The Energy Policy Act of 2005 has been renewed several times with revisions to the level of efficiency required for the deduction. The purpose of 179D deduction is to incentivize owners and developers for installing energy-efficient lighting, mechanical, and building envelope components. The credit only applies to commercial or multifamily properties. The tax benefit is a federal tax deduction ranging from $0.30 (lighting) to as much as $1.80 (whole building) per square foot.
The 179D deduction may be taken by any private property owner who meets the energy requirements. As to a public project the intent of the deduction was to allocate to the architect or entity who designed the technical specifications for the public entity. Because public entities are non-taxable, the deduction cannot be utilized by the public entity, so the tax code allows the deduction to be used by the architect or designer as an incentive to focus on energy efficiency. However, the public entity must allocate the tax deduction to the designer. Attempts by designers in Ohio to use the deduction on State of Ohio projects have been denied. The position of the State was that the State owned the deduction and there was uncertainty as to the State’s ability to allocate the deduction to designers.
Effective 4/12/21 is Ohio Revised Code section 9.239 that addresses the issue once and for all. It provides the following:
Effective Date: 09-29-2005.
9.239 [Effective 4/12/2021] Energy efficient commercial building deduction.
(A) As used in this section:
(1) “Public building” means a building owned by a public entity.
(2) “Public entity” means a subdivision, the general assembly, a court, any department, division, institution, board, commission, authority, bureau or other agency of instrumentality of the state, the five state retirement systems, or any other governmental entity.
(3) “Subdivision” has the same meaning as in section 2744.01 of the Revised Code.
(B) A person that is primarily responsible for designing energy efficient commercial building property installed in a public building may seek allocation of any deduction allowed under section 179D of the Internal Revenue Code in connection with that installation by submitting a written request to the public entity that owns the building and the tax commissioner. Within fifteen days of receiving such a request, the public entity shall respond and, if merited, formally allocate the deduction as required under that section and any associated rules or guidance of the internal revenue service or the United States department of the treasury. The public entity shall send to the commissioner a copy of the response and, if applicable, the document or documents formally allocating the deduction.
(C) If a public entity does not respond within fifteen days of receiving a request under division (B) of this section, the entity shall be considered to have approved the request. The commissioner shall provide the person that submitted the request with any documentation necessary to formally allocate the deduction.
(D) No public entity and no employee or agent of a public entity acting in the employee’s or agent’s official capacity shall seek, solicit, charge, or accept a fee, payment, or other consideration in exchange for allocating a deduction allowed under section 179D of the Internal Revenue Code or providing documentation of such an allocation as required under that section and any associated rules or guidance of the internal revenue service or the United States department of the treasury.
Conclusion: There is no guarantee that the designer will get the deduction it believes it should receive. But the good news – there is no longer a question as to whether a public entity such as the State of Ohio can allocate the deduction. Just as important, the public entity must respond to the request within fifteen days or it is considered granted.