Homeowners face audits over solar tax credit abuse

Published: Oct. 14, 2011 at 12:55 AM HST|Updated: Oct. 14, 2011 at 1:53 AM HST
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Brooks Baehr
Brooks Baehr
Mallory Fujitani
Mallory Fujitani

By Brooks Baehr - bio | email

HONOLULU (HawaiiNewsNow) – The Hawaii Department of Taxation will audit homeowners who broke a state law that offers tax credits for photovoltaic (PV) systems even though it appears many of the homeowners may have unknowingly violated the law because of advice from solar electric companies.

Hawaii law provides incentive for homeowners to install PV systems by offering a 35% tax credit for money spent on new PV systems. So, for example, if someone spends $10,000 on a system, they are eligible to get $3,500 back from the state.

The credit has a $5,000 dollar cap.

The Department of Taxation contends that whether a person spends $15,000 or $50,000, the most they are supposed to get back from the state for a single PV system in a single year is $5,000. But in an effort to generate more business, some solar companies have found a way to get more money back for their customers. They have been installing multiple circuit breakers and inverters and telling customers that every circuit breaker / inverter combo constitutes a separate system.

Two systems, the companies maintain, can result in $10,000 in tax credits instead of $5,000 as the law intended. Three systems can result in $15,000 in tax credits and so on.

Now people who claimed more than one system and received more than $5,000 in tax credits in a single year are facing audits.

"We are reviewing people that have filed tax returns claiming these credits," said Mallory Fujitani, spokesperson for the Department of Taxation.

"We're taking a look at those that seem abnormally high maybe for a single family residence or out of sync for what would be the norm," Fujitani added.

"It seems that the tax office has determined that egregious violations of the intent of the tax law ... have finally caught up with them," said Jeff King, a partner with Solar Services Hawaii.

Davis has been selling solar equipment for 20 years and hosts an afternoon drive time radio show on KGU 760 promoting green energy.

He told Hawaii News Now there are sometimes legitimate reasons to install multiple PV systems on one home, but said his company does not install multiple systems just to get more tax credits for customers.

King expects customers who took the advice of solar companies and received large rebates by claiming more than one PV credit in a single year will be angry with their solar companies once they get audited.

"You could be asked to give your $5,000 per system or your $20,000 back, in which case you'll be calling your solar guy who will be telling you, most likely, 'Sorry. You didn't read the fine print. We're not liable for your tax situation,'" King said.

Davis said companies that tell customers they can receive more than one $5,000 tax credit in a single year have gained an unfair advantage in the marketplace. He wants the playing field to be leveled.

He said companies that have encouraged customers to seek multiple credits in a single year are hurting the image of the industry and are creating a surprise financial burden for their customers who face an audit.

"There will be two victims, one the customer, two the industry," Davis said. "If a few, or even more than a few, companies violate the intent of the tax law, it will make our entire industry look bad. They'll paint us all with the same brush. And the consumer will have to give their monies back," he added.

Fujitani said if an audit shows a homeowner installed multiple breakers just to secure additional tax credits, the homeowner will have to return money to the state. She said it is also possible homeowners will have to pay fines and interest, but added the state will consider fines and interest payments on a case by case basis.

"We have, at the department, realized that many of these tax payers rely on someone else to explain to them how much tax credit is available. And we are actively talking about trying to work with these tax payers, especially if they can provide us with information that can prove they were misled," Fujitani said.

No one is sure yet how many people may have knowingly or unknowingly received too much money in tax rebates from the state by claiming too many PV tax credits, but King said it is probably, "Thousands. You're talking millions of dollars."

Fujitani said the Department of Taxation will also investigate solar companies. She said companies that intentionally advised customers to violate state tax law can be fined up to $1,000 for every case of bad advice.

The tax department encourages anyone considering a PV system to consult with a tax professional before buying.

Copyright 2011 Hawaii News Now. All rights reserved.