Confusion over tax status stymies solar projects
Municipalities worry about lost revenue
AN OUTDATED LAW and a series of rulings by an obscure tax board are throwing the state’s landscape for solar projects into disarray.
The question revolves around whether commercial solar projects should be exempt from paying municipal property taxes. The lack of clarity is threatening to take revenue away from municipal budgets – and stymie the progress of the solar industry, by making some municipal officials hesitant to cut deals with solar developers.
“It’s a confusing landscape, and that’s created a lot of uncertainty for the companies, and there are a lot of questions about how we can get this resolved,” said David Gahl, senior director of northeast state affairs for the Solar Energy Industries Association, a national lobbying group for the solar industry.
Massachusetts legislators are considering passing a law – the subject of lengthy negotiations between municipal officials and solar developers – that would eliminate property tax exemptions to large solar developers. The proposal is in a legislative conference committee that is considering a broader climate change bill.
“I do not believe that the Legislature would have knowingly and deliberately put the large solar developers in a position of avoiding property taxes almost altogether,” Bump said. “So the law needs to be updated to reflect the reality.”
The issue is particularly important on the South Coast, in Central Massachusetts and in Berkshire County, where many large solar farms are located.
A law established in the mid-1970s created a property tax exemption for solar installations that are the primary power systems for a property. The intent was to help residents who wanted to install off-grid rooftop solar panels to power their homes.
For decades, the property tax exemption was used in primarily that way –– by residential homeowners to power their homes.
As commercial solar farms began to be developed, some paid taxes. Others took advantage of a separate provision in state law that lets municipalities enter PILOT, or payment in lieu of taxes, agreements with solar generation facilities to make regular payments instead of taxes on solar energy installations. The idea was to create a structure where solar producers could anticipate the size of future payments, while ensuring municipalities would not lose tax revenue.
However, between 2014 and 2017, the state’s Appellate Tax Board ruled in several cases that the property tax exemption applies to both residential and commercial solar installations. In one key case in 2016, the Appellate Tax Board ruled that a Swansea solar farm – which powered the owners’ nearby home but sold 98 percent of its energy to local bank branches –- was eligible for a property tax exemption. The town of Swansea ultimately negotiated a PILOT agreement with the solar developer.
Concord town assessor Lane Partridge, past president of the Massachusetts Association of Assessing Officers, said the problem is that the law was written so long ago “that it doesn’t have anything to do with current technology and the current way we do things.”
If a decision is appealed to the state Appeals Court, a ruling there could have statewide implications. While observers say some municipal officials are contemplating appeals, due to the high cost –– and potential risk –– of litigation, no decisions have yet been appealed.
For now, municipal officials are hoping the Legislature will resolve the issue. The assessors’ group has been negotiating compromise language with the solar developers’ association – and both sides say they are close to a compromise but not quite there yet.
Partridge said he is hopeful Bump’s report urging legislative action “helps us get over the finish line” in getting a bill passed.
Rep. Jeffrey Roy, a Franklin Democrat, and Sen. Michael Rodrigues, a Westport Democrat, both introduced legislation that would clarify the tax status of solar arrays by limiting the property tax exemption to smaller solar arrays – generally those that produce enough power for the property they are located on. Roy’s language is included in the House version of a climate change bill that is in conference committee.
Roy’s amendment, which could be changed by the conference committee, would exempt from property taxes only residential solar projects that produce no more than 125 percent of the energy needed to power the property where they are located. (Rodrigues’s proposal would also include commercial solar projects, but it similarly caps eligibility to smaller projects that power their own or an adjacent property.) “It’s just taking it back to what the original legislation was intended to do, to help homeowners power their homes using solar energy,” Roy said.
Gahl said solar companies have numerous concerns about the details of Roy’s proposal. Overall, the industry thinks residential and small business installations should be tax-exempt, while larger installations should execute PILOT agreements – ideally in a format that is more standardized than it is today.
With no clarity, municipalities and developers have struggled to reach agreements on how solar installations should be taxed. While a municipality can still negotiate a PILOT agreement with a solar developer, the state tax board rulings mean municipalities have little leverage, and the value of solar property may be considered lower. There have been increasing numbers of disputes over assessments and tax abatements.
“If a solar developer can go to the Appellate Tax Board and be told they’re exempt from taxation, why would they negotiate a PILOT?” Bump asked.
Some communities have placed a moratorium on new solar installations. Granby, for example, passed a solar moratorium in 2019 because officials worried that solar developers would be exempt from property taxes. Charlton, which has 25 solar facilities, placed a temporary moratorium on solar facilities, then put in place new zoning rules and a 30-facility cap.
Charlton assessor Kathleen Stanley said communities like hers are “in limbo.” Charlton has not negotiated PILOT agreements with its solar facilities, but had been taxing them. Now, the community has had several solar project owners appeal to the Appellate Tax Board, and municipal officials are trying to negotiate settlements. Stanley said with the Appellate Tax Board’s recent decisions, “a lot of communities are making agreements for what they feel might be less than full and fair cash value because the exemption is being held over their heads.”
John Robertson, legislative director of the Massachusetts Municipal Association, said municipal officials are particularly worried about a loss in revenue if they can no longer tax large solar installations. If solar developers pay less in taxes, other taxpayers will have to pick up the slack. “Everyone thought they knew what the rules were, then when the Appellate Tax Board case was decided, all of a sudden the rules were upended,” Robertson said. “We want to return the rules to the way they were before.”
In 2019, the number of new solar installations was half than what it was the previous year. While the decline can be attributed to multiple factors, including concerns about land use and a restructuring of state incentive programs for solar energy, Bump said the property tax situation “works as a disincentive for communities to permit facilities if they are going to lose large chunks of revenue.”From a solar industry perspective, Gahl said it is difficult for companies to estimate their project costs when they do not know what taxes will be included and how much they will have to pay municipalities. PILOT agreements often differ greatly between communities. (Bump’s audit also recommends that the state Department of Revenue establish clearer guidelines for what should be in a standard PILOT agreement.) “Ultimately, it drives up the amount of time it takes to get these projects through to completion,” Gahl said.
Partridge, the Concord assessor, said negotiated PILOT agreements that vary between communities should not be a substitute for legal clarity in the law, and relying so heavily on PILOTs is difficult for developers and assessors. “We’ve been doing contracts to do what needs to be done, instead of having the law tell us what’s supposed to be done. That’s a tough process to go through,” he said.