Property Taxes and Solar PV Systems: Policies, Practices, and Issues

Author:  Barnes, Chelsea | Barnes, Justin | Laurent, Chad | Heinemann, Amy | Uppal, Jayson
Organization:  US Department of Energy | North Carolina Solar Center | Meister Consultants Group
Report Date: 
2013
Report Summary: 

This North Carolina Solar Center and Meister Consultants reports addresses uncertainty over how PV systems should be valued and tax for property tax purposes.  The report assesses property taxes as they apply to solar PV systems and how systems are assessed under PV-specific and general property tax laws. The report also provides recommendations and methods for increasing clarity, transparency, and predictability of property tax policies with PV systems.

Key Take-Aways: 
  • Property tax officials should consider including specific guidance for assessing PV systems using cost-based approaches in appraisal manuals, as is commonly done for many other items of personal property.
  • The capital-intensive but low operating cost element of solar PV systems may give solar PV systems a disadvantage compared to fossil fuel systems, if valuation relies heavily on replacement cost or depreciated original cost, causing a higher property tax per unit of energy produced ($/MWh).
  • Data collection on solar PV systems through site inspections, permitting records, personal property statements from third-party system owners, utility databases, and state or utility incentive program records to better define the value of a PV system or how much it contributes to a property’s value. 
  • Non-hardware costs known as soft-costs, such as site labor, installer profits, utility interconnection, permitting and financing, have been slower to reduce than hardware costs, but new cost reduction initiatives are underway at federal, state and local levels. 
Key Facts: 
  • Property taxes can add anywhere from $1/MWh to $120/MWh to PV system project costs, and can prohibit the project development.
  • In 2012, third-party ownership of PV systems accounted for over 80% of new residential installations in Arizona and Colorado, and over 60% in California and Massachusetts.
  • Declining system costs and the increasing role of third-party ownership are shaping the PV market.