Nearly 2,000 blocked from state solar tax credit

Casey Jones was counting on a 10% state tax credit to offset the cost of solar systems she installed at her Clovis home and guest house last year, but when she applied for the rebate, the state said the program was out of money.

That’s because the state allotment for the tax incentive is currently capped at an annual ceiling of $12 million, and rebates are awarded to homeowners who apply for it on a first-come, first-serve basis. That means when the money runs out in any given year, all remaining applicants are simply locked out, with no recourse to reapply the following year, because the tax credit can only be approved in the same year a solar installation is fully permitted.

That’s a “Catch-22” that has left more than 1,400 homeowners stranded between 2020 and 2022, and about 500 more who are likely to be left out again this year, according to the Energy, Minerals and Natural Resources Department, or EMNRD, which oversees the program.

For the semi-retired Jones, 71, losing out on the credit may force her back to work to pay off the 30-year loan she acquired for her two solar systems, which together cost $36,000.

Jones doesn’t have enough tax liability to access the 30% federal tax credit available for solar systems, so she was counting on the $3,600 state credit — which the state converts into a simple refund for applicants who don’t have tax liabilities — to help meet a $9,000 “balloon payment” that comes due on her loan next year. By meeting next year’s up-front loan cost, Jones can pay down the total amount owed to lock in a $98 monthly payment for all remaining years.

“For me, $36,000 is a really gargantuan investment, because my income is too low to have tax liability to get the federal tax credit, and I was really counting on the state tax credit to do this,” Jones told the Journal. “I wasn’t going to purchase the solar systems without the state credit. Now, I’m tossing and turning every night trying to figure out what to do.”

Jones manages occasional work-from-home contracts as a part-time website developer and writer to supplement her social security income. But now she may need to take on a regular job to save up the money for next year’s balloon payment, she said.

She might have gotten her application in much sooner in 2022 to be higher on the wait list for state credit approval, but the solar company that installed her systems never told her that was necessary, and the EMNRD’s website application instructions led her to believe erroneously she could apply for the credit this year to be eligible to receive the refund in 2023.

That misinformation raises a broad range of other problems that have marred the state incentive initiative since 2020, when the State Legislature approved the current tax-credit program.

Industry leaders and homeowners say the requirements to apply for the credit are excessive, EMNRD website instructions are confusing, and the online application process itself is plagued by software bugs and complexities that obstruct users and often delay application completion. That significantly complicates things for well-intentioned solar-installation companies guiding customers through the process, at times leading to holdups that offset timely application submission, which, in turn, limits the customer’s chance of getting the credit before the annual state money for the program runs out.

Albuquerque homeowner Pat Baca, for example, missed out on a $2,500 state credit for the $25,000 rooftop system that Affordable Solar — the state’s largest installation company — put on his Northeast Heights home last year. That’s because EMNRD website instructions indicated that he should wait until Public Service Co. of New Mexico actually turns his system on — which happened early this year — to then receive a certificate showing the date it came online for submission to EMNRD.

But when he applied for the state tax credit, EMNRD told him he should have applied for the credit once the system was fully permitted, which happened last year, rather than wait for the utility to actually bring the system online.

“It’s first-come, first-serve, and we got left out,” Baca told the Journal. “The feds paid off, but the state never did. We did all the paperwork with Affordable Solar — we worked together on it — but the state said they ran out of money and just put us off.”

EMNRD staff say they are working diligently to improve the program website to provide all the information applicants need and to ease the online process.

State Democratic Sen. Mimi Stewart, who is the primary legislative advocate behind the state incentive program, says she will seek to significantly raise the annual monetary cap — possibly up to $20 million — in next year’s legislative session to ensure all taxpayers get the credit going forward.

Some negligent installersMany homeowners recently interviewed by the Journal also lost out on the state tax credit because of poor customer service, and in some cases deceptive marketing practices, by at least one solar company, Florida-based Meraki Solar Solutions. Customers believe Meraki and possibly other out-of-state companies either don’t themselves understand the application process and misinform customers, or they simply leave it to homeowners themselves to gather all needed information and apply for the incentive without any orientation on how to do that.

Julia Diaz and her husband, for instance — who own a home in Southeast Albuquerque — never got the $3,100 state tax credit for a $31,000 system they bought from Meraki, because the company never even mentioned the state program to them.

“When we did find out about it and tried to apply, it was too late,” Diaz recently told the Journal.

In contrast, Jones, who bought her solar systems from Albuquerque-based New Mexico Solar Group, depended on company promises that she would get the state tax credit. But she said it was like “pulling teeth” to get all the documentation needed from that company to apply, and even then, the company repeatedly provided incorrect documents and misinformed her about the process.

“If I had known that I needed to apply for the tax credit last year and not wait until my systems were actually turned on this year, I would have screamed at the company to get all the documents I needed by last December,” Jones said.

NM Solar Group unexpectedly went out of business in August without providing any compensation for many customers who made partial or full payments on solar systems that the company never installed.

Attorney General Raul Torrez filed a lawsuit against that company in late August for consumer fraud. The AG’s office also opened an investigation into Meraki Solar Solutions and another installation firm, Titan Solar, for alleged unfair and deceptive marketing practices.

In an Aug. 17 letter to the AG, Gov. Michelle Lujan Grisham specifically asked Torrez to investigate nefarious practices by some solar companies regarding the state tax credit, based on complaints her office has received from solar customers, and from reports by EMNRD.

In some cases, the letter said, solar companies suggest that customers are “guaranteed” to receive the tax credit, when, in fact, they are not due to limitations of state funds.

“(EMNRD) also reports that constituents frequently do not receive the basic documentation from solar installers that is needed to issue the tax credit certification, causing applications to be rejected as incomplete,” the letter said. “This can result in frustrating delays, or in the the worst cases, inability to claim the tax credit. Furthermore, when constituents try to contact certain installers to fill gaps in their paperwork in order to resubmit their tax credit applications, they are unable to get a response from the companies.”

“Good guys” vs. “bad actors”Industry leaders say most local companies diligently work with their customers to gather all needed documentation and navigate the application process, guiding their clients through to the end. Affordable Solar, for example, incorporates that directly into the full suite of services it provides clients, said General Manager Wayne Stansfield.

“We do a high amount of consultation with the customer and urge them to get their application in immediately after we’ve installed the system and close out the process,” Stansfield told the Journal.

Likewise, two other homegrown New Mexico companies — Positive Energy Solar and OE Solar — say they work with customers through the entire process, and virtually all clients who apply for the tax credit do receive it. The few customers who don’t are usually tripped up by complications in the application process itself, they say, and by the annual monetary cap on the incentive program.

There will always be “bad actors” who take advantage of consumers, said OE Solar founder and CEO Adam Harper.

“Some people will always break the rules, and there’s nothing we can do about that,” Harper told the Journal. “What the AG is doing is very good, because some of those folks need to be in jail. If you take someone’s money and don’t provide the service or product promised, that’s stealing — it’s a crime — and there needs to be consequences.”

But for those companies who do follow the rules and take care of their customers, there are still many hurdles to overcome in the state incentive program that make it difficult to navigate, Harper said. The challenges are significant enough that for many of OE Solar’s commercial customers who install rooftop systems on their businesses, the company advises them not to bother seeking the tax credit.

Like residential systems, commercial solar installations are eligible for the 10% tax credit. But everyone is limited to a maximum $6,000 tax credit, or refund, and since commercial systems are usually much larger and more expensive than residential ones, the total state rebate offsets only a minor part of total costs.

“The process creates more headaches than it’s worth for my larger customers, and I’ve told many of them that if they don’t actually need the tax credit, then it’s not worth jumping through all the hoops,” Harper said. “To be honest, like 95% of our commercial clients don’t even go after it.”

The application process generally requires a skilled solar professional to successfully complete, said Positive Energy Solar co-founder and President Taiyoko Sadewic.

“It’s an onerous process and no small feat to gather the needed documents and meet all the requirements,” Sadewic told the Journal. “If the consumer is left to do it on their own, it’s very complicated and very confusing and it will trip them up.”

Given all the difficulties expressed by companies and taxpayers, EMNRD is working now to improve the online application portal, said EMNRD spokesman Sidney Hill. It’s updating the website, providing better and easier-to-understand information guides, and working out some kinks in the software system.

Improving the processEven so, the process can still be complicated, because there are many requirements taxpayers must meet to be eligible for the credit, said Jeremy Lewis, EMNRD’s deputy director for the Energy and Conservation Management Division. That’s because the state law governing the incentive program requires extensive documentation to eliminate any possibility of tax fraud.

“The Legislature set it up this way — almost like a ‘pre-audit,’ so you’re not just checking a box — to make sure no one is duping the system,” Lewis told the Journal. “There is an onerous list of documents and requirements. It’s a high bar.”

Those requirements were written into the law when the Legislature first established the tax credit in 2007, Lewis said. That incentive remained in place until 2016, when it expired.

But in 2020, the Legislature restarted the incentive program, with most of the original requirements for eligibility unchanged.

“I was here in 2007, when the application process was all done on paper, and we had the same complaints back then — that there were lots of requirements,” Lewis said. “Today we’re getting the same complaints, so we’re working with our IT department to make the system better.”

That includes a list of required documents that’s now spelled out in clear and concise guidelines, links to full program explanations, and step-by-step instructions on how to apply and complete the process.

EMNRD is also stepping up its outreach efforts to inform solar companies and taxpayers about the process and any changes that get made, Hill said.

Minimal outreach about changes made by the Legislature last year on when to apply for the tax credit apparently created problems for many applicants, such as Jones and Affordable Solar customer Baca. Previously, taxpayers were required to wait until receiving an “interconnect agreement” from the local utility, which indicates that the system has actually been turned on.

Under the 2022 legislative change, however, taxpayers are now instructed to immediately apply when they receive an official inspection permit after a system is installed, which shows that it’s fully up to code. But EMNRD didn’t post that change on its website until July, when it uploaded the newly revised information guides and instructions.

Hill said a public notice about the change was sent out.

“Maybe it wasn’t as widely disseminated as it needed to be,” Hill told the Journal. “So we’re trying to do a better job now with outreach about updates to the program going forward.”

Increasing the capEMNRD, industry leaders and taxpayers like Jones all agree that the biggest problem for accessing the solar credit is the annual $12 million ceiling on money available for the program.

In fact, when the Legislature reinstated the tax credit in 2020, it set an annual $8 million cap. But about 700 homeowners were locked out in 2021 after the ceiling was reached, encouraging the Legislature to increase the cap to $12 million last year.

Now, even with the increase, another 400 homeowners like Jones and Baca were left out again for 2022. And, EMNRD estimates at least 125 more people didn’t even apply for the credit because the agency announced that the cap had been reached.

Lewis called that the elephant in the room. “From my perspective, the easiest fix is to increase the cap to $20 million, which should cover all the demand so that nobody gets eliminated from receiving the tax credit,” he said.

Stewart — who sponsored the initial bill that created the solar incentive program in 2007 and the bill to reinstate it in 2020 — agrees.

“The one main thing we should do is just increase the amount in the pot,” Stewart told the Journal. “There’s certainly not enough money available now for everyone who applies to get the credit, and I’m thinking $20 million is needed. I will introduce legislation in the upcoming session.”

Some industry leaders suggest reinstating a “rollover clause,” which was included in the program that expired in 2016, allowing credit recipients whose tax liability was less than their approved rebate to roll over into following years to get the remainder of the credit.

But the current program eliminated that rollover eligibility, instead turning the tax credit into a “refundable” rebate, so that if the credit exceeds an applicant’s tax liabilities, the remainder is paid out as a direct reimbursement. That also extended program benefits to low-income homeowners like Jones who have limited or no tax liabilities, because they can now receive the full credit as a refund.

But reinstating the rollover clause can create significant problems, according to the state Tax and Revenue Department.

“It can create a large backlog, meaning taxpayers may end up having to wait a couple of years before they actually receive their credit,” department spokesman Charlie Moore told the Journal. “It also makes the administrative process more difficult by adding complexity to the process. We think a better approach is for the Legislature to revisit the credit cap and decide if they want more solar tax credits to be paid out.”

Meanwhile, even if the credit cap is increased again, that won’t help the nearly 2,000 credit applicants like Jones who missed out on the incentive, and it’s unclear if the Legslature will consider measures to make them whole.

“It’s not fair,” Jones said. “And it’s not just me. Many others have been affected by this too.”