How Long Will Your Product Maintain 30/30 Performance?

Paul R. Gary
October 1, 2009
COLUMN : Legal | Management

It is unusual for the fenestration industry to fall within the scope of presidential action. It happened in February 2009 with President Obama’s signing of the American Reinvestment and Recovery Act, also known as the stimulus package.

The law was designed to boost sales of energy efficient building envelope components, including windows and doors. The idea was to create jobs and reduce long-term energy consumption at the same time. Although exact figures are hard to come by, most in the industry think the stimulus has helped boost the replacement window market. You will not find many window companies that are not promoting products as being eligible for the tax credit of up to $1500.

It is not unusual, however, for a well-meaning law to present unseen issues that run just beneath the surface, especially when it was hurriedly passed. The area of concern here is the active ingredient for window product eligibility–the now famous “30/30” solar heat gain coefficient and U-value requirements.  They were striking when announced because the numbers were more stringent than Energy Star, another government sponsored program which created the previously-existing benchmarks for energy-performance in our industry.

For some, the 30/30 requirements created a need for additional energy-saving components; for many this included the use of argon or krypton. Motivation was high. Without being able to “get a 30/30,” it seems apparent that a significant opportunity would be lost. There are now a lot of windows that have a 30/30 rating. Go figure.

The lurking issue involves how manufacturers and re-sellers present their product qualification information to the market. Yes, I like the disclaimer that: “The company does not give tax advice and purchasers are encouraged to consult with a tax professional,” but that’s not what I am talking about. Manufacturers and re-sellers need to focus on the specifics of what they say concerning product eligibility.

Here’s why. The Stimulus is actually an amendment to the pre-existing Section 25c of the Internal Revenue Code. Section 25c establishes the basic criteria for "Eligible Building Envelope Components" that are the trigger for the tax credit. This includes the requirement that the component can reasonably be expected to remain in use for at least five years. Does this mean that it is anticipated that your window will be in the opening in five years? That’s easy. Or does it mean that each window will still be performing as an energy-saving eligible building component for five years?

For a window, that could mean it will still “get a 30/30” in five years. That may not be so easy, especially if a company really had to work hard to get the 30/30 in the first place. IRS Notice 2009-53 clarifies that a component will be treated as reasonably expected to remain in use for five years if the manufacturer offers a no charge replacement warranty “in the event of a defect in materials or workmanship.” This clause may save the day, but don’t count on it.

A question remains as to whether a manufacturer wants to treat a product’s failure to maintain 30/30 for five years as due to a defect in materials or workmanship. The overarching issue is whether by marketing product eligibility for the stimulus credit an individual product warranty with respect to energy performance has to be created. This could engage existing state law liability concepts such as unfair trade practice allegations. Just because product representations are intended for compliance with the stimulus does not mean that they free from the scrutiny of other legal requirements involving the sale of windows and doors.

I do not think this has to be the result, but I am sure that a manufacturer or re-seller can “back into it” by saying too much. As these concepts, and the attendant decisions they present, enter our marketplace so does the prospect for widespread field testing of gas retention and resulting determination of post-sale u-values.

As at least one person in each manufacturing company is keenly aware, the stimulus also requires an individual attestation, under oath, that an examination has been made and the certification of products as eligible is true and correct. Clearly, this is another reason to examine the approach taken with respect to marketing of products as compliant with stimulus requirements. Do not go farther than is either accurate or required. Evaluate whether certification can be affirmed without upsetting your existing warranty approach.

My point is that serious decisions have to be made as to how to describe your product’s eligibility for the stimulus tax credits. Choose your words well.


 

Paul R. Gary is the prinicipal of The Gary Law Group, a law firm based in Portland, Ore., emphasizing legal issues facing manufacturers of windows and doors. He welcomes feedback about articles published in Window & Door and can be reached at 503/227-8424 or paul@prgarylaw.com.