STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 6122

January 26, 1983

SOLAR ENERGY:

Tax credits for installation claimed by members of limited partnership

Calculation of solar income tax credit on cost per building

TAXATION:

Income tax credit for solar installation by members of limited partnership

Calculation of solar income tax credit on cost per building

The general partners of a limited partnership may not receive a solar income tax credit for solar equipment purchased by a partnership and affixed to real property owned by the partnership.

The income tax credit for installation of solar equipment is to be calculated on the cost per building and not on a cost per unit basis.

A taxpayer who owns, rents, or leases multi-family dwellings may claim a credit for one installation on each building where an eligible energy conversion device is installed in a taxable year.

Ralph J. Gerson

Director

Department of Commerce

Law Building

Lansing, Michigan

Your predecessor requested my opinion regarding the eligibility requirements for solar income tax credits as defined in 1967 PA 281, Sec. 262, as added by 1979 PA 41; MCLA 206.262; MSA 7.557(1262). Your first question is:

1967 PA 281, Sec. 262(1); supra, provides:

In order to qualify for the credit, the solar, wind, or water energy conversion device must be used in the taxpayer's domicile or in a 'building which is owned by the taxpayer.' This requirement is repeated in 1967 PA 281, Sec. 262(3) and (4), supra, which provide the specific amount of the available credit and restrict the credit to the taxpayer's domicile or leased residential property 'owned by the taxpayer.'

In the situation you relate, the property is owned by a limited partnership. However, the individual partners attempt to claim the credit on the basis that they have a derivative claim to any credits available to the partnership and are liable for any income taxes relating to partnership profits. The Income Tax Act of 1967, 1967 PA 281, Sec. 26; MCLA 206.26; MSA 7.557(126), defines a taxpayer as 'any person subject to the taxes imposed by this act or any employer required to withhold taxes on salaries and wages.'

In Michigan, a partnership is not subject to the state income tax. Instead, income is attributed to the individual partners in proportion to their partnership interest. 1967 PA 281, Sec. 51; MCLA 206.51; MSA 7.557(151). Although partnership income is income attributable to each partner, it does not follow that the partnership and its individual partners-taxpayers are legally synonymous. A partnership is a distinct legal entity apart from the individual partners composing it. See Thurston v Detroit Asphalt & Paving Co, 226 Mich 505; 198 NW 345 (1924). Moreover, it has long been recognized that with respect to the ownership of real property that a partnership may buy and sell real property in its own name and that a wife of a partner has no interest necessitating her agreement or signature on the deed. See Scheurman v Farbman, 245 Mich 688; 224 NW 604 (1929). In fact, the Uniform Partnership Act, ⁽¹⁾ 1917 PA 72, Sec. 8; MCLA 449.8; MSA 20.8, expressly recognizes the ability of a partnership to own and transfer real property in its own name. It provides:

In Port Huron & D R Co. v Department of Treasury, 106 Mich App 413, 420; 308 NW2d 237 (1981), the Department of Treasury contended that the shareholders in a subchapter S corporation should be deemed the 'taxpayer' for the purpose of determining the corporation's single business tax liability. As in the issue here presented, the argument was advanced that for tax purposes the separate legal entity should be ignored and the entity and shareholders should be treated as one and the same in determining the tax liability. After noting that under the state's single business tax act, the term 'taxpayer' is defined as the 'person liable for a tax, interest, and penalty under the act,' the Court of Appeals rejected the Treasury Department's argument, stating:

Similarly, in the instant matter, the partnership, while 'person' under 1967 PA 281, Sec. 16; MCLA 206.16; MSA 7.557(116), it is not a 'taxpayer', i.e. a 'person subject to taxes imposed by [the state income tax] act.' 1967 PA 281, Sec. 26, supra. For the same reasons stated in Port Huron & D R Co, supra, the separate legal identity between the partnership and its partners may not be disregarded.

1967 PA 281, Sec. 262, supra, is clear and unambiguous in requiring property upon which the energy savings device is attached to be 'owned by the taxpayer.' In interpreting the State Income Tax Act, the Court of Appeals has applied the familiar principle that 'if a statute is clear and unambiguous on its face, there is no need for the courts to interpret or construe the statute so as to alter the plainly expressed meaning of the legislature.' Wackerman v State of Michigan, 47 Mich App 228, 233; 209 NW2d 493 (1973).

The attempt by the general partners of a limited partnership to divide and allocate the energy conversion device credit on the basis of each partner's interest would also violate the provision in 1967 PA 281, Sec. 262(1), supra, which, in pertinent part, provides: 'Only one person may claim the credit for each installation except as allowed in subsection (7).' Subsection (7) authorizes the sharing of the credit only in the case of a husband and wife filing separate income tax returns. In the situation presented, however, the various partners would attempt to allocate the so called solar income tax credit on the basis of the income of the partnership attributable to each partner. This type of tax credit allocation is not authorized by the clear language of the Act.

In response to your first question, it is my opinion that the general partners of a limited partnership may not individually claim a solar income tax credit for solar equipment purchased by the partnership and affixed to property owned by the partnership.

Your second question is:

1967 PA 281, Sec. 262(4), supra, covers multi-family residences and spells out the maximum credit allowable for that type of building. Illustratively, if the taxpayer claimed a credit on a multiple family residence in taxable year 1981, his allowable credit computation would be 20% of the first $2,000 of cost and 10% of the next $13,000 of cost for a total credit of $1,700. This amount is the maximum credit allowable for this type of building.

Except in the case of taxpayers who own and reside in condominium units of a building, 1967 PA 281, Sec. 262(5), supra, does not permit credits to be predicated upon a cost per unit basis. The statute only refers to a taxpayer's 'dwelling' or 'a building' owned by the taxpayers and leased or rented for residential purposes. If the statute were construed to permit a taxpayer to take multiple credits on the basis of the number of units within a building, then the taxpayer would be permitted to exceed the maximum credit per building permitted under the statute.

It is my opinion that the maximum solar income tax credit should be calculated on the cost per building and not on the cost per unit basis. It is my further opinion that a taxpayer who owns, rents, or leases multi-family dwellings may claim a credit for one installation on each building where an eligible energy conversion device is installed in a taxable year.

Frank J. Kelley