by Brenée Goforth
Media Manager & Communications Associate, John Locke Foundation
This week, Carolina Journal’s Don Carrington reported on the potential denial of as much as $500 million in renewable energy tax credits to investors. Carrington reports:
For two decades, the state has encouraged investments by individuals and businesses in renewable energy partnerships. The most recent version of the incentive gave investors a 35% tax credit on money they invested… The program ended in 2016, but investors who had projects under way could continue taking credits.
In order to finance solar projects, Carrington explains:
Some solar project builders created partnerships to transfer the credits, essentially selling them to individuals or businesses with substantial tax liabilities [such as insurance companies, banks, etc.].
In September, the Department of Revenue (DOR) issued a notice prohibiting these kinds of transfers. The department stated these tax credit transfers were not allowed in the federal Internal Revenue Code, and that the state would not allow them either. Carrington reports experts claim this is an unprecedented interpretation of the State’s tax laws:
[Former special deputy attorney general for the DOR, Kay Hobart] called DOR’s ruling on partnerships “a new and extremely restrictive interpretation that is taking investors, developers, and the market by surprise.” She said the DOR’s position would put hundreds of millions of dollars of anticipated tax credits at risk. She said it appears to be at odds with the intent of the General Assembly and a recent N.C. Supreme Court decision involving the Internal Revenue Code.
Many believe that without the ability to transfer tax credits in exchange for investment, many solar projects in North Carolina would not have been economically feasible. It is possible some solar projects may have never happened at all. The DOR’s decision could affect other tax credit programs.
Carrington points to a comment from N.C. Chamber General Counsel Ray Starling published last month in the Triangle Business Journal.
“[By] changing the rules of the game on taxpayers after the game was over, the DOR is threatening North Carolina’s favorable tax climate.”