By Mitch Kokai, Carolina Journal

The N.C. Department of Revenue faced a legal setback last month in an ongoing fight over renewable energy tax credits. The state's top administrative law judge rejected the department's attempt to deny credits to a renewable energy investor.

The decision from Chief Administrative Law Judge Donald van der Vaart arrived Sept. 23 in a case pitting Integon National Insurance Company against the Revenue Department.

Integon had claimed a $1.8 million tax credit in 2016 for investments in renewable energy property. In 2020, after an audit, the Revenue Department disallowed the credit.

Integon is one of multiple renewable energy investors challenging similar rulings from Revenue staffers. Lawyers involved in a separate ongoing case from the N.C. Farm Bureau Mutual Insurance Company cited van der Vaart's decision in their court filings.

"Unable to develop expensive renewable energy generation under North Carolina's least-cost utility statutory structure, North Carolina's legislature took several legislative actions to encourage private investment in renewable energy," wrote van der Vaart, a former secretary of the N.C. Department of Environmental Quality. Van der Vaart is also a former senior fellow at the John Locke Foundation, which oversees Carolina Journal.

"Laws providing for various tax incentives and renewable energy credits were passed that promoted development of renewable energy beginning in 1999," van der Vaart added. "In 2009 additional legislation was passed including, importantly, a specific provision to encourage insurance companies to invest in renewable energy."

"By 2015 investments had soared, but the legislature extended the tax credit scheme for another year," he wrote.

The Revenue Department spelled out guidelines for investment structures that would qualify for the credits. There was no indication that the department would use provisions of federal law that might disqualify investors from earning credits, according to van der Vaart's decision.

"All that changed in 2018 when DOR inexplicably and perhaps whimsically reversed its position for the first time," van der Vaart wrote. "Now citing Federal anti-abuse tax provisions, DOR denied [Integon] tax credits obtained for doing precisely what the legislature meant for insurance companies to do — invest in renewable energy. To DOR, at least in 2018, investing in solar power was abusive and should be disallowed."

The judge also noted the Revenue Department's changing stance on Integon's legal challenge itself.

"Less than three months ago DOR moved for summary judgment against [Integon], but on Sept. 13, 2021, DOR again reversed itself," van der Vaart wrote. The department indicated in its later filing that it "did not dispute" Integon's argument. Revenue determined that the company was entitled to use its tax credits.

"After three years of costly litigation and potential harm to future investments in North Carolina renewable energy projects, DOR is simply asking for this case to go away," the judge wrote.

Instead of allowing the Revenue Department to back out of the case, van der Vaart ruled in favor of Integon.

Carolina Journal has reported on the renewable energy tax credit dispute since 2019. At the time, critics of the Revenue Department's 2018 policy change estimated that as much as $500 million in tax credits could be jeopardized.

On Sept. 27, 2019, one day after a lawsuit was filed in connection with the dispute, Gov. Roy Cooper attended a meeting of his Climate Change Interagency Council in Raleigh. The group heard an update on Cooper’s N.C. Clean Energy Plan. Among its goals: “significant expansion of solar and other renewable energy sources,” as CJ reported.

The Greensboro News and Record's editorial board noted the interesting timing. While praising Cooper for “trying to make North Carolina a leader in sensible clean-energy policy,” the newspaper added, “Too bad his Department of Revenue doesn’t seem to have gotten the memo.”

The newspaper’s editors agreed with the plaintiff in that case that the department is “in effect making policy” that “seems to go against the intent of the General Assembly” and a recent state Supreme Court ruling. “The Revenue Department is also unfairly changing the rules on investors who acted in good faith, in a move that will make it tough for future clean-energy projects here to find financial backing.”

The Revenue Department could appeal van der Vaart's ruling to Wake County Superior Court.