IRS Reviews Tax Implications of Value of Solar Tariffs

September 26, 2014 By Linda Hardesty

tax energy manageThe Alliance for Solar Choice (TASC) says that the filing of an Information Letter Request with the IRS this week is drawing attention to the negative tax implications of Value of Solar Tariffs (VOSTs). As a result of the action by an Austin homeowner, the IRS will formally review VOSTs and their impact on taxpayers.

Austin implemented a VOST in October of 2012, and that policy is currently the only choice for homeowners to receive compensation for the solar energy they provide to the grid. Austin can reinstate net metering alongside the VOST to address the tax problem. Net metering allows solar customers to get credit on their utility bills at the retail rate for any excess power their rooftop solar installations send back to the grid.

Under a VOST, solar customers cannot use the power generated by their solar systems. Instead, they must sell all the power their solar systems produce to the utility at a price set by the utility (and often reevaluated on an annual basis). Meanwhile, they must continue to purchase all the electricity they need from the utility.

According to a 2013 legal memo from the national law firm Skadden, Arps, Slate, Meagher & Flom, VOSTs both jeopardize a customer’s ability to claim the 30 percent federal investment tax credit (ITC), and could increase customer’s income taxes.

Through the Information Letter Request, the IRS will make a determination on the impact of VOSTs on income taxes and ITC eligibility. This IRS review will not only impact Austin, but also influence discussions about potential VOSTs in other markets.

Photo: Tax return via Shutterstock

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