Solar Property Tax Status

Thanks to TenneSEIA and John Nevel we have a copy of a report on the status of the Tennessee Legislator’s plans for an increase in the Solar Property Tax

Since the postponement of Tennessee Senate Bill 3296 last spring, the State Comptroller’s office has been implementing new procedures for assessing property tax on solar PV installations.

Attorney General Opinion

On June 8, 2012, Kelsie Jones, Executive Secretary for the State Board of Equalization, requested an Attorney General opinion on “whether Tenn. Code Ann. Section 67-5-604 as amended violates TN Const. Art. II, section 28.” The code as written pertains to all pollution control facilities. However, the Comptroller’s office is aggressively pushing for the opinion to only affect solar.

In an article in the Nashville Business Journal (“Solar tax fight could hit other industries”), Jones stated that if other pollution control facilities were affected by the legislation, then arrangements could be addressed through payments in lieu of taxes (PILOT) programs. The AG opinion is expected by the end of October. However, according to the statements made, it appears that regardless of the outcome, the push to pass a bill increasing solar property taxes will continue.

Property Tax Valuation

On June 15, 2012, the State Comptroller issued a memorandum to the State’s Assessors of Property on Assessment status of green energy property. The memorandum issued, instructs assessors on how to currently value green energy property.

In the memorandum, the Comptroller states, “how green energy property is actually used will determine the sub classification.” Green energy property “used by a company in the business of producing power, then the property would be sub classified as public utility.” The legal assessment ratio for public utility property is 55%. Also, “a manufacturer that organizes a subsidiary or related business entity as a dedicated power producer would be assessable as a public utility company even though its entire output was utilized by a manufacturer.”

However, “businesses installing green energy energy equipment just to defray the business owner’s power expenses…would be sub classified as industrial and commercial property.” The legal assessment ratio for industrial and commercial property is 30%.

Given these rules, any manufacturer company and third-party financed solar system could be subject to the higher public utility assessment ratio of 55%.

Additionally, in a memorandum from the State Board of Equalization to Assessors of Property dated July 30, 2012, it is stated, that “personalty installations are back-assessable.” Freestanding equipment, such as solar installations, are expected to be assessed as personalty. Therefore, under the Comptroller and State Board of Equalization guidelines, any installation currently operational could potentially be liable for back taxes.

Below is a chart depicting the effects of the new policies implemented by the state officials at the current 0.5% valuation percentage and at the proposed 33.33% percentage in HB 3296. An assumed installation cost of $200,000 and $4.5 tax rate is used.

Action items

With the new procedures being put into place with the State Assessors, it is important that “green energy certifications” are filed with the Tennessee Department of Environment and Conservation at the time of a system commissioning. It appears that the assessors will begin assessing solar property, and for those that do not have a TDEC certification could then be subject to full property tax.

Also, Piper Communications recently completed an outreach initiative to educate the State legislators on the solar property tax issue. I will summarize the results for the policy committee in the near future. We must continue to reach out to state officials and other organizations to educate on the bill’s affects to our industry and economic development in the state.

We will continue to make all possible efforts to push back against any property tax legislation. But, we will also begin engaging the state officials in discussion to temper any proposed legislation. In the event that we cannot avoid new legislation, we must try to negotiate a reasonable alternative. We invite everyone’s participation in these efforts going forward, and will continue to keep TenneSEIA members updated.