Published in Energy
New state legislation would exempt small-scale renewable energy from being considered in assessing a property’s tax liability, clearing up some conflicting opinions and serving to encourage more development, backers say. New state legislation would exempt small-scale renewable energy from being considered in assessing a property’s tax liability, clearing up some conflicting opinions and serving to encourage more development, backers say. MIBIZ FILE PHOTO

Bills aim to clear confusion over solar panel taxation

BY Sunday, December 09, 2018 04:45pm

Business and clean energy advocates are aligned in support of state legislation that clarifies the tax-exempt status of small-scale renewable energy systems.

Amid the growing number of homeowners and businesses installing solar panels to offset their energy usage, local assessors and state tax officials have had varying interpretations over whether they should be taxed as property improvements. 

Some Michigan residents have installed solar in hopes of paying for the investment over time with lower electric bills, only to be hit with higher property tax bills. Depending on the local assessor, some faced higher tax bills after installing solar while others did not. Ann Arbor, a city with a strong clean energy commitment, was a notable area where residents appealed higher property tax bills after installing solar.

“There’s inconsistency across the state as to whether local assessors say rooftop solar is adding to a home’s value,” said Laura Sherman, vice president of policy development with the Michigan Energy Innovation Business Council. “If you put solar panels on your house, you’re calculating a payback period. You’re not expecting your taxes to suddenly skyrocket because the value of your home increases.”

The problem started in 2013 when personal property tax exemptions for small-scale alternative energy systems expired after being in place for 10 years. Signed by former Gov. John Engler, the exemption applied to 13 different clean energy technologies.

Since then, the Michigan Tax Tribunal and State Tax Commission have issued varying opinions on whether solar should be considered real or personal property. In February, the State Tax Commission issued a memo classifying solar panels as residential real property that would likely increase property taxes.

“There have been a few rulings that attempted to clarify it that we think only muddied the water further,” said Charlotte Jameson, energy policy and legislative affairs director with the Michigan Environmental Council, which supports the bills.

Sponsored by State Rep. Tom Barrett, R-Potterville, House bills 5143 and 5680 apply to systems up to 150 kilowatts in size for all utility customer classes, including agricultural properties. The exemption applies to smaller-scale projects “behind the meter,” and not utility-scale projects where power is sold back to the grid. The installations could still be factored into property taxes at the point of transfer. 

The bills passed the House in June with broad bipartisan support and cleared a Senate panel in late September. Advocates expect the bills to reach Gov. Rick Snyder before the end of the month.

In September, the Department of Treasury testified during a Senate hearing that the department was neutral on the bill package. The agency supports H.B. 5680 that allows solar installations to be considered “normal maintenance” on the real property value of the home and wouldn’t be a separate tax liability. The Treasury Department opposes H.B. 5143 because it would “add to some of the confusion we’ve seen” because some of the upgrades on industrial and commercial properties would already qualify for an exemption, said Ken Osborn, the department’s director of legislative affairs.

Dan Papineau, director of tax policy and regulatory affairs with the Michigan Chamber of Commerce, supports the bills for ultimately providing clarity and incentivizing renewable energy.

“We want to incentivize the use of alternative energy equipment. Any time that’s going to have a negative tax impact on either commercial or residential taxpayers, it’s not going to be helpful,” he said. “Assessors need guidance. These bills give it to them to the advantage of taxpayers.”

Mike Linsea, founder of Solar Winds Power Systems LLC in Allegan County, testified in September to support the bills.

“Many of my customers are kind of on the fence (about installing panels). Things like property tax levies come into play,” Linsea told the Senate Finance Committee. “To some customers, it does seem to keep them from doing something.”

Net metering questions

While clean energy advocates support Barrett’s bills, a lingering question for potential rooftop solar customers is the future of utility net metering programs. The state’s sweeping 2016 energy laws required state regulators to come up with a replacement program for net metering, which allows customers to send their excess generation to the grid and receive a bill credit.

In their next rate cases, utilities will seek approval for new “distributed generation” programs meant to replace net metering. So far, only the Upper Peninsula Power Co. and DTE Energy have filed proposals. 

But DTE’s — which is still under consideration at the Michigan Public Service Commission — drew swift opposition over what critics say is unfair compensation for the excess power that results in longer payback periods and removing the incentive to invest. Additionally, each utility will have a unique program.

“For (installation) companies, there’s going to be a patchwork of different programs across the state — each utility will have its own tariff,” Sherman said. “It’s very difficult now to figure out what a customer’s payback would be.”

Customers who enroll in net metering before distributed generation programs are approved are grandfathered for 10 years.

Since 2006, Michigan has seen an increasing number of net metering customers each year, although the amount of capacity from them is still a small fraction of the state’s portfolio. Participation increased by more than 25 percent in 2017 from 2,582 customers to 3,277 customers, according to MPSC data.

Advocates have maintained that utilities are preparing to undervalue the power that customers send back to the grid while utilities claim all non-solar customers end up subsidizing solar customers’ grid costs. Researchers across the U.S. have found that the value of solar should be higher than what utilities propose based on grid benefits that distributed solar generation provides during peak demand.

Based on Michigan utilities’ positions on net metering so far, Sherman said there’s a “little bit of a rush” to be grandfathered under current net metering rates.

“Companies want to sign up as many people as they can now,” she said.

Amid a flurry of contentious legislation moving in lame duck, including clean energy groups’ concern over bills involving coal ash storage and building a tunnel under the Straits of Mackinac for the Line 5 pipeline, the solar taxation bills are an otherwise positive note.

“It’s nice to have one thing that does, in a small way, continue to show we’re making progress on clean energy in the Legislature,” Jameson said. 

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