Climate bill would clear up solar tax confusion

THE MASSACHUSETTS LEGISLATURE is set to clarify a confusing and outdated tax law, which had been stymying solar projects around the state.

A compromise hammered out between the state’s assessors and solar developers has made it into the final version of a climate change bill. The bill was reported out of a conference committee on Sunday and is expected to be passed by the Legislature Monday and sent to Gov. Charlie Baker.

The compromise clarifies that residential and small commercial solar projects will be exempt from property taxes, but larger commercial solar arrays will have to either pay municipal property taxes or reach a payment-in-lieu-of-taxes, or PILOT, agreement with the municipality.

“It’s hugely important to get an understanding between the solar industry and the assessors, and I think it does that,” said Concord town assessor Lane Partridge, past president of the Massachusetts Association of Assessing Officers, who was involved with the negotiations.

David Gahl, senior director of northeast state affairs for the Solar Energy Industries Association, a national lobbying group for the solar industry, called the compromise a reasonable framework. “I think it’s going to provide clarity to the tax law, and it should help provide certainty to large and small solar firms,” Gahl said.

The confusion stemmed from a 1970s-era law that exempted solar installations that are the primary power system for a property from having to pay municipal property taxes.

The law worked for years as it was intended, giving a tax break to homeowners who installed solar panels to power their homes.  As commercial solar farms developed, some paid taxes and others took advantage of a separate legal provision allowing them to enter into PILOT agreements, negotiated agreements with the town in which they paid set fees in lieu of taxes.

But between 2014 and 2017, the state’s Appellate Tax Board made several rulings finding that some large commercial solar developments were also exempt from property taxes. This opened the door to numerous appeals and created disputes between towns and solar developers as they tried to determine what the value is of a solar project and how much a developer should pay to the town.

A recent report by Auditor Suzanne Bump said the confusion was making it harder for solar developers to reach agreements with municipalities, and was leading to some hesitancy among towns in permitting new solar projects.

Bump, in a statement, commended the Legislature for their work on the compromise. “This bill resolves uncertainty that has stymied the expansion of solar energy and strained municipal budgets,” Bump said. “This is a meaningful step toward more clarity on the taxation of solar facilities in our state.”

The compromise language says any solar or wind-powered system that generates no more than 125 percent of the annual electricity needs of the property where it is located, or additional property in the town under the same ownership, will be tax exempt. Any solar or wind system that generates less than 25 kilowatts in capacity will also be tax exempt. These two exemptions will likely cover all residential solar systems and some systems that power small businesses, like a small retail shop or office.

Any system that is bigger than that – generally, large commercial or community solar arrays – will be subject to property taxes unless the landowner and the municipality reach a PILOT agreement.

Existing PILOT agreements will be honored and will not have to be renegotiated.  Small systems that have previously been deemed tax exempt can retain that exemption as long as they produce less than 150 percent of their property’s electricity needs. Larger projects that are currently tax exempt will lose their exemption.

Partridge and Gahl both said there were some items that each side wanted that were ultimately not included in the compromise. But Partridge said he thinks the final language successfully codified the intent of the original law, while taking into account later Appellate Tax Board decisions.

Gahl said there have been questions about whether solar systems are exempt for a long time. “For the Legislature to take this step to clarify this gives developers a better sense of what the rules of the road are,” Gahl said. “That’s going to help provide clarity and should help solar firms deliver a better product to their customers.”