Is this tax break for commercial properties really a kickback?

Debate over application of 179D heats up

Port Authority
Port Authority

State and local governments are vying for a federal subsidy intended to encourage energy-efficient technology in commercial properties. The application of the benefit, however, has some wondering: Is it a tax break or really just a kickback?

As part of the Energy Policy Act in 2005, 179D offers tax deductions to property owners who incorporate green technology into their buildings. Since public agencies don’t pay income taxes, they can transfer the tax break to a private contractor in exchange — in some cases — for a discount on the contractor’s bill.

For example, the Port Authority of New York & New Jersey shaved $1 million off the cost of One World Trade Center by tapping 179D. Miami-Dade County was able to cut $1.13 million off the price of a new cooling system at its county hall.

But some lawmakers are concerned that swapping a tax deduction for a reduced fee or rebate amounts to a kickback, the New York Times reported.

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“It rarely gives the benefits to the parties you intended to give it to,” said Steven Rosenthal, a senior fellow at the Tax Policy Center. “And more often rewards parties that you never intended to reward.”

Still, state and public entities are pushing to receive the benefit. In some cases, contractors are seeking the tax break retroactively, after a project is completed and without providing a discount to the public entity.

A lawsuit filed last year by the University of Texas and University of Houston Systems against AlliantGroup accuses the tax credit consulting firm of scheming to obtain 179D deductions from “thousands of governmental entities without any compensation.” AlliantGroup has called the complaint “frivolous.” [NYT] — Kathryn Brenzel