HARDI Members' Heat Index
Those who follow legislative issues affecting the HVACR industry know that a recent bipartisan effort in the U.S. House of Representatives has finally given some weight to the passage of the HVAC Expensing and Technology (HEAT) Act.
U.S. Reps. Pat Tiberi, R-Ohio, and Ron Kind, D-Wis., introduced HR 3515, which would allow commercial building owners to immediately expense specific HVACR equipment replaced under Section 179D of the U.S. Tax Code.
This effort, which has been on this industry's agenda for years, gathered steam when the HVACR Industry Alliance, a collation of 11 national trade associations; including ACCA; Air-Conditioning Heating and Refrigeration Institute (AHRI); ASHRAE; Heating, Air-Conditioning and Refrigeration Distributors International (HARDI) and the Sheet Metal & Air Conditioning Contractors National Association (SMACNA) among others, pushed for a resolution to the issue.
In an interview with Jon Melchi, HARDI’s vice president of government and external affairs, we asked him a direct question: What does the introduction of the bill mean for HARDI members?
Melchi, who is known throughout the industry for his astute observation of the political process, especially on issues affecting the HVACR industry, said: “The HEAT Act does a couple of things for us. The first is that it demonstrates the effectiveness of our meetings at the HARDI Congressional Fly-in and our grassroots compaign to the point that there are key legislators and staff members who are tackling tax reform and now understand the discrepancy in the tax code, which has until now, put commercial HVAC products at a disadvantage. And hopefully, if there's a broader [tax] package, they will incorporate components of the HEAT Act into that revamped package. We now have a pretty good inkling that will be the case.
“The second thing it does for us is, if this broad tax reform fails, and they can't commit to the major changes to the tax codes, they may look at some technical improvements in addition to a small rate reduction. This is important because we now have an entry ticket into that discussion because of this bill. And not only because of this bill, but because of who supports it.”
Oddly, no one knows why the original time frame of 39.5 years became embedded in expensing a figure that most would consider naïve at best and downright unrealistic, given today’s technological advances, Melchi explained.
If the bill passes in its current form, it will allow for the expensing of HVACR equipment of only up to $1 million annually.
A key component to the success of the bill are the legislators who introduced it. Both have earned respect for their acumen on tax issues, and if the legislation does meet with opposition, “there’s the possibility that a slimmed down version of the bill will remain and HARDI members will at least have an influence on any further discussions," Melchi said.
When asked what the chances of passage are, Melchi paused and answered by explaining the benefits of the legislation for both Republicans and Democrats.
“Both parties have a selling line for their fellow legislators and their constituents,” Melchi said. “The Republicans can say they're fixing the tax code, and the Democrats can say the intent is to encourage the purchase of new, energy-efficient equipment.”
And the capstone of the argument, according to Melchi, is a homegrown benefit.
“There’s the realization that these products are going to be sold and installed within their communities and districts,” he said.
Melchi acknowledges that the effort to reach legislative sponsorship received a boost from property managers, multihousing groups and commercial real estate groups.
“I think they saw the way this was going to play out in the tax code, and they're thinking, ‘Hey, this could be good for the building owners. And it'll help make these properties more attractive, more comfortable and level the playing field,’” he said.
Taking a broader view, Melchi admitted the HEAT Act is not a sexy issue.
This is not an issue that's going to end up on the front page of the Wall Street Journal," he said. "We're trying to approach it in a reasonable, bipartisan way that doesn't offend anybody but can do good in your community. And then we can kind of thread that needle and we have a chance to be included and have a fallback strategy in the event that this broad tax reform fails.”
When asked what he would tell a roomful of HARDI members how he would explain the potential effects of the bill to a roomful of HARDI members if the bill passed, he answered: “Our members repeatedly hear about the need to diversify their businesses and to take advantage of the commercial segment. It will be a benefit to those who are already occupying that space and succeeding at it, as well as those that are looking to enter and to grow in that market. I think it will grow the commercial segment about as significantly as anything that Congress can do.
“And to me, that's the No. 1 thing," he continued. "This bill will benefit that commercial part of the industry in a significant manner if we're successful.”