Solar Property Tax Uncertainty & 3 Mitigation Strategies

15 Jul 2014

Uncertainty about property tax treatments in some states is cause for concern

Apart from California, which extended its property tax exemption for solar power systems to 2025, the ambiguity around solar and property taxes looks like it may get worse before it gets better. Our team is financing projects in Arizona, Georgia, Indiana, Massachusetts, and New York which face varying degrees of uncertainty with regards to property tax treatments. As noted in our recent solar property tax issues blog , each state has different challenges and issues with regards to property taxes.

Arizona, the nation’s third largest solar market, is one such state. Arizona became a battle grounds for solar property tax disputes when the state’s Department of Revenue reviewed and reinterpreted a law that exempted rooftop solar from property taxes in cases when the systems are leased. Although third party investors are liable for the tax, solar leasing companies typically pass such taxes on to system lessees.

That is, homeowners, companies, schools, and other organizations who have installed solar via solar leases may face property tax payments in 2015.  SolarCity and Sunrun face millions in taxes and they are fighting back. If the law interpretation sticks, solar leasing companies would likely absorb the property taxes by pricing them into future leases, but these costs negate the savings that solar energy users achieve with solar leases. Moreover, existing PV system lessees will face unexpected costs and the average residential PV system lessee would pay an average of $152/year in new property taxes.

In other states such as Georgia, Indiana, Massachusetts, and New York, the biggest property tax headaches are reserved for solar projects that are still in development. The main issue for solar developers is that property taxes have the potential to reduce cash flows, and thus project valuations for solar developers.

If all goes well, solar property taxes may be waived entirely; but in the worst case scenarios, property taxes can add enough costs to make a project financially undesirable. And while property taxes alone rarely ruin project economics, investors typically account for the worst case scenarios when valuing projects. For developers dealing with property tax uncertainty, our team suggests three strategies to generate the best tax treatments, project valuations, and project returns:

1)  Leverage your local relationships as well as knowledge of regional politics and policies to get a high degree of certainty on how property taxes will be assessed before locking in your financing.

2)  If you expect to get a property tax exemption, make sure it is legitimized and documented as early as possible, so that investors do not have good reason to assume the worst case scenarios.

3)  State realistic assumptions for property tax treatment(s) in your financial model.  Then, contract with the investor to receive a portion of the upside if the project receives a more favorable property tax treatment.

If you are interested in learning more about property tax treatments and valuations for a given project, please contact the Sol Systems project finance team for more information.

About Sol Systems

Sol Systems is a renewable energy finance firm that provides secure, sustainable investment opportunities to investor clients, and sophisticated project financing solutions to developers.  Founded in 2008, Sol Systems focuses on meeting the industry’s most critical solar financing needs, including tax structured investments, capital placement, debt financing, and SREC portfolio management. To date, the company has facilitated financing for thousands of distributed generation solar projects and hundreds of millions in investment on behalf of Fortune 100 corporations, utilities, banks, family offices, and individuals. For more information, please

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Natacha Kiler

Natacha Kiler