Utahns may be claiming more tax credits than they actually earn, an audit found — possibly costing the state more than $1 million over the past five years.
A report from the state’s legislative auditor, released Tuesday, detailed these “discrepancies.”
For example, Utah businesses claimed Commercial Renewable Energy Systems Tax Credits worth more than $12.4 million between 2011 and 2015. But at least $500,000 of these credits were not authorized by the state’s energy development office, which administers the program.
Similarly, the Division of Air Quality approved 247 residents’ claims for the Clean Fuel Vehicle Tax Credit in 2015; 645 Utahns went on to claim the credit on their 2015 tax returns, leading to a discrepancy of more than $500,000.
The audit found three additional energy-related tax credits with similar discrepancies.
Deanna Herring, one of the audit’s authors, said it was not clear whether the discrepancies were a result of Utahns claiming tax credits inappropriately, or whether the claims were held over from previous years. It is also possible the unapproved claims were filed erroneously. Herring said sorting out the situation would require an audit of each tax return that claimed one of the credits in question.
Most of these credits don’t require confirmation of approval in tax returns, Herring explained. Utahns are supposed to obtain approval to take a credit, then keep the records in case proof is required for an audit of their tax returns.
Herring recommended that the Legislature consider new controls, such as requiring state agencies to provide to the Utah State Tax Commission lists of residents approved to take credits. This requirement would make auditing the inconsistent tax credits easier, she said.
The need for better data reporting was a theme throughout the audit, which was requested by the Legislature’s Public Utilities, Energy and Technology Interim Committee in October 2016. The committee indicated that it wanted more information on expenses associated with the state’s energy incentives programs after gradually coming to agree that it was time to phase out the state’s tax credits for rooftop solar, which it estimated had cost the state $20 million that year.
The resulting audit found that Utahns or companies in Utah claimed more than $74 million through seven energy-related tax credits over five years. More than half of these funds — $45.7 million between 2011 and 2015 — went to the state’s oil and gas industry.
On the other hand, the bulk of the energy-related tax credits claimed on individual, rather than corporate, returns supported renewable projects.
However, the bulk of the state’s energy incentives funding — about $439 million — comes from the revenues of Utah’s regulated utilities, such as Rocky Mountain Power.
The 90-page report acknowledged that the auditor’s office did not include all of Utah’s energy incentive programs in its review, citing time restraints. Herring told a state legislative committee on Tuesday that the audit’s authors faced challenges while working on their report, in part because many of the agencies that administer these energy incentives lacked internal records that would have enabled them to analyze each program’s efficacy. She recommended that the Legislature consider setting specific goals for each incentive program in order to make it easier to track whether the incentives accomplish what they’re intended to achieve.