Information from the Yellow Sheet Report

At the core of the dispute over how to treat leased solar panels for property tax purposes is the view the business model behind large-scale solar facilities and residential solar is the same, says today’s Yellow Sheet Report.

While large-scale operations will have rows and rows of panels in one facility, for the Dept. of Revenue, it makes no difference if those same panels are instead distributed across residential rooftops.

As outlined in its April 2013 memo, the department is arguing ARS 42-14155 applies to residential solar because the energy produced by leased solar panels is “not intended for self-consumption” by the company that owns them.

But Court Rich, a lawyer for Solar City, tells Yellow Sheet he has a different picture in mind – that of two residential homes sitting adjacent to each other and each with solar panels. In the first house, the homeowner owns the panels. In the second, the panels are leased.

Rich argues there’s no difference between the two homes when it comes to property valuation, and treating them differently would violate the Arizona Constitution’s uniformity clause, which dictates that “all taxes shall be uniform upon the same class of property.”

“This would treat those two exact scenarios wildly different, and that’s just unfair,” he said. Rich also maintained that another fundamental difference exists between a large-scale, utility-wide solar facility and leased residential solar: The former is typically owned by a utility or by a company that sells power to the utility, and the energy that it produces is then sold by the utility at a “markup” price, Rich said. “That is the complete opposite of a company that comes out and leases you equipment, so that you can generate your own electricity,” he said. “Solar lease is not buying electricity from the solar leasing company. They’re helping you finance the acquisition of the equipment. They don’t sell you energy.”

Rich also told the Yellow Sheet the solar industry’s estimate is that under DOR’s interpretation, a typical residential solar power system that costs $30,000 would see a tax increase of roughly $15,000 over 30 years. Under current contractual agreements, the cost will likely be passed on to homeowners by the solar leasing companies.

“[DOR’s interpretation] would result in a huge tax increase that would disproportionately hit seniors and others, particularly those in Sun City” where leasing solar panels is most popular, Rich said, adding the burden will fall on people with fixed incomes, such as retirees who choose to lease the solar equipment to save money.