The state has handed out about $1 billion in tax breaks to companies and individuals that invested in solar farms. Now the state tax collector is looking to cancel some of those breaks and collect the money.
Anxiety among tax attorneys and companies that claimed tax credits and their fight with the state Department of Revenue has been burbling for more than a year.
This month, Monarch Private Capital, a tax-credit broker based in Georgia, asked Revenue Secretary Ronald Penny to renounce the department’s position through an administrative process called a “declaratory ruling.”
Monarch Private Capital offers state and federal tax credits to companies and individuals looking to lower their tax bills.
Schorr Johnson, a spokesman for the state Department of Revenue, said in an interview last month and in emails last month and Thursday that state law prohibits the department from discussing tax audits.
“We cannot comment on ongoing audits or any potential litigation,” Johnson wrote Thursday.
The state offered a 35% tax credit to investors in renewable energy projects. The tax credit, along with other state polices encouraging renewable energy, helped make North Carolina one of the top states in the nation in solar farm capacity, The News & Observer has reported.
The renewable energy tax credit ended in 2015, but investors were given a few more years to claim the tax breaks.
Over the last nine years, the state allowed more than $1 billion in tax breaks for investments in renewable energy property, according to Department of Revenue reports.
A September public notice from the tax department said some people who invested in credits through partnerships don’t qualify for tax breaks.
The notice references U.S. Court of Appeals decisions concerning partnerships that invested in historic tax credits in New Jersey and Virginia. The Third Circuit Court decided in 2012 that a technology company was not a legitimate partner in a limited liability company that funded restoration of a historic building in Atlantic City, New Jersey. A Fourth Circuit Court decision in 2011 said that transactions between a partnership and its partners were sales, not investments, and that the investors did not face “true entrepreneurial risk.”
Monarch Private Capital has asked the Department of Revenue for a declaratory ruling that would essentially have the department backtrack on the position it took in its public notice.
In the letter, Joseph S. Dowdy, a lawyer for the company, argues that state tax law and the state constitution govern how the state should treat partnerships and claims for tax credits, not federal court opinions.
“We hope they’ll agree with us that they’ve made a mistake,” Dowdy said in an interview. A ruling from the department can be challenged in Superior Court.
In the Aug. 1 letter asking for the declaratory ruling, Dowdy said investors in Monarch-sponsored partnerships started getting audit notices in January 2018 for tax years 2014-2016, with the focus on tax credit projects.
The letter says that one of Monarch’s CEOs, George Strobel, and two of its lobbyists met with Penny and other tax department administrators in May 2018 to talk about the audits.
“At this meeting, Monarch asked NCDOR’s representatives to explain the agency’s position regarding any claimed problems with the tax credits or the Monarch-sponsored partnership structure,” the letter says.
A second meeting between tax administrators and Strobel, another Monarch officer, one of its lobbyists and a lawyer was held in July 2018, the letter said.
State Board of Elections records show Strobel and the company’s other top executive, Robin Delmer, made significant campaign contributions to GOP lawmakers in the month before and during the legislative session in 2018.
State laws bans lobbyists from giving to legislative campaigns, and it is illegal for PACs to donate during legislative sessions. The state does not prohibit other individuals from donating to legislators while they’re at work making laws.
WRAL first reported that Strobel and Delmer made contributions to Republican legislators and the North Carolina Republican Party during the legislative session 2018 and a week before the session started.
Rep. Jason Saine, a Lincolnton Republican, told WRAL the Monarch executives were interested in a Department of Revenue issue. Sen. Brent Jackson, a Sampson County Republican, told the station that the Monarch donors were interested in solar tax credits.
The company has seven contract lobbyists in Raleigh.
In an interview Thursday, Strobel said his company has not worked on any legislation in two years. He said he could not make public the names of clients who are being audited.
The state started the renewable energy tax credit in 1977 and modified it several times over the decades. It was little used for most of its existence, wrote Jason Hoyle of the Appalachian Energy Center. Interest in the tax credit grew after 2007, when the state passed a law requiring investor-owned utilities to produce 12.5% of their retail sales from renewable sources. In 2009, the legislature changed the law to allow payers of the gross premiums tax -- basically, insurance companies -- to claim the tax credits.
Insurance companies have been some of the biggest beneficiaries of the renewable energy tax credit since 2012.
The News & Observer contacted about a half dozen insurance companies last month, most of them based outside North Carolina, to ask whether they had received audit notices and whether they were challenging the findings.
Only Blue Cross Blue Shield of North Carolina, which received $45.6 million in credits for renewable energy development last year, responded. A spokesman said in an email that the company does not comment on communications with regulatory agencies.
“We have seen the recent reports about others’ experience with the renewable energy development tax credit,” the email said. “We believe that Blue Cross NC is in full compliance with all requirements.”