making green on green buildings
New Mexico’s Sustainable Building Tax Credit adds a monetary incentive to building green in the Land of Enchantment.
By Noreen Richards and Elena Agustin
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In 2007, the New Mexico Legislature approved the state’s Sustainable Building Tax Credit (SBTC). New Mexico is the first state to offer such a comprehensive tax credit for green buildings; although Oregon and Oklahoma have some type of green building tax incentive, the New Mexico SBTC is the first to offer tax relief for both green residential and green commercial buildings. The tax relief requirements are rigorous and include not only a third-party validation by the LEED Rating Systems and Build Green New Mexico, but also a stringent energy reduction requirement.
“The process of integrating green-building practices into legislature started in 2004, when Governor Richardson put together several task forces, including the Green Building Task Force,” explains Susie Marbury, energy efficiency and green building administrator of New Mexico’s Energy, Minerals, and Natural Resources Department. “The task force developed and introduced the Governor’s Executive Order to mandate green buildings for all state agencies and a tax credit for sustainable commercial buildings. Karen Leigh Cook, chair of the task force and president of EECOM Inc., kept these ideas alive by talking to legislators and the effort. By 2007, the LEED for Homes program was coming on line and the Build Green New Mexico program was adopted. That prompted the residential tax credit to be added before the 2007 Legislative Session. With support from Governor Richardson’s office, the bill was introduced and subsequently passed.”
The Governor’s office anticipates that the SBTC will help to stimulate economic demand for green-building goods and services in New Mexico, which will in turn create jobs. “These bills will keep New Mexico’s rapidly growing clean energy economy moving forward,” said Governor Bill Richardson upon signing the bill. “New Mexico is showing that we can create jobs through spurring significant investment in electricity generation from our world-class solar and wind resources, promoting advanced coal technologies, building more efficient homes and offices, and increasing the production and use of biodiesel.” The new Sustainable Building Tax Credit will dovetail with the existing New Mexico Solar Tax Credit and will be available through tax year 2013.
The tax credit will be available to owners of residential buildings (single-family homes, multifamily dwelling units, and manufactured housing) and of commercial buildings (office, retail, mixed-use, and restaurants) constructed in New Mexico and can be claimed by either the builder or the buyer of the property. After meeting rigorous criteria for energy efficiency, indoor air quality, and durability, these green projects can be marketed and sold as high-performance buildings.
The tax advantages will be substantial; rather than a simple deduction from taxable income, a tax credit is deducted directly from tax liability. The credit can be claimed on individual returns (including sole proprietorships) or corporate returns. To facilitate and regulate the process, the state is making use of two existing and well-respected green rating systems—Leadership in Energy and Environmental Design (LEED) and Build Green New Mexico. Applicants will submit their documentation to New Mexico’s Energy, Minerals, and Natural Resources Department. Upon approval, the department grants a “certificate of eligibility,” which is then submitted to the New Mexico Taxation and Revenue Department. The applicant can claim the credit on his or her tax return or sell it. This ability to sell/transfer the credit enables organizations or parties that don’t have sufficient tax liability to still benefit (currently nonprofits cannot use the tax credit).
To be eligible, a residence must achieve either Build Green New Mexico Gold certification or LEED for Homes Silver certification or better. In addition, a certified rater must achieve the Home Energy Rating System (HERS; used by the U.S. Environmental Protection Agency’s Energy Star program) of 60 or lower and perform several on-site inspections. Although a private homeowner can certainly undertake this process, it is expected that professional home builders will be the primary recipients of the residential credit. Several builders already have begun to build green homes, intending to recover some of the upfront costs of going green with the anticipated tax credit.
“Quite a few of our members in the greater Santa Fe area have been building green for quite a while,” says Gary Ehlert, executive officer of the Santa Fe Area Home Builders Association, representing more than 800 member firms in northern New Mexico. “It’s just a matter of matching up the new legislation with their current building practices. The tax credit is a small step forward in an industry that is going to entail more environmentally sensitive consideration.”
The total cost of certifying and rating a 2,000-square-foot home could range from $1,500 to $5,000, not including any additional construction costs such as energy-efficient equipment, better windows, insulation, etc. The amount of the credit awarded is a factor of the home’s certification level (using either the LEED or the Build Green New Mexico system) and the size of the home. For example, a 2,000-square-foot home could receive from $9,000 to $18,000 in tax relief, largely offsetting the costs of building a certified green home.
In order to be eligible for the commercial Sustainable Building Tax Credit, a building must achieve LEED Silver or better (using the New Construction, Existing Buildings, Core and Shell, or Commercial Interiors rating system) and a 50 percent energy reduction as compared to the national average of the specific building type. The energy reduction requirement is stringent and requires an integrated, rigorous design process. It could include equipment upgrades, high-performance building envelope elements, and/or a solar energy system. To achieve the required certification and energy reduction, a 20,000-square-foot commercial building could cost approximately $52,000 to $55,000 in design, consulting, and registration fees. The same 20,000-square-foot building can receive a $52,500 to $95,000 tax credit (depending on certification level).
Green energy features continue to pay dividends; commercial buildings are well-known for their high operating costs due to demand charges on electric usage, high cooling demand, and poor thermal qualities. Energy-efficient measures in commercial buildings, in addition to generating tax relief, can pay for themselves quickly, increase property value, and improve occupancy rates. A recent study by Capital E Analysis surveyed 33 LEED-certified buildings and found that their annual operating costs are 28 percent less and that they initially cost 0 to 5 percent more to build than comparable traditional buildings. These green-building construction costs are dependent on many factors, including regional market factors, material costs, types of systems installed, and climate.
The Sustainable Building Tax Credit will be available for the tax year 2007 for any residential or commercial building that has received all its certifications by the end of 2007. The credits will be distributed on a first come, first served basis. Because there is a finite amount of money to award ($5 million per year each, for residential and commercial), it is recommended that applicants submit their documentation as soon as possible.
For more information about the New Mexico Sustainable Building Tax Credit, visit cleanenergynm.org, the website for the Energy Conservation and Management Division of the New Mexico Energy, Minerals, and Natural Resources Department.
Noreen Richards, a LEED Accredited Professional, uses her knowledge of bioclimatic and environmentally responsive architecture to assist project teams with LEED certification, energy modeling, and the New Mexico Sustainable Building Tax Credit. Elena Agustin manages high-quality sustainable design projects, focusing on the integration and merging of energy-efficient systems, while incorporating all team members in the design process. Richards and Agustin both work with Environmental Dynamics.