 solar project,” Bravo says. “That’s a completely different answer from where you originally started.”

Among other strategies, she also advises quick serves to require subcontractors to build the tax incentives into the bidding process. Given the tight economy, more contractors may be willing to include those variables in their estimates without incurring additional costs.

Because of the complicated nature of tax regulations and the often unwieldy application processes, Bravo recommends that restaurant companies consider adding a tax department representative as a permanent addition to the real estate group, helping to manage documentation and keep the team apprised of important changes to tax code.

“Monitoring where these incentives are, which ones are material—it’s a lot of work,” she says.