The greenest tax code in America.

Once regarded by many as a lifestyle choice, the greening of America has now become an economic inevitability. Whether the issue is infrastructure cost, waste management, air and water quality or business process improvements designed to wring ever more value out of increasingly tight budgets, sustainability standards have become operational realities.

The federal government’s decarbonization plan emphasizes higher efficiency vehicles, renewable energy generation and all-around cleaner operations. Making this transition won’t be cheap, though, and a significant percentage of this burden will fall on American businesses in literally every industry. For example:

• Energy companies will migrate away from coal and oil over time, replacing extraction and refining equipment with alternate energy infrastructure—wind, solar, hydroelectric, etc.
• Any business with fleet assets will replace gasoline-powered vehicles with vehicles powered by natural gas, ethanol and eventually electricity or hydrogen. Companies operating diesel vehicles in states with stricter clean-air laws will be affected sooner and more dramatically.
• Companies in every sector will need to upgrade energy-inefficient office infrastructure, including heating/cooling, plumbing, lighting and IT assets.
• Supply chains must evolve to better manage locally grown products, buying in larger quantities and switching to “just in time” processes.
• Manufacturing will update around smarter process flow, streamlining each manufacturing process. For example, taking bends out of hydraulic fluid distribution pipes, thereby improving pumping efficiency.

Investments in sustainable infrastructure will pay for themselves over time, but significant up-front costs are unavoidable. How are businesses going to pay for these cash-intensive upgrades, especially in tight economic times like we face at present?

A tax code that’s been on the books since 1921 offers substantial help for businesses looking to green their operations. Section 1031 of the Internal Revenue Code stipulates that when companies sell a depreciated asset, they can defer the tax gains associated with the sale (often up to 40% of the sale price) if they then use the proceeds to purchase a “like-kind” asset. When you sell an inefficient asset and buy a greener replacement, that exchange is usually treated as like-kind.