Judge Tosses Sierra Club’s Solar Tax Credit Lawsuit
The Hawaii Sierra Club has lost its legal fight to roll back new rules that effectively restrict the number of tax credits that homeowners, businesses and developers can claim on solar arrays. 鈥
Circuit Court Judge Edwin Nacino on Friday ruled that the court didn鈥檛 have jurisdiction to resolve the dispute.
After hearing brief arguments, Nacino agreed with state Deputy Attorney General Hugh Jones, who argued that the Sierra Club didn鈥檛 have a legal foundation to challenge the new rules. Jones said that the tax rules can only be challenged by individuals and that the proper venue is a specialty court.
鈥淭ax controversies are treated in a very, very special way by the courts because they affect the lifeblood of government itself,鈥 Jones argued.
The state estimates the incentives will cost Hawaii $174 million in lost tax revenue for 2012, according to the state energy office, up from $35 million in 2010.
Robert Harris, executive director of the Sierra Club, which is represented by the Honolulu environmental law firm Earthjustice, said he would consider appealing the decision.
Harris said he’s concerned the ruling gives the governor too much authority over tax laws and that the state could reduce the tax credit even more.
The lawsuit evolved out of a debate between the solar industry and state that has dragged on for months and played out in the Legislature for two years in a row. Earlier this year, state lawmakers failed to pass legislation amending the tax credits, despite political pressure to come up with a plan to begin scaling them back.
Instead, the state tax department amended the solar tax rules, closing what Gov. Neil Abercrombie and others saw as a loophole that allowed solar customers and developers to abuse the tax law and claim more credits than intended.
But the Sierra Club and Earthjustice have argued that the state sought to change the tax rules to save the state money while the intent of the tax law is to encourage the expansion of solar energy systems.
The state allows residential customers to take a 35 percent tax credit on a photovoltaic system, or $5,000 refund, whichever is less. The tax refund for commercial systems is $500,000. There’s also a 30 percent federal tax credit that expires at the end of 2016.
However, homeowners and large-scale solar developers were claiming multiple credits on solar arrays based on the number of inverters that were being installed.
The new rules base the level of incentives that can be claimed on solar output capacity.
After the hearing, David Henkin, an Earthjustice attorney who argued the case, said that the new rules have already hurt the solar industry.
鈥淚 think there have been a lot of people that have been put off by both the decrease in the incentive as well as (the perception) that Hawaii is now hostile to large-scale solar projects,鈥 he told Civil Beat.
However, some solar energy executives and others argue that the cost of solar has plummeted in recent years and that the incentives are overly generous, especially in a state where electricity prices are three times the national average.
And a February report by University of Hawaii economists concluded that solar panels are affordable without state tax credits and a good investment.
It鈥檚 difficult to gauge what impact, if any, the new rules have had on the rapid growth of Hawaii鈥檚 solar industry. But solar sales continue to rise, based on the latest state data. The number of solar permits pulled for residential systems is 25 percent higher so far this year, compared to the same period last year. And the number of commercial permits is 70 percent higher than last year.
The new tax rules are temporary and are set to expire in June 2014. Jones said that the state would move forward in coming months to implement permanent rules.
