State unveils new rules for solar tax credits

November 9, 2012

By Alan Yonan Jr.

The state Department of  Taxation unveiled new rules today that will effectively limit the ability of homeowners to claim multiple tax credits for the installation of solar photovoltaic systems.
The “temporary administrative rules” require photovoltaic systems on single-family homes to have a rated output capacity of at least 5 kilowatts in order to qualify for a state tax credit. The new rules were published today on the Department of Taxation’s website and will apply to PV systems put in place starting Jan. 1.
Current law allows homeowners to claim an income tax credit of 35 percent for PV systems with a cap of $5,000 per system. However, because the way solar technology has evolved and tax guidance has been interpreted, many homeowners have installed multiple PV systems on their properties, claiming a state credit for each system.
The rule changes are an attempt to bring clarity as to what constitutes a photovoltaic “system.” The Tax Department in 2010 issued guidance on the matter to taxpayers in response to concerns that the credit was being abused. Solar industry executives maintain that whatever confusion existed in the past has mostly been resolved, and that some homeowners need multiple systems for valid engineering reasons or physical site limitations.
The new rules also set capacity thresholds for multi-family residential properties and commercial properties. For multi-family properties each system for which a credit is claimed must have an output capacity of at least 360 watts per unit per system. Commercial systems must have an output capacity of at least 1,000 kilowatts for each credit claimed.
The PV credits are part of the state’s broader renewable energy tax credit program conceived as an incentive to reduce Hawaii’s dependence on fossil fuel. The credits started coming under scrutiny in recent years as the popularity of PV systems resulted in the loss of more tax revenue than expected.
State lawmakers last session considered several bills that would have curtailed the solar tax credit, but they were  unable to reach a compromise before the session ended. Lawmakers will likely revisit the issue again next year.