By Kyle Christensen, CPA, CCIFP, firstname.lastname@example.org
Kyle is a partner at HHM CPAs, a full-service accounting and consulting firm with locations in Chattanooga and Memphis, Tennessee. He possesses over 20 years of experience working with clients in the Construction & Real Estate (CARE) industries.
Although COVID-19 has been making headlines in the construction industry, as well as every other industry due to the Federal Governments Paycheck Protection Program (PPP) stimulus and other initiatives, there are a few continuing tax programs that contractors should not be ignoring.
One tax benefit specifically structured for the construction industry is found in the Internal Revenue Code Section 179D. This code section was enacted to incentivize companies to make their buildings more energy efficient. Overall, the incentive was a method to accelerate depreciation deductions faster for any company that undertook an energy efficient retrofit or initiated new construction incorporating the energy efficient standards. Back in the mid 2000s when this was enacted, most companies were still required to depreciate projects over a lengthy depreciation schedule (i.e. 15 or 39 years). Thus, to be able to write off a portion of this more quickly was a novel concept. However, the incentive really never took off because soon afterwards, the country entered the Great Recession and lawmakers quickly enacted even more generous rules to allow companies to begin writing off capital expenditures more rapidly in effort to stimulate the economy. Thus, this deduction was somewhat shelved. Here is the construction specific subpart that is often overlooked as well, but shouldn’t be.
In 2008, the IRS issued notice 2008-40 which clarified IRC 179D(d)(4) that states:
In the case of energy efficient commercial building property installed on or in property owned by a federal, state, or local government or a political subdivision thereof, the Secretary shall promulgate a regulation to allow the allocation of the deduction to the person primarily responsible for designing the property in lieu of the owner of such property.
The 2008 notice provided the procedures necessary for a designer of energy efficient system to receive the benefit of the tax deduction for any government facility since the government is not able to benefit from the deduction. The notice also provides a definition of “designer” as follows:
A designer is a person that creates the technical specifications for installation of energy efficient commercial building property (or partially qualifying commercial building property for which a deduction is allowed under §179D). A designer may include, for example, an architect, engineer, contractor, environmental consultant or energy services provider who creates the technical specifications for a new building or an addition to an existing building that incorporates energy efficient commercial building property (or partially qualifying commercial building property for which a deduction is allowed under §179D). A person that merely installs, repairs, or maintains the property is not a designer.
Therefore, if a contractor, engineer, or architect is involved in this process and it meets the certification requirements for energy efficiency, the “designer” of the system can receive an “allocated” deduction (i.e. a “FREE” tax deduction) from the government-owned facility. There are several rules about which buildings qualify, who is deemed the designer, and the energy efficient mandates, but all members of the construction community should ensure they have not overlooked this deduction. The deduction can be as much as $1.80 per square foot, so the benefit can be significant to the qualifying designated designer. The Code Section 179D is set to expire at the end of December 31, 2020, but if a contractor failed to take advantage of this, there may be a way to revisit prior year projects for the last couple of years.
If your company is involved in government-owned projects, you should ensure that this topic is reviewed during their year-end tax planning session with their professional tax advisor.
Smith Currie & Hancock LLP Law Firm Answers Members' Questions Regarding Families First Coronavirus Response Act
Question: Are we obligated to pay employees who are waiting on test results?
Answer: The paid sick leave required by the FFCRA applies to an employee under #3 above who is 1) experiencing symptoms of COVID-19 and 2) seeking a medical diagnosis. But depending on why they are out, if due to numbers 1 or 2, they still may be eligible.
For instance, a local health law where the jobsite is located requires all employees to be tested where a positive case has occurred and you have to test your employees at the jobsite, even though they have no symptoms, a conservative approach is to pay them.
If the employee sought testing but has not experienced COVID-19 symptoms, are not under an isolation order, or are not self-quarantining on advice of a health care provider, they are not eligible for FFCRA paid sick leave benefits under that provision. The employee would, however, still be entitled to use any other accrued leave pay in accordance with applicable laws and policies.
Question: Are we obligated to pay employees who missed work because they were sick and awaiting test results which then came back negative for COVID?
Answer: Generally, yes. The provisions for paid sick leave do not require that an employee be
diagnosed with COVID-19 to be eligible for paid sick leave while seeking a medical diagnosis,
as long as their symptoms were consistent with those of COVID-19.
Question: It is our understanding that essential workers should and can work as long as he or she has no symptoms, even with a possible exposure in the same household. If the employee still chooses to stay home, do we have any obligation to pay?
The FFCRA does not distinguish between essential and non-essential employees. Even if an employee is not experiencing COVID-19 symptoms, they may have a basis to stay home under the FFCRA. If an employee does not come to work because they are covered by a legal stay-at-home order, or are self-quarantining on the advice of a health care provider, the employee is entitled to up to 80 hours of sick pay (pro-rated for part-time employees) as described above.
In those cases, the employee is entitled to sick leave paid at their regular rate up to $511 per day and $5,110 in aggregate. However, if they can telework, they can work from home and you would pay them regularly and not under the FFCRA.
Even if the employee is not ill, quarantined, or awaiting test results, they may choose not to report to work because they are caring for someone else subject to a stay-at-home order, are caring for a child if the child’s school or child care is closed due to COVID-19, or is experiencing other conditions specified by the Secretary of Health and Human Services as describe above. In those cases, the employee is entitled to sick leave paid at two-thirds of their
regular rate, capped at $200 per day and $2,000 total.
In addition to paid sick leave, the FFCRA provides for additional family leave benefits under the Emergency Family and Medical Leave Expansion Act (EFMLEA). Under the EFMLEA and the Family Medical Leave Act, a covered employee is entitled to a combined total of 12 weeks of leave. An employee may take leave under the EFMLEA only to care for a child under 18 whose school is closed or whose child care provider is unavailable due to COVID-19.
The first 10 days of EFMLEA leave are unpaid, unless the employee opts to use accrued vacation, personal, or sick leave time. An employer cannot require the employee to use accrued paid leave time during this 10-day period. All EFMLEA days in excess of 10 are to be paid at two-thirds of the employee’s normal rate, with a maximum of $200 per day and $10,000 total.
Question: Is an employer liable for more than 80 hours of paid sick leave per employee? Is a single employee eligible for this multiple times?
Answer: The FFCRA limits an employer’s obligation to 80 hours of paid sick leave through December 31, 2020. An employee may use those hours in increments, such as for multiple absences for covered reasons, but only up to 80 hours through the end of 2020.
Question: We received a Paycheck Protection Program (PPP) loan. Are we entitled to a tax credit for FFCRA payments?
Answer: An employer that received a PPP loan and has paid employees for absences covered by the FFCRA using PPP funds may choose to include those payments in a PPP forgiveness application, or take a tax credit for FFCRA payments, but not both.
Tell us about TU Parks Construction ...
T U Parks in its 76th year and I believe that we are now the oldest construction company in the Chattanooga area. Our business model has us involved in all facets of construction with the exception of highway and heavy industrial. We've had a major focus on health care for nearly 50 years and recently have been working on several renovation projects in the downtown area, including Common House in the former Industrial Y building, the refurbishment of a large warehouse space into offices, and nearing completion of the new rowing center for GPS and McCallie. We also work on high-end residential projects.
TU Parks was started by grandfather, T. U. Parks. His son’s Homer, and my father, C. A. “Red” Parks really built the business. Everyone served in leadership roles of the AGC chapter and were also active industry advocates. We're currently in our 4th generation of leadership at T U Parks with my son, Robert, currently serving on the AGC East Tennessee Board.
How have you been involved in AGC over the years?
Charlie Clevenger (former President of AGC East Tennessee) got me involved on the Board of Directors as Secretary/Treasurer of the Chapter in 1981 and around that time I went to my first national convention in Washington, DC. I then served as the President of the Chattanooga branch during 1985 and 1986 while serving as Vice President of AGC of East Tennessee.
Around that time, Charlie and I first attempted to launch a self-insured workers' comp trust and then in 1994 we partnered with the rest of the state to make it a reality. I served as Vice Chair of CompTrust AGC Tennessee from day one and stepped up as Chair in 2013.
On the national level, I served on various AGC of America Committees and when Jim Lail from Chattanooga was President of AGC of America he asked me to serve on his Executive Committee .
Why are you a member of AGC?
AGC is the leading association in the industry and is a network of the better contractors. The legislative support that the AGC gives the contractors in federal, state and local issues is incredibly important, and I've found connections through industry networking to be a great resource. I attended just about every national convention for decades and state and regional conferences over the years. I also went through AGC's Executive Management Program which was an invaluable learning experience. Through AGC, I've met a lot of people, been a lot places, and have had a lot of fun.
After a year and a half of a concerted effort with construction associations across the state, last week the House and State passed HB0271 adding new payment protections that mitigate risks for GCs and subs. The highlights include:
Click here for a link to the full bill
Click here for a link to the summary
The Chattanooga Land Development Office is rolling out a new permitting software starting on May 11th, 2020. They acknowledged that this is not the ideal time to implement new software, but they did receive positive comments about the ease of use of the software from contractors during their testing phase. To help with the transition, they provided the following instructions found below on the application and further information about the new program, ViewPoint Cloud.
Several members have asked for clarification on culpability if an employee of a subcontractor contracts COVID-19 while working on a jobsite. Tim Gibbons with Chambliss Law has provided guidance for our Chapter members:
The illness should be handled as though it were any other alleged work-related injury/illness and should be subject to the exclusive remedy under the workers' compensation law. Employee would first look to subcontractor's workers' comp policy, but might also try to rope in the G/C as a "statutory employer" if the subcontractor doesn't have workers comp. Remember that, even if the subcontractor has told the G/C it has workers' comp insurance, if it doesn't, the G/C may be regarded as the "statutory employer" for workers' comp purposes.
Conventional wisdom among employment and workers' comp attorneys and insurance adjusters is that it's going to be exceedingly difficult for an employee to demonstrate that contraction of COVID-19 is compensable under Tennessee workers' comp law (and similarly in other states). In TN, an illness is not compensable unless "it has been shown by a preponderance of the evidence that the employment contributed more than fifty percent (50%) in causing the injury, considering all causes." Unless the employee is a recluse living alone and has gone nowhere except his job site, this is going to be a tough standard to meet.
As to what's happening when employees get the virus, that could present a different question. Typically, the employer puts the employee on leave until no longer symptomatic (i.e., recovered). Employer also notifies persons with whom the positive employee was in "close contact." If they are asymptomatic, they can continue coming to work as long as they appropriately monitor (e.g., temperature checks before shift). Employee's work station, tools, etc., should be thoroughly sanitized.
Starting February 17, 2020, the City of Chattanooga's Land Development Office will be requiring a copy of a contractors license, business license, and workman's compensation insurance, if applicable, to be presented at the time of permit issuance. If the contractor has no employees they must present the card the state provides as proof of not needing workers compensation insurance.
This requirement is a result of many contractors applying for permits with expired business licenses , which takes 2 weeks to renew. Valid licenses are required to pull a permit.
Out of 4,779 worker fatalities in private industry in calendar year 2018, 1,008 or 21.1% were in construction — that is, one in five worker deaths last year were in construction. The leading causes of private sector worker deaths (excluding highway collisions) in the construction industry were falls, followed by struck by object, electrocution, and caught-in/between.
These "Fatal Four" were responsible for more than half (58.6%) the construction worker deaths in 2018. Eliminating the Fatal Four would save 591 workers' lives in America every year.
Other Shocking Safety Stats from OSHA:
Top 10 Most Frequently Cited OSHA Standards Violated in FY 2018
The following were the top 10 most frequently cited standards by Federal OSHA in fiscal year 2018 (October 1, 2017, through September 30, 2018):
AGC of East Tennessee can provide your team with top-notch safety training. Click here to fill out our safety training request form, or contact Carol Pond at email@example.com or (423) 265-1111.