IRS to review Value of Solar Tariffs in Austin, Texas

An Information Letter Request filed with the U.S. Internal Revenue Service (IRS) by a homeowner in Austin, Texas, is drawing increasing attention to the apparenty negative tax implications of the city’s Value of Solar Tariffs (VOSTs) scheme.

As a result of the request, the IRS will formally review VOSTs and their impact on taxpayers, according to rooftop solar advocacy group Alliance for Solar Choice.

Austin’s VOST scheme, which it implemented in 2012, is currently the only choice for homeowners to receive compensation for the solar energy they provide to the grid. The Alliance says Austin can reinstate net metering alongside the VOST to address the tax problem. Net metering would allow 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, the group adds.

Under the VOST policy, 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). At the same time, they must continue to purchase all their electricity from the utility just like homeowners who do not have solar power. Utilities support VOSTs over the widely effective net metering policy, the Alliance says.

The group cites a 2013 legal memo from national law firm Skadden, Arps, Slate, Meagher & Flom that argues VOSTs both jeopardize homeowners’ ability to claim the 30% federal investment tax credit (ITC) and increase their income taxes.

"VOST schemes expose unassuming homeowners to thousands of dollars in additional taxes," said Bryan Miller, co-chairman of The Alliance for Solar Choice. "Austin can resolve this tax burden quickly and easily by making the VOST optional and giving homeowners the choice to utilize net metering alongside it."

The IRS is now expected to 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 major U.S. solar markets including California and New York," the Alliance points out.

Net metering exists in 43 U.S. states, and polls across the country show overwhelming support for the policy, the group adds.