Excess Credit as a Condition Precedent: Hawai‘i Supreme Court Limits RETITC Refundability Elections to Credits Exceeding Tax Liability

Introduction

In Suganuma v. Goodman, SCWC-24-0000229 (Haw. June 30, 2025), the Supreme Court of Hawai‘i addressed a recurring tension in tax administration: when may an agency’s prescribed form require taxpayers to make elections, and can those elections alter or expand statutory conditions? The case arises from Hawaii’s renewable energy technologies income tax credit (RETITC) under Hawai‘i Revised Statutes (HRS) § 235‑12.5 (Supp. 2011), as applied to Blake and Blanca Goodman’s 2012 state income tax return.

The Goodmans claimed $17,250 in RETITC for solar energy systems installed in 2012. Their net tax liability for that year was $25,252, meaning their credit did not exceed their tax liability. Yet, 2012 Form N‑342—prescribed by the Department of Taxation (DOTAX) to claim the RETITC—required the Goodmans to make an “irrevocable” election to treat the credit as either “refundable” or “nonrefundable.” They checked “refundable,” and then—on a follow-up line—elected “fully refundable,” a choice that by statute is only available to taxpayers with certain tax-exempt income or low adjusted gross income. DOTAX audited and assessed a 30% reduction to their credit (plus interest), reasoning that their elections were binding and impermissible.

After the Board of Taxation Review sided with the Goodmans, the Tax Appeal Court granted summary judgment to the Department and went further—ordering that the taxpayers receive no RETITC at all. The Intermediate Court of Appeals (ICA) later ruled that the Tax Appeal Court exceeded its jurisdiction by increasing the assessment beyond DOTAX’s final assessment, but otherwise concluded that the Department’s form and instructions were consistent with HRS § 235‑12.5 and directed affirmance of the $5,416.50 assessment.

The Hawai‘i Supreme Court granted certiorari and reversed, holding that 2012 Form N‑342 and its instructions were inconsistent with the statute. The Court’s opinion crystallizes a key principle: elections under HRS § 235‑12.5(f)–(h) apply only when a taxpayer’s credit exceeds their tax liability. Absent such “excess credit,” there is no statutory basis to compel any refundable or nonrefundable election—let alone to reduce a credit by 30% for a “refundable” election that the statute does not trigger.

Summary of the Opinion

The Court held that 2012 Form N‑342 and its instructions were inconsistent with HRS § 235‑12.5(f)–(h) because those subsections govern only when a taxpayer’s RETITC exceeds their income tax liability. An “excess credit” is a threshold requirement for any election under those subsections.
For taxpayers without an excess credit, the statute does not authorize the Department to require an irrevocable election to treat the credit as “refundable” or “nonrefundable.” Forcing such an election—and enforcing it—contradicts the statute.
The Department’s 30% reduction under HRS § 235‑12.5(g) was inapplicable, because that reduction is tied to the elective refundability regime that only arises for excess credits.
The Supreme Court vacated the ICA’s Judgment on Appeal insofar as it approved the Department’s assessment and reversed the Tax Appeal Court’s Final Judgment. The Goodmans are entitled to the RETITC they claimed in 2012 ($17,250).
The Court did not address the Tax Appeal Court jurisdiction issue under HRS § 232‑13 because its statutory holding fully resolved the case.

Analysis

Precedents and Authorities Cited

The Court anchored its reasoning in well-established principles of statutory construction and review of summary judgments:

Lingle v. Hawai‘i Gov’t Emps. Ass’n, AFSCME, Local 152, AFL–CIO, 107 Hawai‘i 178, 111 P.3d 587 (2005), quoting Guth v. Freeland, 96 Hawai‘i 147, 28 P.3d 982 (2001): The Court reiterated that legislative intent is gleaned primarily from the statutory text and context, with ambiguity opening the door to legislative history. Here, the Court found the text clear: subsections (f)–(h) activate only when there is an “excess” credit.
West Maui Resort Partners LP v. County of Maui, 154 Hawai‘i 121, 547 P.3d 454 (2024), and Kamikawa v. Lynden Air Freight, Inc., 89 Hawai‘i 51, 968 P.2d 653 (1998): The Court applied de novo review for statutory interpretation and summary judgment, recognizing the general presumption favoring Tax Appeal Court actions but clarifying that errors of law warrant reversal.
Kaheawa Wind Power, LLC v. County of Maui, 146 Hawai‘i 76, 456 P.3d 149 (2020), and Narmore v. Kawafuchi, 112 Hawai‘i 69, 143 P.3d 1271 (2006): Reaffirmed that tax laws are strictly construed and doubts resolved in favor of the public. The Court’s holding aligns with strict adherence to statutory text, limiting agency expansion by form.
HRS § 235‑12.5 (Supp. 2011): The operative statute for the 2012 RETITC. Subsection (e) authorizes the Director to “prepare any forms” and to adopt rules, but that authority does not permit altering statutory prerequisites or triggering elections when statutory conditions are absent.
Legislative history (Act 207, 2003; H. Stand. Comm. Rep. No. 916): The legislature’s stated purpose was to encourage renewable energy and reduce reliance on fossil fuels. The Court’s reading preserves that aim by preventing administrative forms from curtailing the credit beyond legislative terms.
HRS § 232‑13 and Tax Appeal of County of Maui v. KM Haw. Inc., 81 Hawai‘i 248, 915 P.2d 1349 (1996): The ICA had ruled the Tax Appeal Court exceeded jurisdiction by increasing the assessment beyond DOTAX’s final assessment. Though noted, the Supreme Court did not reach this issue because of its dispositive statutory ruling.

Legal Reasoning

The Court’s core interpretive move is straightforward textualism: HRS § 235‑12.5(f)–(h) repeatedly hinges on the concept of “excess” credit. The statute’s architecture is in two steps.

Step 1—Compute the credit and compare it to tax liability: Subsection (f) states: “If the tax credit under this section exceeds the taxpayer’s income tax liability, the excess of the credit over liability may be used [as a carryforward] in subsequent years until exhausted, unless otherwise elected by the taxpayer pursuant to subsection (g) or (h).” This language presupposes a threshold condition: a credit that exceeds liability. Only then does any choice between carrying forward or seeking refundability under (g) or (h) arise.
Step 2—If there is excess, consider elective refundability:
- Subsection (g) permits an election to reduce the eligible credit amount by 30% and obtain a refund if “this reduced amount exceeds the amount of income tax payment due from the taxpayer.” The “30% haircut” is thus part of an elective refund regime applicable solely to excess credits.
- Subsection (h) allows “any excess of the credit over payments due” to be refunded without reduction if all income is exempt under HRS § 235‑7(a)(2) or (3), or adjusted gross income does not exceed statutory thresholds (e.g., $40,000 for joint filers).
Both subsections (g) and (h) state that the election is “to be made in a manner prescribed by the director” and that “an election once made is irrevocable.” Critically, the irrevocability pertains only to elections that the statute actually authorizes—i.e., when there is an excess credit to elect about.

From this design, the Court distilled the principle that an “excess credit” is a condition precedent to any refundable/nonrefundable election under HRS § 235‑12.5(f)–(h). The Department’s 2012 Form N‑342 contravened the statute by:

Mandating that all taxpayers complete an “IRREVOCABLE ELECTION ON HOW TO TREAT THE TAX CREDIT” regardless of whether their credit exceeded their liability; and
Enforcing the consequences of an election (including the 30% reduction under § 235‑12.5(g)) even where no statutory condition existed to trigger the election regime.

The Court also found the form’s instructions inconsistent with the statute. By telling taxpayers they “may elect to treat the tax credit as nonrefundable or refundable” without first determining whether there is an excess credit, the instructions ignored the statutory threshold and risked unlawfully diminishing the credit.

Finally, although neither the text nor the legislative history explains the purpose of the “irrevocable” clause, the Court carefully cabined that clause to scenarios where the statute permits the election in the first place. It did not disturb irrevocability for properly triggered elections; it simply held that the Department cannot manufacture an election obligation where the statute would not.

Impact and Implications

The decision has significant ramifications for tax administration, taxpayer rights, and renewable energy incentives in Hawai‘i:

Administrative forms must track statutory prerequisites. DOTAX’s authority to prescribe forms (HRS § 235‑12.5(e)) and require information or elections “in a manner prescribed” does not authorize adding conditions or compelling elections outside the statute. Forms and instructions will need revision wherever they imply or require elections without statutory triggers.
RETITC treatment clarified. If a taxpayer’s credit does not exceed their income tax liability:
- No refundable/nonrefundable election is authorized or required.
- No 30% reduction applies under § 235‑12.5(g).
- The credit applies to current-year liability, with no refund and no carryforward (because there is no “excess”).
If a credit does exceed liability or payments due, then and only then do the (g) and (h) elections—and irrevocability—come into play.
Constraints on agency deference. The Court’s plain-meaning approach and its willingness to deem forms/instructions inconsistent with statute signal that agency interpretations receive no deference when they contradict clear text. This extends beyond RETITC to any tax credit or election administered via forms that purport to expand statutory conditions.
Potential remedial avenues for affected taxpayers. Taxpayers who were assessed reductions under invalidly compelled elections (particularly in years governed by the 2011 version of § 235‑12.5) may consider whether refund claims, amended returns, or administrative appeals are still available under applicable limitation periods. The Court’s holding supports the position that improperly required elections should be disregarded when statutory conditions were not met.
Practitioner guidance. Before making any “irrevocable” election regarding RETITC refundability or carryforward, determine whether there is an “excess credit.” If there is no excess, no election is authorized, and any form language to the contrary cannot diminish the credit.
Open questions preserved.
- The opinion did not resolve the precise mechanics of “payments due” versus “income tax liability” for subsections (g) and (h), a distinction that may matter in edge cases (e.g., interactions with withholding and estimated payments).
- The ICA noted—without decision—that the number of “systems” and cap calculations could alter the credit amount, but the issue was not preserved and was not before the Court.
- The meaning and scope of “Failure to comply with this subsection shall constitute a waiver of the right to claim the credit” in § 235‑12.5(f) remains context-specific; the Court’s analysis implies it cannot apply where (f) does not apply (i.e., where there is no excess to carry forward).

Complex Concepts Simplified

RETITC (Renewable Energy Technologies Income Tax Credit): A credit that reduces Hawai‘i income tax for eligible renewable energy systems installed and placed in service. For 2012, many solar systems were capped at $5,000 per system.
Tax liability vs. payments due: “Tax liability” is the total tax owed for the year before payments; “payments due” (as used in (g) and (h)) describes what remains owed after considering payments such as withholding and estimated taxes. The statute uses “liability” in (f) but “payments due” in (g)/(h).
Excess credit: The portion of the credit that is greater than the tax liability or payments due. Only when there is such an excess does the statute permit elections to carry forward (nonrefundable) or obtain a refund (refundable).
Nonrefundable vs. refundable credit:
- Nonrefundable credits reduce tax but do not generate a cash refund; unused amounts may be carried forward if the statute allows.
- Refundable credits can produce a cash refund even if they exceed the tax owed, but only under statutorily specified conditions. Under § 235‑12.5(g), the refundable amount is reduced by 30%; under § 235‑12.5(h), certain taxpayers may get a full refund without the reduction.
Irrevocable election: An election that cannot be changed once made. Under § 235‑12.5, irrevocability attaches only to elections authorized by (g) or (h)—i.e., when there is an excess credit. An “election” forced by form when no statutory election exists is not binding.
Forms vs. statutes: Agencies can prescribe the manner of claiming credits, but forms and instructions cannot impose conditions or elections the statute does not require. Statutory text controls.

Conclusion

Suganuma v. Goodman sets an important precedent in Hawai‘i tax law: an excess RETITC is a necessary predicate to any refundable or nonrefundable election under HRS § 235‑12.5(f)–(h). Agency forms cannot compel elections that the statute does not authorize, nor can such compelled elections reduce a taxpayer’s credit. By reinstating the Goodmans’ 2012 RETITC, the Hawai‘i Supreme Court reaffirmed fidelity to statutory text, limited administrative overreach via forms and instructions, and provided clear guidance on when refundability and carryforward choices are available.

Going forward, taxpayers and practitioners should first determine whether a claimed RETITC exceeds the tax liability (or payments due). Only if there is an excess should they consider the irrevocable elections in subsections (g) and (h)—including the 30% reduction option and the limited full-refund option. For administrators, the case underscores that the “manner prescribed” for claiming a credit must reflect, not rewrite, the legislature’s conditions. In the broader legal context, the decision reinforces the primacy of statutory text and the principle that tax benefits and obligations may not be expanded or curtailed by administrative forms.