Note: The Hawaii Department of Taxation issued temporary administrative rules in November 2012 for photovoltaic systems installed on or after January 1, 2013. A formal rulemaking is underway. See "Tax Information Release 2012-01" for supplemental information. Furthermore, the Hawaii Department of Taxation issued Tax Announcement 2012-14, which provides detailed information for how to determine that a system is "placed in service." This is important for claiming tax credits on systems "placed in service" in 2012.
Originally enacted in 1976, the Hawaii Energy Tax Credits allow individuals or corporations to claim an income tax credit of 20% of the cost of equipment and installation of a wind system and 35% of the cost of equipment and installation of a solar thermal or photovoltaic (PV) system.*
For solar thermal energy systems, the maximum allowable credits are as follows:
- Single family residential property is eligible for a credit of 35% of the actual cost or $2,250, whichever is less;
- Multi-family residential property is eligible for a credit of 35% of the actual cost or $350 per unit, whichever is less; and
- Commercial property is eligible for a credit of 35% of the actual cost or $250,000, whichever is less.
For photovoltaic systems, the maximum allowable credits are as follows:
- Single family residential property is eligible for a credit of 35% of the actual cost or $5,000, whichever is less; if all or part of the system is used as a substitute renewable energy technology for the solar water heating requirement for new residential construction, the credit shall be reduced by thirty-five per cent of the actual system cost or $2,250, whichever is less;
- Multi-family residential property is eligible for a credit of 35% of the actual cost or $350 per unit, whichever is less; and
- Commercial property is eligible for a credit of 35% of the actual cost or $500,000, whichever is less.
For wind powered energy systems the maximum allowable credits are as follows:
- Single family residential property is eligible for a credit of 20% of the actual cost or $1,500, whichever is less; if all or part of the system is used as a substitute renewable energy technology for the solar water heating requirement for new residential construction, the credit shall be reduced by twenty per cent of the actual system cost or $1,500, whichever is less;
- Multi-family residential property is eligible for a credit of 20% of the actual cost or $200 per unit, whichever is less; and
- Commercial property is eligible for a credit of 20% of the actual cost or $500,000, whichever is less.
For a system that is business property, it is important to note that the costs that exceed the amount allowable for the maximum energy tax credit may be used for the Capital Goods Excise tax credit. In addition, for taxable years beginning after December 31, 2005, the dollar amount of any utility rebate must be deducted from the cost of the qualifying system and its installation before applying the state tax credit.
A new provision was added to the tax credits in June 2009, with the passage of SB 464. This legislation, effective July 1, 2009, allows the tax credit to be refundable under certain conditions. For solar energy systems, a taxpayer can reduce the eligible credit amount by 30%. If this reduced amount exceeds the amount of income taxes to be paid by the taxpayer, the excess credit will be refunded to the taxpayer. For renewable energy systems, the tax credit may be refunded to certain qualified taxpayers, including taxpayers whose entire income is exempt or whose adjusted gross income is $20,000 or less (or $40,000 or less if filing jointly).
Background:
Since originally enacted in 1976, the Hawaii Energy Tax Credits have been amended several times. As a result of SB 855 in 2003, the tax credits were revised and extended to the end of 2007. SB 3162 of 2004, allowed for a credit that exceeds the taxpayer's income tax liability to be carried forward to subsequent years until exhausted. HB 2957, enacted in June 2006, removed the credit's sunset date, increased the maximum credit for some applications, and eliminated the provision that required new federal tax credits to be deducted from the actual cost before calculating the state tax credit. SB 644 discontinued the personal tax credit for solar water heating installations on new home construction after December 31, 2009. This legislation also disallowed residential home developers to take the tax credit for solar water heating installations in 2009.
In 2010, the Hawaii Department of Taxation issued several guidance documents after it became evident that tax payers were applying different definitions to the term "system," when it came to PV systems. This has relevance since the tax credit cap depends on this definition of a system. In 2010, the Department of Taxation focused on micro-inverters and emphasized in the guidance that the number of inverters does not determine the number of systems; rather, the number of connections to the electrical system determines the number of systems. In late 2012, the Department of Taxation issued new temporary administrative rules for installations placed in service on or after January 1, 2013. These temporary administrative rules address the definition of the PV "system" for purposes of calculating the tax credit. Now the tax credit is based on the total output capacity of the equipment instead of number of connections to the electrical system.
* The Hawaii Department of Taxation issued Temporary Administrative Rules in November 2012, applicable to systems installed and placed into service on or after January 1, 2013. These rules clarify how to calculate the tax credit. For residential installations, a "system" must have the capacity to produce 5 kilowatts (kW). There can be multiple systems installed, but each must meet the total output capacity of 5 KW before any additional tax credit may be claimed. A tax payer may claim a pro-rated amount of credit for one system that does not meet the total output capacity threshold in the case of multiple systems being installed on a single property. For commercial installations, a "system" must have the capacity to produce 1,000 kW. There can be multiple systems installed, but each must meet the total output capacity of 1,000 kW before any additional tax credit may be claimed. A tax payer may claim a pro-rated amount of credit for one system that does not meet the total output capacity threshold in the case of multiple systems being installed on a single property. For multi-family residential, a "system" must have the capacity to produce 0.360 kW per unit per system. In all installation types (residential, commercial, multi-family residential) if the total output capacity requirement is not met, the tax credit may be calculated on the one and only PV system installed. See the Temporary Administrative Rules for clarifying example calculations.
