January 22, 2020
by William H. Bell, Senior Associate
In 2007, the Louisiana Legislature, in an effort to increase the amount of solar energy produced within the state, implemented a tax credit for taxpayers who purchased residential solar panels. Beginning in 2008, the solar tax credit gave Louisiana residents a tax credit of 50% of the purchase price on the purchase of residential solar panels, up to $25,000. For example, if a Louisiana resident purchased a $20,000 solar panel system, the taxpayer would receive a $10,000 tax credit. In 2015, Louisiana Legislative Act 131 implemented a $10,000,000 cap on the amount of tax credits the state would issue for the 2015 and 2016 fiscal years, with an effective date of June 19, 2015. Just days before the tax credit cap became effective, Justin and Gwen Ulrich and Raymond and Pam Alleman (collectively “the Taxpayers”) purchased and installed tax credit eligible solar electric systems with the expectation of receiving the tax credits. In 2016, the Taxpayers filed their 2015 income tax returns seeking the tax credits. Act 131’s cap for the 2015 fiscal year had already been met by the time the Taxpayers filed their 2015 tax returns, so the Louisiana Department of Revenue denied the Taxpayers’ tax credits. The Taxpayers then sued the Louisiana Department of Revenue, claiming that Act 131 was unconstitutional because they had been deprived of vested property rights in the tax credits. The Taxpayers litigated their lawsuit for nearly four years. During that period, in 2017, the Louisiana Legislature enacted Act 413, giving the solar tax credit to any taxpayer who purchased solar panels between July 1, 2015, and January 1, 2016, in reliance on the tax credit but did not receive the tax credit because of the $10,000,000 cap. Consequently, the Louisiana Supreme Court declared the Taxpayers’ cause of action moot. Although the Louisiana Legislature remedied the Taxpayers’ harm before a final ruling on the Taxpayers’ lawsuit, the Louisiana Department of Revenue and the Louisiana Legislature should implement reasonable measures that will prevent similar lawsuits from arising, thereby reducing the state’s litigation costs.
II. The Taxpayers’ Case Against Louisiana: Ulrich v. Robinson
Act 131’s $10,000,000 cap on the solar tax credits for the 2015 fiscal year resulted in the Taxpayers not receiving the tax credits, even though the Taxpayers had installed the solar panels prior to the cap becoming effective. The Taxpayers were unable to obtain the credits because the Louisiana Department of Revenue distributed the $10,000,000 in credits on a first-come, first-served basis. The Taxpayers filed a class action lawsuit against the Louisiana Department of Revenue seeking a declaration that Act 131 was unconstitutional to the extent that it deprived the Taxpayers of their vested property rights in the credits on the grounds that the Taxpayers had purchased the solar panels prior to the effective date of Act 131 and in reliance that the tax credit would offset 50% of the solar panel’s cost. Following the enactment of Act 413, the trial court determined that Act 131 was unconstitutional for three reasons. First, the Taxpayers had vested property rights to the tax credits. Second, Act 131 was a substantial impairment on the contract between the state and the Taxpayers, the Taxpayers’ contract for the solar panels, and the Taxpayers’ financing of the solar panels contract. In regard to the second point, the trial court determined that there was no significant legitimate justification for Act 131 and that the Act’s substantial impairment on the Taxpayers was neither reasonable nor appropriate. Third, the trial court determined that Act 413 did not render the Taxpayers’ controversy moot because the Taxpayers were not in the same position as prior to Act 131 because of the time value of money. The Louisiana Department of Revenue then appealed the trial court’s judgment directly to the Louisiana Supreme Court, claiming that the Taxpayers’ controversy was moot.
On review, the Louisiana Supreme Court determined that the Taxpayers’ cause of action became moot because Act 413 gave the Taxpayers the amount of the tax credits they originally sought. As a result, the Court did not review the constitutionality of Act 131. The Court concluded that because the Taxpayers did not seek any additional damages other than receiving the tax credits, Act 413 made the Taxpayers whole by paying them the amount of the tax credits originally owed. The Court also could not give the Taxpayers any additional damages arising from the original denial of the tax credits. The Louisiana Supreme Court issued its opinion about two and a half years after the Louisiana Department of Revenue initially denied the tax credits.  In future instances where any type of tax credit is limited or eliminated, the Louisiana Department of Revenue and Louisiana Legislature can take several steps to prevent Louisiana from entering costly litigation.
III. Justiciability of Future Controversies Like Ulrich
Despite the Louisiana Supreme Court declaring the Taxpayers’ controversy moot, Louisiana had to devote costly resources to fight the Taxpayers’ suit before and after the Taxpayers received their tax credits. In similar tax credit issues that may arise in the future, the courts may determine that a justiciable controversy exists because future claimants may seek additional damages, such as reliance damages, in addition to the sought-after tax credits, even if, like in Ulrich, the tax credits are subsequently paid out. In this scenario, a court could hold Louisiana liable for additional damages that the Ulrich taxpayers did not seek, and Louisiana could incur litigation costs that could be easily prevented by taking remedial steps.
IV. A Method for Preventing Ulrich Situations in the Future
Louisiana offers a variety of tax credits to Louisiana residents, and the Louisiana Legislature can eliminate or limit those tax credits as it deems fit, such as the solar tax credits in 2015. To avoid litigation similar to Ulrich in the future, the Louisiana Legislature and the Louisiana Department of Revenue should take the following remedial measures. First, the Louisiana Legislature should only limit or eliminate tax credits for future years. For example, the legislature could have avoided the Ulrich litigation if the $10,000,000 cap per year started in the following fiscal year, 2016, instead of the same fiscal year, 2015. The Louisiana Legislature followed this model in 2017 when it gave the Taxpayers, and others similarly situated as the Taxpayers, the amount of the solar tax credit, provided that the claimant had installed the eligible solar electric system before December 31, 2015. Next, when limiting or creating a new tax credit with a total cap on the amount of tax credits, Louisiana should determine who receives the tax credits based on when each taxpayer takes all steps required by the Louisiana Department of Revenue to receive the tax credit, rather than when the taxpayer files a return. For example, a taxpayer seeking a solar tax credit would submit the required paperwork to receive the tax credit during the tax year before installation, rather than with their tax return in the following year. The Louisiana Department of Revenue could track exactly how much of the tax credit cap has been extinguished at any time and keep taxpayers informed on when the tax credit is exhausted for the year. As a result, taxpayers could engage in tax-credit eligible activities, such as installing solar panels in 2015, with the assurance that when they file their subsequent tax returns they will receive the tax credit.
Any time Louisiana limits or eliminates a tax credit during the middle of a year, the potential for litigation similar to Ulrich exists. By implementing the above remedial measures, Louisiana could save future litigation costs and potential costly judgments in lawsuits brought by future plaintiffs who seek more damages than only the tax credits to which they believe they are entitled.
 See La. Rev. Stat. § 47:6026 (2007).
 Act. No. 131, 2015 La. Acts 1299, 1301.
 Ulrich v. Robinson, 265 So. 3d 108, 111 (La. Ct. App. 1st Cir. 2018) (citing the facts of the case in a prior matter before the Louisiana Supreme Court regarding the certification of the case’s class action).
 Ulrich v. Robinson, 282 So. 3d 180, 182 (La. 2019). Louisiana’s fiscal year runs from July 1 to June 30 each year.
 Id. at 182.
 See id. at 182.
 Act No. 413, 2017 La. Acts 1275.
 Ulrich, 282 So. 3d 180 at 182.
 See Ulrich v. Robinson, 265 So. 3d 108, 111 (La. Ct. App. 1st Cir. 2018).
 Act. No. 131 2015 La. Acts 1299, 1301.
 Ulrich, 265 So. 3d at 111.
 Ulrich, 282 So. 3d 180 at 182.
 Id. at 184–86.
 Id. at 182 (noting the amount of time between the initial denial of the tax credit in August 2016 and the issuance of the Louisiana Supreme Court’s opinion in March 2019).
 The Louisiana Department of Revenue would represent the state of Louisiana in any litigation similar to the solar tax credit issue. Louisiana taxpayers would indirectly bear the cost of all litigation because taxpayers fund the Department of Revenue.
 See Ulrich, 282 So. 3d 180; Ulrich v. Robinson, 265 So. 3d 108, 111 (La. Ct. App. 1st Cir. 2018).
 See generally Act. No. 131, 2015 La. Acts 1299.
 Act No. 413, 2017 La. Acts 1275.
 Given its expertise, the Louisiana Department of Revenue is in the best position to determine what steps a taxpayer must take in order for the Department to make a tax credit determination within the tax year rather than when the taxpayer files their tax return.