California Continues Energy Tax Credits
The state solar tax credits have not--repeat, not --ended.
Two bills signed by Gov. George Deukmejian went into effect Thursday to extend the credits, though with many significant changes, mostly lowering the amounts. The credits in question are for solar energy systems, wind energy systems and energy conservation measures. The bills’ author is state Sen. Alfred E. Alquist (D-San Jose).
The credits are not income tax “deductions,” subtracted from the income before computing the tax. After the taxpayer has taken all the deductions and computed the tax, the credits are subtracted directly from the amount of tax due.
Sue deWitt, executive director of the California Solar Energy Industries Assn. (CAL-SEIA), said in Sacramento that the extension of the state credits should help solve a problem that has the solar industry worried: pressure tactics by some salespeople for some solar firms who misinform prospective customers about the credits’ cut-off, both state and federal, in an attempt to stampede people into buying immediately.
The federal credits are effective until Dec. 31; their extension is under debate in Congress.
The state Energy Commission’s announcement said the new legislation will “reduce substantially the total amount of credits which can be claimed by taxpayers in 1985 and subsequent years.” But De Witt commented, “They don’t change the net credit for the typical consumer.”
Both are right; the commission was referring to the whole package while deWitt’s “typical consumer” is the purchaser of a solar system for an existing single-family home.
Under the law until last week, the single-family residential credit was 50% of the cost of the system less any allowable federal credit, which is 40%, so the generally used state credit was 10%. Under the present law, the state credit is 10% regardless of any federal credit.
There is a difference, though. Under the old law the maximum credit was $3,000, under the new it is $1,000.
Other changes for solar systems include those for new single-family homes, formerly 15% with a maximum of $3,000 and now 10% with a $1,000 maximum. Those for multifamily residences, formerly 50% per dwelling unit less any 15% federal credit taken, meaning a net state credit of 35% in most cases, with a maximum of $3,000 per unit, have been changed to 25% of total cost, no longer per-unit and with no maximum. Credits for commercial projects are unchanged, 25% with no maximum.
Credits are also given for wind energy (generators driven by windmills). The credit for single-family homes was the same as for solar systems, 50% less the 40% federal credit, usually coming to 10%, with a $3,000 maximum; it now is a straight 10% regardless of federal credits with a maximum of $1,000.
The credit for commercial wind-energy installations used to be 25% with no maximum. The new credits are divided into three categories according to the dates the installation is started and finished; information about them should be got directly from the commission or CAL-SEIA.
The commission noted that the tax credit expires on Dec. 31, 1986, but if a taxpayer has begun construction of, or made expenditures for, the acquisition or installation of a solar or wind system by Oct. 31, 1986, and finishes it by June 30, 1987, the tax credit can be taken in 1987.
Tax credits for energy conservation measures (things like insulation or weatherstripping) were 35% less the 15% federal credit if it was taken, or 20% as a general thing, with a maximum credit of $1,500. Under the new rules the credit is a straight 10% regardless of the federal credit and the maximum is $750. The eligibility of ceiling insulation and some other measures continues through 1986, that of all others expires at the end of this year.
Credits for multifamily residential and commercial projects are divided into categories by start-finish dates and the best sources for information are the commission and CAL-SEIA.
Both organizations have hot lines. The commission’s is (800) 952-5670 or (800) 952-5671; CAL-SEIA’s is (800) 225-7799.
As mentioned before, the federal tax credits will be in force until the end of the year. The national Solar Energy Industries Assn. is fighting to keep them from just dying at that time by pushing legislation to phase them out gradually over five years.
Along with its warning against succumbing to pressure tactics by high-presure salesmen, coupled with a statement of the facts to help one avoid believing misstatements about the expiration dates of the tax credits, CAL-SEIA offered some tips on how to avoid being taken in by other ploys:
Gifts and rebates often aren’t what they seem; they must be deducted from the contract price before calculating the credits and some types may have to be declared as taxable income.
The association also advised that anyone considering buying a solar system get and compare three bids for the job--the same advice given by just about every organization of contractors in any field.
Robert Pelikan, CAL-SEIA president, warned, “There are many people getting into the industry this year just to take advantage of the ‘last chance’ selling technique.
“This is particularly bad because when the credits are extended customers may have lost faith in the integrity of the industry and we don’t want to see a few bad companies tarnish the reputation of a very professional industry.”
Returning to Sacramento, the reason that two bills were necessary gives an interesting sidelight on the way legislatures work. After the first bill, S B 1079, was passed, it was discovered that the effective dates of two categories of credits had been transposed in the transcription of a particularly long and involved committee hearing--something that really isn’t too hard to understand.
But the only, or at least the quickest, way to correct the error at that point was to pass another bill, S B 125, changing the first bill. So the meat of the measure is in 1079 but 125 overrides it on any point where there is an error. Such glitches are not uncommon, at least they occur often enough that there is a name for the follow-up measure: it’s called a “clean-up” bill.
