Permanent rules restrict state’s solar tax credits

A temporary change in state tax policy put in place a year ago that limits the ability of homeowners and businesses to claim multiple tax credits for solar systems has been made permanent.

The temporary administrative rules were an attempt by state Department of Taxation officials to provide clarity and uniformity to the tax credit program and to reduce the amount of tax revenue being lost as the value of credits being claimed soared.

When the rules were announced last fall, there was a consensus among policymakers and industry officials that the state Legislature would probably pass a law during the spring session ratcheting down the tax credits over a multiyear period, thereby making the administrative rules no longer necessary.

However, the bill failed after House and Senate conferees in the last days of the session could not reach agreement on how rapidly to reduce the credit, which stands at 35 percent.

The Department of Taxation adopted the new rules Monday after holding a public hearing on the matter Nov. 25. The new rules were sent to Gov. Neil Abercrombie, who has 10 days to sign them into law or they automatically go into effect. The temporary rules would have expired in May if the Tax Department had not opted to make them permanent.

Officials from the Hawaii Solar Energy Association said that while they took issue with some of the language in the new rules, the overall effect is positive for the industry. A bigger issue facing solar photovoltaic installers now is a slowdown in getting new PV projects installed in areas where there is already a high penetration of solar energy, said Leslie Cole-Brooks, executive director of the HSEA.

"What the industry needs is stability, so we’re hoping to take a break from the tax credit question so that we can have time and resources to focus on what really matters: interconnection," Cole-Brooks said.

"However, I don’t know if other interested parties will see the need to take up the tax credit issue again. I’m hoping that the passage of the (department’s) administrative rules is a ‘problem-solved’ situation, and we can move onto more pressing matters," Cole-Brooks said.

The new tax rules base the state’s 35 percent solar income tax credit — which is capped at $5,000 per PV system for homeowners and $500,000 per system for businesses — on the total kilowatt output capacity of a system. Under the previous rules, many homeowners and businesses, working with solar companies, exceeded the caps by configuring multiple systems.

The Tax Department rules define a single residential PV system as having up to five kilowatts of generating capacity. Commercial projects are defined as having up to one megawatt of generating capacity. Tax credits are limited to one per system.

Under the old tax rules, a homeowner with five kilowatts’ worth of PV panels could divide the panels into two or more systems by having each "system" run through a separate inverter with an independent connection to the home’s electrical system.