Capitol Hill

On April 21, HR 6, the Energy Policy Act of 2005, was passed in the U.S. House of Representatives by a 249-183 vote. On June 28, the Senate passed its version of HR 6 by a 85-12 vote. Both bills would provide tax incentives for production of fossil fuels and nuclear energy in the U.S., but the Senate bill would provide more tax breaks for energy conservation and development of alternative energy sources.

The Senate bill contains an $18 billion tax package projected to have a net 11-year cost of $14.05 billion when revenue-raising offsets are included. The bill would create or extend tax breaks for such items as "clean coal" technologies; agri-bio diesel fuel; and electricity produced through wind, biomass and other renewable resources. It also would provide $3.4 billion in tax breaks over five years for the construction of energy-efficient residential property and commercial buildings.

Building deduction

The commercial building tax incentive in the Senate energy bill would provide a tax deduction equal to the "energy-efficient commercial building property expenditures made by the taxpayer" up to a limit of $2.25 per square foot related to the construction or reconstruction of commercial buildings. To qualify for the tax deduction, a building owner must prove a commercial building reduces energy and power costs by 50 percent or more in comparison to the minimum requirements of ASHRAE 90.1-2001, "Energy Standard for Buildings Except Low-Rise Residential Buildings."

This proposal is a priority of the Alliance to Save Energy (of which NRCA is a member). NRCA supported the proposal in the energy bill that died in the last Congress and continues to support it as an ideal perhaps best suited to new construction because existing buildings most likely would have to be torn apart and retrofitted to qualify for the deduction. And the 50 percent threshold above ASHRAE 90.1 will be extremely difficult to meet.

Also, there would be deduction certification requirements under regulations that would be written by the Department of Treasury in consultation with the Department of Energy. So though the building envelope, including the roof, would be an eligible system for the deduction, this entire approach is quite different than what is proposed in S 1200, the Realistic Roofing Tax Treatment Act of 2005 (R2T2).

R2T2

S 1200 would shorten the current 39-year tax depreciation schedule to a 20-year schedule for nonresidential roof systems that meet ASHRAE 90.1 and have an immediate effect motivating building owners to replace failing roof systems with new, more energy-efficient systems. This would be accomplished by simply adjusting the tax depreciation schedule closer to where it should be for nonresidential roof systems as an inducement for owners to make more capital improvements for energy efficiency. S 1200 will positively affect businesses, workers and the environment without prohibitive upfront costs.

Just before the Senate Finance Committee took up the energy bill's tax package on June 16, Sen. Jim Bunning (R-Ky.), committee member and lead sponsor of S 1200, was joined by committee member Sen. Ron Wyden (D-Ore.) as a co-sponsor, bringing the number to six. S 1200 quickly was offered as an amendment to the energy tax package but did not come up for a vote despite bipartisan support because there was not enough time for the Joint Committee on Taxation to score, or do a cost analysis of, the bill.

Nonetheless, achieving bipartisan Senate support is a significant step forward. And the House companion bill, HR 1510, continues to gain support with the number of bipartisan co-sponsors exceeding 30.

The Joint Committee on Taxation score of June 24, 2005, for S 1200 came in at $662 million for five years from Aug. 1, 2005, to Aug. 1, 2010. Getting a score is another important step in the process; however, it appears to include residential rental property, which was not intended.

Promising future

President Bush asked Congress to send comprehensive energy legislation, the Energy Policy Act of 2005, to his desk before the August recess, and at press time this may have happened. If R2T2 is not included, it will continue to collect co-sponsors and coalition support to be eligible for consideration in other tax bills this Congress. NRCA strongly supports the legislation.

Craig S. Brightup is NRCA's vice president of government relations.