Georgia company sues North Carolina over denied tax credits for solar energy

A Georgia tax-credit broker is suing the state Department of Revenue over tax credits it says its customers were denied.

Monarch Tax Credits said in its lawsuit that the state tax department is misapplying federal law and denying investors money they are owed under renewable energy, historic redevelopment, and mill restoration tax credit programs.

The tax department “is initiating burdensome and needlessly drawn-out audits of Monarch’s customers,” the lawsuit said. In cases where the department issued decisions, taxpayers were denied credits in an attempt “to adopt and misapply federal law,” the lawsuit said.

The audits have hurt Monarch’s business, the lawsuit says.

The state tax department is auditing entities that claimed solar energy tax credits, The News & Observer previously reported.

The lawsuit says that the department started auditing all or nearly all of the investors in Monarch partnerships in January 2018.

The tax department published a notice in September 2018 saying some of the investors who claimed money through partnerships did not qualify for tax credits. The decision could cost companies that claimed the credits hundreds of millions of dollars.

The state used to offer 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 program ended in 2015, but taxpayers were given a few more years to take the tax breaks.

The Department of Revenue notice referenced two U.S. Court of Appeals cases concerning partnerships that invested in historic tax credits in New Jersey and Virginia. A lawyer for Monarch said in an August interview that the federal court opinions don’t make a difference to North Carolina’s credits, and the tax department should consider only state law and what the legislature intended.

Department of Revenue spokesman Schorr Johnson said in an email Monday said the department could not comment on audits or lawsuits.

A letter from the assistant secretary for tax administration, Anthony Edwards, to Monarch lawyer Joseph Dowdy said the company ignored guidance the department provided as long as six years ago. The letter is an exhibit in Monarch’s lawsuit.

Edwards’ letter referenced three letters, two from 2013 and one from 2015, from the Revenue Department to a company lawyer. The 2013 letters, which are also exhibits in the lawsuit, said the department would use the federal definition of “partner” unless the legislature decided something different. These communications are called “private letter rulings” where the tax department clarifies tax law based on sets of facts laid out by the taxpayer.

The company, then called State Tax Credit Exchange, “ignored the clear guidance in private letter rulings and failed to seek additional clarification,” Edwards wrote.

In the lawsuit, Monarch said the tax department knew what the company was doing and didn’t raise any objections.

In the lawsuit, Monarch described how it created business partnerships for investments in renewable energy, historic redevelopment and mill rehabilitation.

The lawsuit said that Monarch partnerships invested in more than 80 renewable energy and 15 historic and mill redevelopment projects in the state. The renewable energy projects represented a minimum of $900 million in investments, the lawsuit said.

The case has been assigned to North Carolina Business Court, according to a press release.

This story was originally published September 30, 2019 at 7:01 PM with the headline "Georgia company sues North Carolina over denied tax credits for solar energy."