Month: May 2016

The future in automotive transportation is available now: The Growing Market for Electric Vehicles and ChargePoint Charging Stations

PJ PictureBy Paul Jones, Director, Emerald Skyline Corporation

plugged in electric vehiclesFive years after the first mass-market electric car hit the market, plug-in electric vehicles (EVs) have not met with the success expected, but they are pacing the rate of hybrid cars. Numerous challenges are being overcome in the evolution of the electric vehicle – not least of which is the automakers approach to the production and marketing of the cars, the range EVs travel on one charge and the availability of charging stations.

The new generation of electric vehicles began with the introduction of the first Tesla car in 2008 and began its embryonic growth in 2010 when mainstream electric cars like the Nissan LEAF and Chevy Volt went on sale. Throughout this time, plug-in car (PEV) buyers have repeatedly complained about poor consumer experiences. Last year, Consumer Reports published the results of a secret shopper study of 85 dealerships in four states, finding that staff at 35 of those dealerships (over 40%) attempted to steer buyers toward internal combustion engine (ICE) vehicles instead of the PEV in which they had expressed interest. Thirteen of those dealers tried to entirely discourage shoppers from buying an EV. Legacy profits from on-going maintenance of ICE vehicles, most of which are not required for an EV, is considered a major incentive for dealers to steer customers away from EVs. Increased demand from consumers will be the key driver in forcing manufacturers and dealers to change their perception of EVs from a necessary regulatory evil to a new product category.

Range anxiety is the fear that a vehicle has insufficient range to reach its destination and would thus strand the vehicle’s occupants. The term, primary used in reference to battery electric vehicles (BEVs), is considered to be one of the major barriers to large-scale adoption of EVs. The main strategies to alleviate range anxiety are the development of higher battery capacity (Tesla S now sports a model with a 265-mile range and other manufacturers are working to follow suit with over 200-mile range EVs), battery swapping technology, and the deployment of charging station infrastructure.

Despite the obstacles in creating a new market, the fleet of plug-in electric vehicles in the United States is the largest in the world with over 400,000 highway legal plug-in electric vehicles (EVs) sold in the country since 2008 when Tesla introduced its first car through 2015.EV-sales-growing

As of March of this year, there are 26 highway legal plug-in cars available in the American market from over a dozen manufacturers plus several models of electric motorcycles, utility vans and neighborhood electric vehicles (NEVs). The number of EV drivers has increased ten times in the past four years and EVs are expected to comprise over 8% of all car sales by 2020. New EV cars with increased range are being developed by many auto manufacturers – and some new entrants like Apple which has its first car, code name “Project Titan” planned for release in 2019.

However, consumers have been cautious about putting the car before the charging station. “Infrastructure for EVs is crucial to the adoption of use of electric cars. You’re not going to buy a car if you don’t know where and how to charge it,” says Erin Mellon, Director of Communications with ChargePoint, which operates the world’s largest EV charging network. The first place drivers need to be able to charge is at home. Being able to charge at work is second most important.”where-drivers-charging-chargepoint

Equally innovative but decidedly less exciting is what is happening with the growing infrastructure of EV charging stations, a stimulant for expansion of the market for plug-in electric vehicles. As of January 2016, the US had 12,200 charging stations across the country, led by California with nearly 3,000 stations. In terms of public charging points, there were 30,669 public outlets available across the country by the end of January 2016, again led by California with 9,086 charging points (29.6%).

The following excerpt from an article published last September by Jones Lang LaSalle (“JLL”), a premier international commercial real estate brokerage, property and investment management firm headquartered in Chicago, entitled “Charging into the future: The rise of electric cars,” reflects cutting edge planning and action – much like being an innovator at the turn of the 20th Century who invested in gasoline stations rather than livery stables:

Sean McNamara, General Manager for JLL Property Management, began looking at electric charging stations for an office building in San Francisco several years ago. “In the beginning of the discovery process, there was just not enough demand or infrastructure,” he says.

U.S. Secretary of Energy Steven Chu initiated the “Workplace Charging Challenge” in 2013 to increase the number of US employers offering EV charging stations – tenfold – by 2018.

“The proliferation of electric cars, has made these stations much more relevant over the past two years,” McNamara says.

Trophy and Class AA office buildings, such as the Georgia Pacific Center in Atlanta, were among the first to respond to Chu’s challenge. “Ownership and JLL are compelled largely because it’s the right thing to do for our environment. We are a LEED-certified building and our objective is to maintain the highest status possible,” explains Michael Strickland, a VP & Group Manager for JLL in Atlanta.

Strickland says that the Building’s 10 EV reserved parking spaces plus two public parking spaces equate to about one percent of the total parking spaces. “The Building has immediate access to public transport, which plays a role in how many building tenants drive and utilize the parking garage,” Strickland says. “It’s definitely a growing trend. But it’s not currently on par with having a sundry shop or a dry cleaner – yet….”

Today, McNamara is the General Manager of Southeast Financial Center, a Class A trophy office building in Miami. He oversees an 1,100-space parking structure with valet services and two EV charging stations. “In a Class A building, if the demand is there, the spaces will be added. Once the setup is done, sealing the delivery is even easier. Ultimately for landlords, it is not a matter of cost, it is a matter of appropriateness.”

Porsche Latin America, for example, a tenant in the Southeast Financial Center, installed two electric charging stations with special adapters, as a unique term of their lease. Then again, Porsche is not the average tenant. Earlier this month (September), the car manufacturer unveiled its first all-electric Mission E concept car at the Frankfurt Auto Show. It looks like a futuristic 911.

The Mission E, along with Audi’s e-Tron Quattro (scheduled to be launched in 2018), a hybrid SUV, would challenge Tesla’s Model S in the luxury category. Like Apple’s Project Titan, though, these models will take years to develop.

Until then, drivers can take their pick from available models such as the Nissan LEAF all-electric car, the Chevrolet Volt plug-in hybrid, the all-electric Tesla Model S and the Toyota Prius Plug-in hybrid, and a growing public infrastructure in which to park and charge them.

For buildings being designed and built, or undergoing a major renovation, to achieve LEED certification under the 2009 rating system, providing one of the following earns up to three points in the SS Credit 4.3, Alternative Transportation for Low-emitting & Fuel-efficient (LEFE) vehicles category:

  1. Preferred parking (closed spot or price discount of ≥ 20%) for LEFE vehicles for 5% of site’s Parking Capacity (parking discount must be made available to all who drive LEFE vehicles and must be available for a minimum of two (2) years) OR
  2. Alternative refueling stations for 3% of site’s parking capacity OR
  3. LEFE vehicle and preferred parking for 3% of FTE OR
  4. One (1) shared LEFE be provided for 3% of FTEs with a minimum of one per 267 FTE for at least two (2) years (minimum one LEFE required)

Further, projects may be awarded one point for EP for instituting a transportation management plan that demonstrates a quantifiable reduction in the auto use through implementation of multiple options.

Even at this stage in the development of the market for EVs, which represents the future of automobiles, an EV driver plugs into a ChargePoint station every five seconds, saving over 12.5 million gallons of gas and over 41 million kilograms of greenhouse gas emissions.

Today, Emerald Skyline is proud to announce that it has partnered with ChargePoint to provide for a greener tomorrow – for an emerald skyline!

“As a sustainability and resiliency consulting and LEED project management firm, this partnership allows us the latest technologies and largest and most open network available to provide our clients,” reports Abraham Wien, LEED AP O+M, Director of Architecture & Environmental Design for Emerald Skyline. “We are always looking for ways to provide superior products and services to meet our clients sustainability and resiliency needs.

With almost 28,000 charging stations, ChargePoint is the world’s largest network of electric vehicle (EV) charging stations in the US, Europe and Australia. ChargePoint stations set the industry standard for functionality and aesthetics and their innovative, cloud-based software gives station owners flexibility and control of charging operations. Stations on the ChargePoint network are independently owned businesses, which set their own pricing, access settings and much more.

demand-for-charging-stationsBeyond the workplace, EV charging stations are a distinctive and value-add amenity for hotels, restaurants, shopping centers and entertainment facilities – and a growing necessity for communities serving an ever-increasing demographic demanding an alternative to fossil-fuel driven vehicles.

An electric car will have to be able to travel long distances for EVs to break into the mass market. Like few other parts of the plug-in ecosystem, this has been demonstrated by Tesla Motors, which has built out its network of sites not only in the US, but in all their major markets. An 80% recharge that provides 200 miles or more in less than an hour enables Tesla owners to travel coast-to-coast with recharging breaks every three hours. And, despite the reticence of many in the industry about the prospect of being stationary for a half hour to hour break every three hours, Tesla drivers seem entirely satisfied with the network, to the point that congestion is an occasional problem while range anxiety is not.

The availability of a charging station will attract that additional guest or customer who will pay extra for the charge (yes, EV-charging stations can be an additional source of revenue by monetizing an EV-enabled parking spot). It will attract new customers to your business and encourage loyalty from a growing customer base of EV drivers.

Emerald Skyline Corporation will be providing ChargePoint EV Charging Station services and installations for corporate, municipality, and private entities. Together, we’re transforming the energy industry by developing intelligent energy management solutions to help people and businesses shift away from fossil fuels. impact-chargepoint-drivers

ChargePoint stations set the industry standard for functionality and aesthetics and their innovative, cloud-based software gives station owners flexibility and control of charging operations. Stations on the ChargePoint network are independently owned-businesses which set their own pricing, access settings and much more.

To find out more information about the installation of a ChargePoint Electric Vehicle Charging Station at your home, office building, shopping center, hotel or transportation hub and join the EV revolution for a greener tomorrow, please contact us at 305.424.8704 or go to www.emeraldskyline.com

Segregating the cost components of a “real” property allows for optimal cost recovery to increase after tax income

PJ Pictureby Paul L. Jones, CPA, Director, Emerald Skyline Corporation

In the fourth quarter of 1985, Philip Morris Inc. agreed to buy General Foods for an estimated $5.6 billion. At the time, it was the largest food company acquisition in history. Pursuant to this acquisition, Philip Morris had to allocate the purchase price among cash and cash equivalents, real estate, tangible personal property, identifiable intangible assets and, finally, goodwill.

In conjunction with this cost allocation, Kenneth Leventhal & Company, a CPA firm that specialized in real estate, was hired to value the property, plant and equipment and segregate them into real, personal and land improvement assets to establish basis for its tax returns. I was a leader on the team that completed the study and valuation. The project involved hundreds of properties on six continents, the expertise of an untold number of real estate, engineering and accounting professionals – and over a year – to complete.

The reason we segregated the personal property and land improvement assets was to shorten, to the extent possible, the time required, and maximize the deductions from taxable income, to recover the cost of the assets through depreciation resulting in reduced income tax obligations. Accordingly, the primary goal of a cost segregation study is to identify all construction-related costs that can be depreciated over a shorter tax life (typically 5, 7 and 15 years) than the building (39 years for non-residential real property). Personal property assets, consisting of non-structural elements, exterior land improvements and indirect construction costs which are found in a cost segregation study generally include items that are affixed to the building but do not relate to the overall operation and maintenance of the building.

The investment strategy for every rental residential apartment complex and commercial building, including office buildings, shopping centers, industrial facilities, hotels, restaurants, entertainment complexes and all other commercial properties that are being acquired, constructed and/or sustainably renovated to be “Green” should include accelerated depreciation realized from a cost segregation study.

cost-segregationBy increasing the depreciation deduction, current income taxes are reduced and after-tax cash flow increased during the initial years of ownership or completion of substantial sustainable renovations – when their net present value and positive impact on the investor’s internal rate of return is the greatest.

A cost segregation study, in a nutshell, is the process of identifying any personal property and land improvement assets that are grouped with real property assets, and accounting for them separately, in particular, for Federal income tax purposes. The determination of what property components qualify for shorter depreciable lives as personal property is ultimately based on asset-specific facts and circumstances. However, consultants rely heavily on precedents existing in both case law and IRS guidance.

The law, rules and procedures relied upon in cost segregation studies have been around since the enactment of the Investment Tax Credit (ITC) in 1962 which established the legal rationale used to distinguish personal from real property for purposes of the ITC and provides the framework for the same classification process in cost segregation studies.

While the ITC was repealed through the Tax Reform Act of 1986, a landmark tax court decision in the case of Hospital Corporation of America (“HCA”) vs. Commissioner, 109 TC 21 issued in 1997 upheld the application of cost segregation for differentiating the depreciable basis of real, personal and land improvement assets. The HCA case is the seminal case for cost segregation studies and the IRS has agreed that a taxpayer can use a cost segregation study to segregate building costs. Critical to the Tax Court’s analysis was that in formulating accelerated depreciation methods, Congress intended to distinguish between components that constitute IRC section 1250 class property (real property) and property items that constitute section 1245 class property (tangible personal property). This distinction opened the doors to cost segregation.

Armed with this victory, taxpayers have increasingly begun to use cost segregation to their advantage. The IRS reluctantly agreed that cost segregation does not constitute component depreciation (action on decision (AOD) 1999-008). Moreover, cost segregation recently was featured in temporary regulations issued by the Treasury Department (regulations section 1.446-1T). In a chief counsel advisory (CCA), however, the IRS warned taxpayers that an “accurate cost segregation study may not be based on non-contemporaneous records, reconstructed data or taxpayers’ estimates or assumptions that have no supporting records” (CCA 199921045).

Real property eligible for cost segregation includes buildings that have been purchased, constructed, expanded or remodeled since 1987. A cost segregation study is typically cost-effective for buildings purchased or remodeled at a cost greater than $750,000. These studies are most efficient for new buildings recently constructed, but they can also uncover retroactive tax deductions for older buildings, which can generate significant short benefits due to “catch-up” depreciation.

Property owners should consider using a cost segregation study if they:

  • Acquired property in the last 15 years
  • Recently completed or started a construction project
  • Inherited property from an estate and received a stepped-up basis
  • Purchased a partnership share
  • Expect to pay income taxes
  • Plan on holding the property for at least five years

Examples of assets that may qualify to be reclassified as Section 1245 property (tangible personal property) which have shorter depreciable lives include:

  • Land improvements (drainage and irrigation systems, fencing, outdoor lighting, landscaping, parking lots and walkways, etc.);
  • Ornamental fixtures;
  • Wall and floor coverings;
  • Security systems;
  • Cabinets and millwork;
  • Data and communication cabling;
  • Decorative lighting;
  • Window treatments;
  • Production machinery;
  • Electrical and plumbing service to specific equipment;
  • Energy management systems;
  • Equipment, machinery and equipment that meet the “sole justification test” (i.e., building system components the sole justification for the installation of which is the fact that such equipment….are essential for the operation of other machinery or the processing of materials or used in connection with research of experimentation); and
  • Moveable wall partitions, catwalks and mezzanines

According to IRS Publication 544: “The fact that the structure is specially designed to withstand the stress and other demands of the property and cannot be used economically for other purposes indicates it is closely related to the use of the property it houses. Structures such as oil and gas storage tanks, grain storage bins, silos, fractionating towers, blast furnaces, basic oxygen furnaces, coke ovens, brick kilns, and coal tipples are not treated as buildings, but as section 1245 property.”

In distinguishing between a building’s tangible personal property and structural components, Jay Soled and Charles Falk in a 8/1/2004 article entitled “Cost Segregation Applied” in the Journal of Accountancy, “CPAs, engineers and consultants will find the courts to be a final source of guidance. In Whiteco Industries, Inc. v. Commissioner (65 TC 664 (1975)), for example, the Tax Court set forth the following six questions that can use to determine whether property is inherently permanent and thus a structural component excluded from the definition of tangible personal property:

  • Can the property be moved? Has it been moved? (For example, a shed with a concrete floor vs. a shed with a wooden floor.)
  • How difficult is removal of the property, and how time-consuming is it? (For example, a wine cellar vs. a prefabricated photo-processing lab.)
  • Is the property designed or constructed to remain permanently in place? (For example, a wooden barn vs. a wire chicken coop.)
  • Are there circumstances that tend to show the expected or intended length of affixation—or that the property may or will have to be moved? (For example, permanent concrete pilings vs. floating docks that can be removed in the winter.)
  • How much damage will the property sustain upon its removal? (For example, a steel-encased bank vault vs. an easily removable lighting system attached by bolts.)
  • How is the property affixed to the land? (For example, permanently glued bathroom tile vs. removable billboard.)

Even with ample regulatory, legislative and judicial guidance, making the distinction between tangible personal property and a building’s structural components remains a challenge for CPAs. No bright-line test exists. What is fortunate, however, is that many of the factual issues involving properties of different sorts have been litigated, and their outcomes illuminate the direction a court confronted with similar facts is likely to take.”

The primary property recovery periods are:

  • Buildings = 27.5 years for residential and 39 years for commercial
  • Land Improvements = 15 years
  • Furniture, fixtures & equipment = 7 years
  • FF&E, Retail & service = 5 years
  • Information systems = 5 years

Cost segregation consultants generally employ one of two methods, or a combination of both, that have approved by the IRS:

The first approach is to obtain and examine actual cost data records and construction documents in conjunction with a site visit to identify assets for potential reclassification. This approach is typically used when the property has been recently constructed and documents are readily available. The consultant assigns costs to each component based on any information provided, analysis of the documents and site visit.

The second approach, applicable when the original construction documentation is not available, is typically performed when a study is performed in conjunction with the purchase of the property. This alternative is also performed when the cost segregation study is conducted several years after initial construction. In applying this approach, an engineer or consultant will analyze architectural drawings, mechanical and electrical plans and other blueprints to segregate the structural and general building electrical and mechanical components from those linked to personal property. Using standard construction cost estimating tools, the property is “reverse-engineered” into its separate components. The consultant will also allocate “soft costs,” such as architect and engineering fees, to all components of the building. Total actual property costs are then allocated to the components on a proportional basis.

The information and documents typically required for a cost segregation study include:

  • legal description of the property
  • Date placed in service
  • Building and land area
  • Survey
  • Architectural and building plans
  • AIA documents 702 & 703
  • Other construction documents and accounting records
  • Depreciation schedules
  • Fixed asset listing
  • Construction loan documents, if available
  • Settlement statement
  • Appraisal

The consultant provides a self-contained cost segregation report, certified by the study’s authors, that will satisfy IRS requirements.

The benefits can be significant. BKD LLP, CPAs calculates that “Each $100,000 in assets reclassified from a 39-year recovery period to a five-year recovery period results in approximately $16,000 in net-present-value savings, assuming a 5% discount rate and a 35% marginal tax rate.

By reclassifying an asset from building (1250) to personal property (1245) property, the magnitude of an additional allowance in the first year can be enormous. For example, a shift of $1 million from 39-year property to 5-year property can augment first-year depreciation deductions by a whopping $575,000 ($25,000 vs. $600,000). Note: The application of the alternative minimum tax may reduce some of the tax savings associated with cost segregation.

Cost segregation studies should be performed by consulting firms with expertise in engineering, construction, tax and accounting. The IRS’ underlying assumption in determining what constitutes a quality study is that the study is performed by “personnel competent in the design, construction, auditing, and estimating procedures relating to building construction.”

Emerald Skyline Corporation, whose principals include real estate, sustainability, resiliency, architecture and accounting professionals is uniquely qualified to provide cost segregation advisory services to building owners, investors, managers and accountants in conjunction with your sustainability and resiliency project. Each cost-segregation study prepared by Emerald Skyline includes an identification of any available Green Building Tax incentives. Often overlooked, these valuable tax credits can amount up to 30% of qualified expenditures and increase the tax benefits of a cost segregation study.