State Taxation Department now reviews every refund

Question: I filed my Hawaii state tax late March for 2013. I am due a refund of nearly $7,000, but have not received it yet. When I checked the status online, it said that amount had been processed, but that no refund is due. When I called, I was told that because of my credit for photovoltaic installation, my refund was under review. How long does it take?

Answer: The state Department of Taxation is reviewing all tax refunds because "the amount of tax fraud occurring has risen substantially" in recent years, nationally and statewide, said spokeswoman Mallory Fujitani.

"The increase in fraudulent activity has triggered an increase in the review of all tax refunds leaving the department, including but not limited to the (photovoltaic) tax credit," she said.

Fujitani explained that the review process is not the same as an audit, "but could flag returns for additional review and/or audit."

A request for additional information does not necessarily indicate that an audit has begun, she said. (You have since informed us that you were asked to provide additional documents.)

No figures were available on the number of fraud cases the department has uncovered.

"Identifying a solid number of fraud cases is difficult as we don’t track and monitor these cases on a departmentwide basis," Fujitani said.

As for the "average" time it takes to process a refund, she said it can take up to approximately six weeks for paper returns and two to three weeks for electronically filed returns.

However, a lot depends on the time of the year the return is filed, as well as whether it is filed correctly. Returns that aren’t complete or correctly filed are manually reviewed and will likely result in a processing delay, particularly for paper returns, Fujitani said.

Common mistakes include illegible handwriting, mathematical errors, entering figures on the wrong line and transposing numbers.

"The department also has a number of security controls, both electronic and manual, to monitor refund requests based on past and recent tax fraud schemes experienced by states throughout the country, for both the paper and electronic tax filing processes," Fujitani said.

Misconceptions

Fujitani said the department recently was made aware of businesses "misinforming" people about the Renewable Energy Technologies Income Tax Credit for solar-powered products.

The two big misconceptions are that the entire cost of a solar-powered product is eligible for the credit; and that if you buy solar panels and get the rest of the system for free, the entire cost is eligible for the tax credit.

Neither is true, Fujitani said.

» While solar-powered products, such as air conditioners, installed on real property in Hawaii are eligible for the credit, it may be claimed for only the portion of the system that converts solar energy into usable electricity or mechanical energy.

"This may be done by using a reasonable allocation based on the fair market value of a comparable product that is not solar-powered," Fujitani said.

For example: If a solar-powered product is $15,000 and a comparable nonsolar product is $12,000, the eligible cost that can be used

to calculate the credit is $3,000, the difference in cost.

» People have called the department saying they have been told they can claim the state tax credit on the entire cost of a solar-powered product.

But Fujitani said that gifts offered with the sale of the system, such as a "free" air-conditioner, is a consumer incentive premium that must be deducted from the cost of the system.

There is a line on tax Form N-342 to deduct these amounts from the cost of the system. If they are not deducted, the tax credit will be denied, Fujitani warned. "An erroneous claim for a tax credit that is made for an excessive amount is also subject to a 20 percent penalty."

Call 587-4242 or 800-222-3229 or go to tax.hawaii.gov.

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