The Benefits of Tax Credits
Another way to improve payback on your energy efficiency projects are state tax credits. Certain parts of the country have these beneficial tax credits for customers who participate in energy efficient lighting projects. These programs are scattered throughout the US, but can be quite significant. Even better, these credits are ON TOP of any rebates or the Federal EPAct tax deduction for which you may be eligible.
State tax credits work differently than the EPAct tax deduction that most people are familiar with. While the value of a tax deduction depends on your corporate tax bracket, a credit lowers your tax bill dollar for dollar. In other words, if your tax bracket is 35%, a $1,000 EPAct tax deduction lowers your tax bill by $350 but a $1,000 tax credit lowers the bill by the full $1,000.
The example below shows the benefits of combining state tax credits with other available tax deductions and cash rebates. In this example, a 100,000 square foot warehouse is upgrading from 400W metal halide fixtures to 6-Lamp T8 fixtures. This project leads to more than $11,000 in energy savings per year, giving giving the project a payback period of 3.4 years.
The warehouse management also decides to take advantage of the federal tax deduction, local rebates and a state tax credit. With these incentives, the payback period goes from 3.4 years to less than 5 months!
Example based on a 100,000 sq ft warehouse with (150) 400W Metal Halide Fixtures upgrading to (150) 6-Lamp T8 High Bay Fixtures. Calculations assume 3,120 annual operating hours and an energy rate of $0.10 per kWh.
*Value of EPAct Tax Deduction is based on a possible tax deduction of $39,000 and a corporate tax rate of 35%