Don’t let tax department unilaterally make energy policy

There is an old socialist saying that goes something like this: There are two stages in economic development. First, the difficulties of development. Second, the development of difficulties.

That’s just it. After working diligently as an industry over many decades to develop sound energy policy for Hawaii and build a permanent infrastructure of strong renewable oriented companies capable of transforming energy production from dirty BTUs — oil and coal at the utility level — to clean kilowatt hours at the customer level, things can still come undone with the simple stroke of a pen, or a misguided idea.

And so it came to pass on Nov. 9, 2012, that the state Department of Taxation, also known as DoTax, decided, with little or no industry input, that it would reinterpret Hawaii Revised Statutes, Section 235-12.5, relating to renewable energy income tax credits, in order to close abusive loopholes and provide clarity to taxpayers and tax practitioners alike.

Unfortunately, it was much less candid about the true purpose of the exercise: to reduce the estimated impact of the credits on the general fund.

In 2002, the Department of Business, Economic Development and Tourism (DBEDT) carefully studied the fiscal and economic impact of the renewable energy income tax credits — with the baseline assumption that oil would cost $26 per barrel — and found that these credits generated business, taxes and economic activity that would not exist in their absence, and which had a net positive fiscal impact over time.

In short, we have more, rather than less, general fund revenue because of the economic activity, dollar retention and import-substitution benefits generated by the renewable energy income tax credits.

No such equivalent analytical work has been done by DBEDT or DoTax since 2002. In fact, in 2005 DoTax stopped publishing its annual report on tax credits annually taken by Hawaii resident taxpayers. Also, the state has no real-time idea what these tax credits cost the state, if anything, or net of the benefits provided.

For DoTax to unilaterally make energy policy in this vacuum — for that is precisely what it has done — is simply unacceptable and cannot go unchallenged.

In addition to the many adverse real-world implications of DoTax’s administrative action, the tragedy is that this was all so unnecessary. Key stakeholders have long realized that DoTax’s series of Tax Information Releases (TIRs), written during the Lingle administration to define and explain what constitutes a "system" for tax credit purposes, opened huge loopholes for potential abuse.

A joint Senate-House conference convened by state Sen. Mike Gabbard has recently met four times to craft a sound 2013 legislative "fix" that is intended to close the TIR loopholes, clarify the rules and save the state tens of millions of dollars.

Rather than trust the public legislative process, DoTax, itself the author of the problematic TIRs, moved unilaterally to solve a financial and administrative problem that it has neither accurately characterized nor adequately explained.

Make no mistake: Hawaii is finally moving at warp speed to reduce its dangerous dependence on expensive and polluting fossil fuels to generate electricity. Whatever the legislative fix in 2013, our main goal must be to ensure that we don’t slam the brakes on the overwhelmingly positive indigenous clean energy revolution now under way.

There is simply too much at stake to leave energy policy up to the DoTax folks on Halekauwila Street.