October 2009 National Basketball Association (NBA) and Energy Tax Savings By Charles Goulding,Jacob Goldman and Taylor Goulding Charles Goulding, Jacob Goldman and Taylor Goulding discuss the NBA's Green Initiative, explaining the tax saving benefits afforded by Code Sec. 179D. he National Basketball Association (NBA) has Energy Efficient -Lighting entered into a partnership with the Natural TResources Defense Council (NRDC) aimed at NBA arenas use a lot of electricity for interior build- having the NBA "reduce its ecological impact and to ing lighting. Today's building lighting products, on help educate basketball fans worldwide about envi- average, use 40 to 60 percent less electricity then ronmental protection."' NBA arenas owned by private those lighting products of only five or six years ago. commercial enterprises and designers involved in The maximum 60-cent-per-square-foot lighting tax government-owned arenas can use a variety of tax deduction is calculated on a room-by-room basis, incentives to accomplish these goals. NBA basket- which means the main seating and event area can ball arenas are big structures that have the potential generate the largest lighting tax incentive. Specific to utilize large Code Sec. 179D Energy Policy Act types of stage and task lighting can be excluded (EPAC~)~tax deductions to help achieve their targeted from the energy efficiency tax calculation making energy efficiency goals. Code Sec. 179D provides the strictly building-related energy efficient lighting for 60-cent-per-square-foot tax deductions each for incentive easier to obtain. expenditures on lighting, HVAC (heating, ventilation NBA stadiums are often supported by large and air-conditioning) and for the building envelope. parking garages that can use EPAct tax savings to Chart 1 presents the potential EPAct Code Sec. upgrade to energy lighting. Many of the parking 179D energy efficiency tax deduction benefits for garages adjacent to NBA arenas use prior generation 28 of the NBA's current U.S. arenas. probe start metal halide lighting that is energy- The typical types of energy reducing investments inefficient, and as of January 1, 2009, is illegal to for NBA arenas that will qualify for the three catego- manufacture or import into the United States. To ries of Code Sec. 1 79D tax benefits (described in the obtain the 30-to-60-cent-per-square-foot tax deduc- Chart 1) are presented below. tions for parking garages, the watts per square foot have to meet prescribed targets.' Charles R. Goulding, an Attorney and Certified Public Accountant, is the President of Energy Tax Savers, Inc., an Energy-mcient HVAC (Heating, interdisciplina~ytax and engineering firm that specializes in the energy efficient aspects of buildings. Ventilation-anand-& Condibonisn)- Jacob Goldman, LEED A.P., is an Engineer and Tax One of the largest energy users in NBA arenas is Consultant with Energy Tax Savers, Inc. HVAC. Arenas can use highly energy efficient special Taylor Goulding is an Analyst with Energy Tax Savers, Inc. purpose HVAC solutions, such as energy recovery 8 2009 C.R. Go~~lding,J. Goldman and T. Goulding CORPORATEBUSINESS TAXATION MONTHLY NBA and Energy Tax Savings US NBA Team Arenas Tax Dsductlons Avallablo for Energy Elllclonl Buddlng Imprnvemenls Under Currnnt LEglalalion -- Building Lighting HVAC Envelope Total Team Stadium Total Minimum Maximum Maximum Maximum Square Footage -pe&uction Deduction Deduction Deduction Atlanta Hawks Phillips Arena 680,000 f: 204,000 1 $ 408,000 $ 408,000 $ 408,000 $ 1,224,000 755.000 226.500 $ 43,000 $ 453,000 Bos&n~eltics Fleet Center .- .- -.- 1 $ 453&00 $ 1,359,000 Charlott; Bobcats Time Warner Cable ~O,OOO 1 234,0001 468,000 1 $ 468:OOO 1 $ 468:oooI 1:404,4 Chica o Bulls 1 United Center 960,000 288.000 $ 576.000 $ 576000 $ 576 000 $ 1,728.000 Cleveland&v>liers Quicken Loans Arena r52.000 225.000 $ 450,000 $ 450gOO $ 450.000 $ 1350.000 Dallas Mavericks American Airlineenter 750,@0 225AOO $450-,000 $ 450.000 $ 450,000 $ 1350,000 1 Denver Nuggets Pepsi Center 675,000 1 202:500 1 $ 405,000 1 $ 405,y0001 $ 1,215,q Detroit Pistons"* Palace of Auburn Hills 950.000 285.000 $ 570.000 $ 570,000 $ 570,000 $ 1,~,000 Golden State Warriors Oracle Arena -3-0.0!0 150000 $ 300,gOO $ 300gOO $ 300,000 $ 900,- I Houston-Rp&ets 1 Toyota Center 1 500 000 I S 150,000 1 93%00~1 $ 300.000 I $ 300,000 I $ 900~0001 MiamMzC.. American Airlinesma - - Milwaukee- -- ., Bucks Minnesota Timberwolves 831.533 --- --- New Jersey Nets" 1 lzod Center 1 -4,800.000-- I S 1,440,000 1 $ 2,880,000 1 S 2,880,000 I S 2,880,000 1 $ 8,64=04 Arco Arena II SBsInter Utah Jazz Energy Solut~onsArena 743.000 Ver~zoGenter 1 836 840-052 1 $ 50ai04 1 $ 502 . 104 $ 502,104 $ 1 506,312 Totals: 1 24,572,373 1 S 7,371,712 1 $ 14.743.424 13 14,743,424$ $ 14 ,743,424 1 $ 44,230,271, A Prepared By: Energy Tax Savers. Inc. 12 Split Rock Road Syosset. NY. 11791 51 6-364-2630 vrunv.EnergyTaxSavers.com [email protected] ventilation, geothermal and thermal storage, to ma1 storage system this way: "It's a system that works greatly reduce energy usage and potentially qualify for everyone.. It helps reduce our expenses and for a large EPAct HVAC tax deduction. saves energy for the rest of the comrni~nity."~NBA Many of the NBA arenas are within city centers arenas that invest in thermal storage will generally where electricity in particular is supply constrained. qualify for the $1.80-per-square-foot tax deduction A material reduction in energy use in these facilities presented above and those that already have thermal will greatly benefit the communities that support storage shoulcl be positioned to obtain the $1 30-per- professional basketball. One HVAC technology that square-foot tax deduction when making further arena can greatly reduce arena peak time electrical energy facility energy reducing investments. use is thermal storage. With thermal storage systems, ice is manufactured at night when electricity is in Energy-Efficient excess supply and electricity prices are very low. This inexpensive energy is then used to cool the building down during the day when electricity is in peak de- Unlike lighting and HVAC, the building envelope mand and is very expensive. The one million square does not actually consume energy so the 60-cent-per- foot Wachovia Facility hosts nearly 300 events a year, square-foot Code Sec. 179D arena building envelope including games for the NHL's Philadelphia Flyers energy tax deductions will be predicated by achiev- and the NBA's Philadelphia 76ers. Michael Ahearn, ing energy efficient lighting and, in particular, HVAC Vice President of operations for the Wachovia Center energy efficiency targets. in Philadelphia, expressed the benefits of their ther- -- Continued on page 34 IRS Challenges Intangible Property Transfer Pricing Concepts all or a portion of modeling costs Stern takes the same approach in pursuant to proposals to make new monitoring and measuring arena energy efficiency investments. energy performance while identi- fying the related tax opportunities, Qualifying building envelope the NBA can be of great service --Alternative - Energy- -- items for tax deductions include in helping lead the nation into an roofs, walls, doors, windows, Most mainstream a1 ternative en- energy-efficient future. foundation and insulation. ergy investments including solar, The NBA and the NRDC are hop- Accordingly, those arenas that wind and geothermal are now ing that the NBA green initiative have or are proposing to have high- eligible for federal tax credits or will serve as a model and catalyst ly energy-efficient measures such economically equivalent grants for other facility's green initiatives. as thermal storage or geothermal, and five-year deprecation. When Reducing arena energy uses will will be positioned to simultane- made within bonus deprecation serve as a direct model for the ously achieve large tax deductions eligibility time periods, some of myriad of other inner city athletic for investments made in qualifying these investments may also be facilities including K-12 school building envelope items. eligible for 50-percent bonus dep- athletic facilities and community recation. Two examples of NBA college and university athletic fa- Understanding arenas that have recently made cilities. Indirectly, the NBA green solar investments are as follows: initiatives will influence many par- (1 ) U.S. Airways Center: Installed ties since NBA activities are widely To obtain the HVAC and building 1, 125 panels and 18,000 square followed and emulated. envelope tax deduction, the arena feet of solar photovoltaic (PV) must be modeling in IRS approved panels to produce 33'1,233 kilo- modeling software. Code Sec. watts of electricity per year." 179D lighting tax incentives do not (2) Staples Center: Installed 1,727 "NBA.corn: NBA, NRDC team up for iirst-ever require modeling. New LEED (Lead- panels and 24,190 square NBA Green Week." NBA.coni-The Game Happens Here, (lul. 7, 2009). See www.nba. ership in Energy and Environmental feet of solar PV panels. In a cc~rn/200%~ews/04/0I/green. rveek,release/. Design) arenas must be modeled to combined project whereby the Energy Policy Acl of 2005 (P.L. 109-58). qualify for LEED. LEED certification Nokia Theater, L.A. (located Charles Coulding. Peter Kelly and Taylor Coulcling, EPAct Tix Deductions for Parking is increasingly being required to be directly across the street) also Gar'?ge Lighting Projects Gain Wider Use, accomplished for most new govern- installed PV. The combined THEP.AKKISG PKOFESSIOKAL, Sept. 2008. ment-owned or government-funded systems will generate 51 2 kilo- Kelly Pedone, Environnienta//y Frietidly, k\M, Ixrcsh~~lo~;\lA~So~l;\rloS OF ASSE.MRLY arenas.The American Airlines arena watts of electricity per year.' IMAXAGERS.See \~w~v.iaam.or~f~icilit~~n?~n- is the first NBA arena to achieve the ager/Pages/ZOOh-DecJan/Feature-2.