Louisiana Solar Tax Credit Gets Even Better

When it comes to providing solar energy tax credits at the statelevel, Louisiana arguably has the best deal going in the country.Homeowners who install a qualifying solar panel system or solar waterheater can receive a tax credit worth 50 percent of the first $25,000of the cost of the system. That’s a maximum credit of $12,500. The bestpart? Excess credit is refundable: the Louisiana Department of Revenuewill send you a refund check within a year of receiving your claim.

Compared to similar programs in other states, this is a sweet deal.The arrangement hasn’t been without its flaws, however. As MayaRodriguez at wwltv.com reports, lawmakers recently tweaked the credit to address a minor lacuna that has been gumming up third-party financing:

The state tax credit had already been ineffect for several years. The new act closes a loophole in the law,allowing people other than the homeowner to take advantage of the taxcredit. That could make it easier for homeowners to get financing for asolar powered system, which otherwise can cost thousands up dollars upfront.

The act helps foster a solar leasing business, where aninstaller pays the money upfront, gets the tax credit and a homeownerleases the system back from them.

“You, in essence, pay a bill to them, just like you would pay yourutility bill through Entergy or any other utility,” Von Otnott said.“At the end of the lease, after they’ve made their return oninvestment, you’re allowed to purchase that system for a dollar.”

Before the change in the law, it wasn’t possible for anyone, otherthan the homeowner, to claim the state tax credit. Now, though, the newlaw will benefit not just third parties, but also could be used bydevelopers.

In addition to facilitating solar lease arrangements in the state,the new changes may also improve the prospects of power purchaseagreements (PPAs), which typically transfer the underlying tax creditto third-party financiers in exchange for fronting the cash needed toinstall the solar power system.

Here’s a slightly more detailed explanation of the new provision, enshrined in House Bill 858, from the Database of State Incentives for Renewables and Efficiency (DSIRE):

Louisiana provides a tax credit for the purchaseand installation of solar and wind energy systems purchased andinstalled on or after January 1, 2008. The credit may be applied topersonal, corporate or franchise taxes, depending on the entity whichpurchases and installs the system, but the system must be installed ateither a residence or a residential rental apartment complex to beeligible. HB 858, enacted in July 2009, extended the tax credit totaxpayers that purchase and install systems rather than only the ownersof the residential property. This legislation alsoclarifies that only one credit can be taken per system, so if theproperty is sold, the taxpayer who originally claimed the credit mustdisclose this, as the new owner will not be eligible for another taxcredit on the same system.

The main take aways here: (1) solar panels are relatively expensiveand may still, even in the presence of state and federal tax credit,require considerable sums of money upfront; (2) By emending thestructure of the state solar tax credit, Louisiana is (as far as I cantell) aiming to enable entities with plenty of money (and tax appetite)— like banks and developers — to qualify for the credit. In the end,the move has the potential to free up more cash for solar installationsin LA, which is, in our eyes, a very good thing.

UPDATE: In her article, Ms. Rodriguez states that“the [Louisiana] state tax credit can also be combined with anadditional federal tax credit, which can be as high as 20 percent.”Note that she is likely reporting on an effective tax credit rate. Thenominal rate for the federal renewable energy tax credit is actually 30percent. Read here for more information on federal energy tax credits for homeowners, and read here for more info on federal solar incentives for businesses.

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