Lawsuit Seeks to Protect Hawaii’s Solar Tax Credit

MACC Solar panel project located above Kahului Harbor. File photo by Wendy Osher.

By Wendy Osher

A lawsuit was filed on Tuesday, challenging the state’s decision to cut back on tax credits for residents and businesses that install solar energy systems.

The challenge was filed in state circuit court by the environmental law firm, Earthjustice, who is representing the Sierra Club.

The suit comes following plans announced by the Hawai‘i Department of Taxation to implement a new interpretation of the solar tax credit. Challengers claim the change will drastically reduce the availability of tax credits for solar photovoltaic systems, and threaten Hawai‘i’s progress in promoting renewable energy, and in weaning itself off fossil fuels.

Sierra Club Hawai‘i Chapter Director Robert D. Harris said, “Since the department announced it was cutting support for solar energy systems, we’ve heard from hundreds of our members across the state who say they will no longer be able to afford to install solar panels on their roofs.”

The legal challenge says the department’s new rule conflicts with the law’s aim of encouraging widespread adoption of residential and commercial solar energy systems, which are vital for Hawai‘i to reach its goal of 40% of its energy coming from locally generated, renewable sources by 2030.

“We’ve also heard of investors pulling out of several large-scale commercial projects because the reduced credit makes the projects unavailable. This goes completely against what the Legislature tried to accomplish in enacting and expanding the solar tax credit,” said Harris.

The change is scheduled to go into effect on January 1st. State officials say it was intended to provide clarity, uniformity, and fairness to taxpayers who claim the credit. Department officials say the previous interpretation created uncertainty among taxpayers, made enforcement difficult, and created an unlevel playing field for renewable energy installation companies.

Under the law tax credits are made on a “per system” basis; however, the statutory definition of “system,” state officials say, is not sufficient for taxpayers to calculate the credit with certainty.

During the 2012 legislative session these issues were deliberated, but no amendments were made. Because of this, tax department officials say they are seeking to clarify the issue by using administrative authority.