1. Clarify the solar property tax exemption through legislative action.
The Legislature should resolve the uncertainty over the taxable status of solar installations. Two proposals introduced during the 2019–2020 legislative session provide comprehensive solutions to this issue and will limit the number of nonresidential solar arrays that are tax-exempt.
The proposal by Sen. Michael Rodrigues (S. 1763) would replace the existing description of solar property exempt from tax with the following language:
A solar or wind powered system that is capable of producing not more than 125 per cent of the annual electricity needs of the real property upon which it is located; provided, however, that the real property shall include contiguous or non-contiguous real property within the same municipality that is owned or leased by the owner of the real property.183
Sen. Rodrigues’s proposal would allow both commercial and residential solar arrays to seek the exemption. It would limit the exemption, however, to facilities with an energy output not more than “125 per cent of the annual electricity needs of the real property upon which it is located.”184 The legislation would also codify the decision made by the ATB in the Forrestall (2014) case by allowing the exemption to be granted to equipment located on either contiguous or noncontiguous property. For example, this proposal would allow a commercial office building to erect an array on an adjoining lot and not receive a tax bill for the value of the equipment.
The second proposal, introduced by Rep. Jeffrey Roy (H. 2619), would replace the exemption with the following language:
Any solar or wind powered system that is capable of producing not more than 125 per cent of the annual energy needs of the residential real property upon which it is located.185
Rep. Roy’s proposal would allow only residential solar arrays to seek the exemption, but would limit which arrays qualify by their energy output (125% of energy needs or less). Unlike Sen. Rodrigues’s proposal, it does not specify whether arrays located on noncontiguous property qualify for the exemption.186
Both proposals would establish which solar arrays and installations are exempt from taxation, resolving the issues that have arisen as a result of the ATB rulings. Although it will be up to the Legislature to determine whether commercial arrays will continue to qualify for the exemption, the two proposals would exclude large-scale solar companies from the exemption and provide the clarity sought by municipal officials, including assessors. Both proposals also keep the length of the exemption at its current level (twenty years).187
Legislation in this area should also include aspects of existing law such as designation of the officials or bodies who would have authority to approve PILOT agreements for the municipality, inclusion of the value of PILOT payments in the tax rate calculation, and the requirement that PILOTs should represent the equivalent of taxation at full and fair cash value.
Language that mirrors Rep. Roy’s proposal is in a large-scale climate action bill that passed the House of Representatives in July 2020.188 The two branches of the Legislature are currently in a conference committee to review differences between the House and Senate versions of the bill.
2. Clarify the tax status of solar facilities that may not be eligible to participate in PILOTs
Because solar facility PILOTs have gained popularity in recent years, additional state legal requirements will strengthen the usefulness of agreements between municipalities and large-scale solar facilities. If the Legislature clarifies the solar property tax exemption, the exemption should specify what options solar facilities have if they generate more than 125% of annual energy needs. For example, legislative proposals from Sen. Rodrigues and Rep. Roy both include language to allow an installation producing over 125% of the owner’s annual electricity needs to negotiate a PILOT agreement.189
Under existing solar PILOT law, large-scale solar “generation companies” are the only entities eligible to enter a PILOT agreement with a municipality, which is problematic for midsized solar farms that generate an abundance of energy but do not fit the definition of a generation company.190 The proposals by Sen. Rodrigues and Rep. Roy would allow commercial projects that do not fit this definition to use a PILOT agreement if they do not qualify for a tax exemption.191 This extension would allow municipalities to negotiate agreements with more solar projects, giving them greater control over tax revenues.
3. Establish additional guidelines to assist municipalities in creating & negotiating solar PILOTs
Given the complexity of PILOT agreements and the lack of a standardized formula across municipalities to calculate the value of equipment based on energy output, it will be beneficial for municipalities to have access to guidelines to establish agreements. Sen. Rodrigues’s proposal includes language that would require DOR and the Department of Energy Resources (DOER) to develop guidelines.192
In Sen. Rodrigues’s proposal, the guidelines could include the following:
- standardized formulas to calculate property taxes;
- appropriate terms and payment schedules as recommended by state and regional stakeholders; and
- guidelines for a standardized PILOT agreement.193
Guidelines that would standardize how solar equipment is valued and taxed for PILOT agreements are consistent with suggestions from solar industry advocates, who believe such guidelines will help both developers and municipalities.194 The guidelines could also suggest ways to address nonpayment of the PILOT by the solar developer, which would strengthen the hand of communities. DLS already has the legal authority to set guidelines for local tax purposes. Recognizing that, we encourage the use of such guidelines to standardize these agreements and calculations across communities in order to protect all stakeholders in the process. PILOT guidance that exist in states such as New York may serve as an example for Massachusetts officials to follow as they update guidelines.195
| Date published: | December 10, 2020 |
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