Master Thread: Energy products and Tax discussions

[gpez]

I am familiar with the concept and have previously argued that the effect of the extension is that Tesla will likely hold off on planned price reductions that I expected them to implement when the ITC was expected to fall from 26% to 22%. And while we could discuss the impact of the change on pricing and the elasticity of demand in the solar market, the problem is this is not an economics issue any longer - it is a contract issue. Tesla and a customer had an agreement to do a job for a certain amount. The change in the ITC does not change the terms of the contract, particularly since Tesla is clear in the contracts that the customer is responsible for claiming the ITC and Tesla is not involved, nor is it responsible, should the customer fail to qualify (beyond its standard representations that the system being installed is an eligible solar system.)

Whether or not Tesla has ways to get out of the contract may be a question for lawyers, but simply adding more into the permitting bucket, just in response to the ITC, is not acceptable. (And I do note that this assumes that is actually what happened, and it is not that there are other legitimate reasons the cost went up.)

Certainly if the situation was reversed, the friend would ask, because in the reverse case the friend is made monetarily worse off while Tesla is unchanged, but that still doesn't mean Tesla would be obligated to make a change. In any event, had Tesla been upfront about the change, it might have gone better with the customer than what apparently happened.

Agreed 100% that it's a contract and customer service issue. And to be totally fair if I was in his position I'd make the same complaint to Tesla. That said, if suddenly a bunch of people can pay more net because of a subsidy (like the extension of the ITC) you can be assured they'll be the first to raise prices exactly that amount (existing contract concerns notwithstanding of course).

And I disagree with the statement that every penny is lining corporations' pockets. Certainly, companies are aware of these incentives, and they absolutely capture some of the incentive for themselves (which is as expected.) But to suggest every penny is lining their pockets implies that we would have anywhere near such a large solar market without these incentives. I think there is a reasonable discussion to be had over whether the phase-out of the ITC should have been lengthened or is perfectly matched to the pace of innovation (and cost reductions) in the marketplace, but I disagree with the overall characterization of the subsidy.

You're disagreeing with fundamental principles of economics. Every penny is lining corporations' pockets, which incentives more companies and expands the market, but none of it is going to directly reduce the out of pocket cost to customers.

As a thought exercise: what would happen to the marketplace if the exact same subsidy was not paid to the consumer but instead paid directly to the companies providing the solar products and services?

The correct answer is "nothing" which should be indicative as to the true nature of supply side subsidies.

 

[wjgjr]

You're disagreeing with fundamental principles of economics. Every penny is lining corporations' pockets, which incentives more companies and expands the market, but none of it is going to directly reduce the out of pocket cost to customers.

As a thought exercise: what would happen to the marketplace if the exact same subsidy was not paid to the consumer but instead paid directly to the companies providing the solar products and services?

The correct answer is "nothing" which should be indicative as to the true nature of supply side subsidies.

This is not accurate. The amount of the subsidy that ends up with the consumer and the amount that ends up with the company depends on the nature of the demand curve. Only if the demand curve is perfectly inelastic would the company capture the entirety of the subsidy, which the link you cited notes itself. This will also be true if the same incentive was paid as supply subsidy.

 

[gpez]

This is not accurate. The amount of the subsidy that ends up with the consumer and the amount that ends up with the company depends on the nature of the demand curve. Only if the demand curve is perfectly inelastic would the company capture the entirety of the subsidy, which the link you cited notes itself. This will also be true if the same incentive was paid as supply subsidy.

Hey sorry, it's actually the other way around. Suppliers (companies) capture the full subsidy in elastic markets, not the other way around. The solar market, not being a necessity, is extremely elastic.

Education resources for teachers, schools & students | EzyEducation
"The degree of elasticity also affects who benefits from the imposition of a subsidy. The more inelastic the demand curve, the greater the benefit for consumers as a large percentage of the subsidy is passed onto consumers via a lower market price. However, when the demand curve is elastic, the smaller the price fall and the smaller the subsidy gain for consumers as a result of a smaller price fall. Conversely, producers take most of the subsidy benefit when the demand curve is elastic, as they keep hold of much of the cost savings from the subsidy"

Producer Subsidies (Government Intervention) | Economics | tutor2u
"This depends on price elasticity of demand. The more inelastic the demand curve the greater the consumer's gain from a subsidy. Indeed when demand is perfectly inelastic the consumer gains most of the benefit from the subsidy since all the subsidy is passed onto the consumer through a lower price."

I should note too the other link shows an example of how, in practice, even in an inelastic market (such as housing) demand side subsidies are actually supply subsidies.

 

[wjgjr]

Your understanding is backwards. Companies capture the full subsidy in elastic markets, not the other way around. The solar market, not being a necessity, is extremely elastic.

You are correct on my - in shortening my comment (since we are really off topic) I meant to cite your source in reference to elasticity of the supply curve, but in shortening ended up typing demand.

In any event, the company only would capture the full subsidy in a perfectly elastic demand scenario, and I again go back to the point that this is not the case. The issue I originally took (and continue to take) is with the absolute nature of the original statement.

 

[gpez]

You are correct on my - in shortening my comment (since we are really off topic) I meant to cite your source in reference to elasticity of the supply curve, but in shortening ended up typing demand.

In any event, the company only would capture the full subsidy in a perfectly elastic demand scenario, and I again go back to the point that this is not the case. The issue I originally took (and continue to take) is with the absolute nature of the original statement.

I ninja-edited my comment because I re-read it and it came off wrong. Not trying to insult anyone here I also added that the original link I shared is actually showing that even in inelastic markets demand subsidies turn in to supply subsidies.

Even still, solar demand is very elastic meaning that the suppliers are the ones benefiting from subsidies. Even if it weren't elastic it's still likely that suppliers would capture the subsidy as illustrated in the housing analysis link.

 

[wjgjr]

I ninja-edited my comment because I re-read it and it came off wrong. Not trying to insult anyone here I also added that the original link I shared is actually showing that even in inelastic markets demand subsidies turn in to supply subsidies.

Even still, solar demand is very elastic meaning that the suppliers are the ones benefiting from subsidies. Even if it weren't elastic it's still likely that suppliers would capture the subsidy as illustrated in the housing analysis link.

There is no doubt suppliers benefit from the subsidies (and I would also differentiate the analysis of the mature housing market from the growing solar sector,) but they are not the only ones benefiting. In addition to consumers capturing some part of the direct subsidies, they are beneficiaries of the increased investment in the sector, which has reduced prices and increased competition. Indeed, I would argue there is a good argument that what became Tesla Solar would not exist without the ITC (and thus, we would likely be paying the higher prices of legacy installers.) And this is not to mention the significant positive externalities of increased solar that were presumably the goal of the ITC.

 

[gpez]

There is no doubt suppliers benefit from the subsidies (and I would also differentiate the analysis of the mature housing market from the growing solar sector,) but they are not the only ones benefiting. In addition to consumers capturing some part of the direct subsidies, they are beneficiaries of the increased investment in the sector, which has reduced prices and increased competition. Indeed, I would argue there is a good argument that what became Tesla Solar would not exist without the ITC (and thus, we would likely be paying the higher prices of legacy installers.) And this is not to mention the significant positive externalities of increased solar that were presumably the goal of the ITC.

We've likely met an impasse regarding the topic of immediate capturing of the ITC. It's quite certain that the entirety of it goes to the suppliers based on basic economic principles and empirical studies.

If you want to make the claim that subsidizing the suppliers (by whatever method) is a good approach I'd disagree there too. IMO paying large corporations to do something is not an effective use of public policy but rather further entrenches the larger players causing long term detriment rather than increased competition.

 

[jkdman123]

This shouldn't be surprising. If the scenario were reversed and the rebate went away entirely wouldn't your friend be asking for a discount to compensate?

Let's please stop pretending that demand side subsidies somehow change the underlying amount someone is willing to pay and acknowledge that they're actually for the companies that are providing the products and services (Tesla included of course). "Green energy tax breaks!" sound great until you realize every single penny is just lining corporations' pockets.

Sorry. That ridiculous. It wouldn’t be Tesla’s fault if the fed rebate disappeared without warning. Surely some people would cancel their contract because they wouldn’t believe the new increased cost was worth it, but the consumer rebate is transparent to Tesla. Sure, they benefit because more people place orders, but from an individual standpoint, whether you get the rebate or not doesn’t affect their cost. You could not even apply for the rebate in your taxes. They’d never know it and shouldn’t care if you do or don’t.

Haven’t heard back from my friend yet. Will update when I do.

 

[wjgjr]

We've likely met an impasse regarding the topic of immediate capturing of the ITC. It's quite certain that the entirety of it goes to the suppliers based on basic economic principles and empirical studies.

If you want to make the claim that subsidizing the suppliers (by whatever method) is a good approach I'd disagree there too. IMO paying large corporations to do something is not an effective use of public policy but rather further entrenches the larger players causing long term detriment rather than increased competition.

I will agree as to the impasse, but such an absolute statement on economic principles is simply not warranted. Even the graphs in links you provided show that the shifting of the curves provides some benefit to both parties, with the amount of the benefit dependent on the slopes of the curves. Additionally, the focus on that specific aspect also fails to recognize the other benefits of the ITC, as I note above.

As to what is the optimal public policy, certainly there can be debate over various approaches, including other types of subsidies, or a focus on R&D, but I very much disagree that the ITC is worse public policy than having done nothing. As noted above, even the existence of Solar City/Tesla Solar and all the innovation that came with it arguably came about only because of the ITC.

 

[mnsweeps]

For the 26% credit I use 'Qualified Solar Electric Property' line item to enter the total invoice price from Tesla (24 solar panels. 2 Powerwalls etc)

If you incurred any residential property costs during 2020, enter them here.
The costs don't have to be for your main home unless otherwise noted.
Qualified Solar Electric Property:- <Total invoice amount from Tesla>

 

[wjgjr]

For the 26% credit I use 'Qualified Solar Electric Property' line item to enter the total invoice price from Tesla (24 solar panels. 2 Powerwalls etc)

If you incurred any residential property costs during 2020, enter them here.
The costs don't have to be for your main home unless otherwise noted.
Qualified Solar Electric Property:- <Total invoice amount from Tesla>

As always, the best answer if there is any question is to check with a tax expert. In general, unless there was something unusual included in the contract (which seems to be rare for panels) the full cost for the panels and the PWs (including both materials and installation costs) qualifies for the credit under that line item. (I am also assuming that the installation was complete in 2020.)

Just for reference to others, it looks like the IRS published the 2020 form in the last couple days, so https://www.irs.gov/pub/irs-pdf/f5695.pdf now links to the 2020 version. However, at this time, the 2020 instructions have not been published, though I assume it will happen soon.

 

[mnsweeps]

As always, the best answer if there is any question is to check with a tax expert. In general, unless there was something unusual included in the contract (which seems to be rare for panels) the full cost for the panels and the PWs (including both materials and installation costs) qualifies for the credit under that line item. (I am also assuming that the installation was complete in 2020.)

Just for reference to others, it looks like the IRS published the 2020 form in the last couple days, so https://www.irs.gov/pub/irs-pdf/f5695.pdf now links to the 2020 version. However, at this time, the 2020 instructions have not been published, though I assume it will happen soon.

Correct. It was completed in 2020. I will also include cost of main panel upgrade , stucco repair related to it to the total cost.

 

[h2ofun]

Correct. It was completed in 2020. I will also include cost of main panel upgrade , stucco repair related to it to the total cost.

you can include anything your tax person says you can try Only if you audited then will one find out if legal.

 

[wjgjr]

Correct. It was completed in 2020. I will also include cost of main panel upgrade , stucco repair related to it to the total cost.

The only thing that may not be applicable is the stucco repair since it might not be something that was strictly necessary - or, put another way, if you should have done the stucco repair anyway and just included it in that contract, it probably does not quality. On the other hand, if it was necessary for wiring or installation to cut into the stucco and then repair it, that probably would qualify. Again, a tax expert would probably be better able to answer that question.

I am assuming the main panel upgrade was a requirement for the solar, as that is typically why it is done, but it also would not qualify if it was just done at the same time for convenience.

 

[mnsweeps]

The only thing that may not be applicable is the stucco repair since it might not be something that was strictly necessary - or, put another way, if you should have done the stucco repair anyway and just included it in that contract, it probably does not quality. On the other hand, if it was necessary for wiring or installation to cut into the stucco and then repair it, that probably would qualify. Again, a tax expert would probably be better able to answer that question.

I am assuming the main panel upgrade was a requirement for the solar, as that is typically why it is done, but it also would not qualify if it was just done at the same time for convenience.

Tesla wanted to upgrade main panel else they couldn't install PW and solar panels. Stucco repair was caused due to main panel upgrade.

 

[RKCRLR]

There was some questions raised if SGIP incentives were taxable. According to this they shouldn't be:

U.S.C. Title 26 - INTERNAL REVENUE CODE

However, some were concerned that you may still receive a 1099 for the incentive.

I asked the PG&E SGIP department if I should expect to receive a 1099 for my incentive.
They responded:
"It depends on how your application was submitted. If you are tax exempt, you will not receive a 1099."

So I asked Tesla how they filled out my incentive form.
They responded:
"Thank you for your email. We always fill out our customer applications with the “Exempt” status. That means you will not get a 1099."

So those of us receiving a SGIP incentive from PG&E should not expect a 1099.

 

[wjgjr]

Tesla wanted to upgrade main panel else they couldn't install PW and solar panels. Stucco repair was caused due to main panel upgrade.

Seems like the stucco work was really part of the main panel upgrade, and it sounds like the panel upgrade was necessary. But, again, a tax expert would confirm and actually stand behind you on the chance there was an audit.

 

[jjrandorin]

There was some questions raised if SGIP incentives were taxable. According to this they shouldn't be:

U.S.C. Title 26 - INTERNAL REVENUE CODE

However, some were concerned that you may still receive a 1099 for the incentive.

I asked the PG&E SGIP department if I should expect to receive a 1099 for my incentive.
They responded:
"It depends on how your application was submitted. If you are tax exempt, you will not receive a 1099."

So I asked Tesla how they filled out my incentive form.
They responded:
"Thank you for your email. We always fill out our customer applications with the “Exempt” status. That means you will not get a 1099."

So those of us receiving a SGIP incentive from PG&E should not expect a 1099.

SGIP equity and resiliency, correct? ( I am 100% sure this is what you are talking about, but as I said in another thread, "most" of the people here dont qualify for that, and its different than "SGIP" which many more people may qualify for, so it would be very (very) helpful to mention which one is being discussed, when stuff like this is posted)

 

[mnsweeps]

There was some questions raised if SGIP incentives were taxable. According to this they shouldn't be:

U.S.C. Title 26 - INTERNAL REVENUE CODE

However, some were concerned that you may still receive a 1099 for the incentive.

I asked the PG&E SGIP department if I should expect to receive a 1099 for my incentive.
They responded:
"It depends on how your application was submitted. If you are tax exempt, you will not receive a 1099."

So I asked Tesla how they filled out my incentive form.
They responded:
"Thank you for your email. We always fill out our customer applications with the “Exempt” status. That means you will not get a 1099."

So those of us receiving a SGIP incentive from PG&E should not expect a 1099.

Good info. I guess this applies to any utility company including SCE.

 

[RKCRLR]

SGIP equity and resiliency, correct? ( I am 100% sure this is what you are talking about, but as I said in another thread, "most" of the people here dont qualify for that, and its different than "SGIP" which many more people may qualify for, so it would be very (very) helpful to mention which one is being discussed, when stuff like this is posted)

Yes, I'm getting an Equity Resiliency SGIP incentive. However, the tax code should apply to any energy conservation incentive from a utility company.