Energy from the sun can be converted to electricity in two ways: (1) Photovoltaic or solar cells that change sunlight directly into electricity or (2) solar thermal electric power plants that generate electricity by converting solar energy to heat a fluid that produces steam used to power a generator. Sunlight is not a constant. It varies depending on location, time of day, time of year and weather conditions. Therefore, a large surface area, such as defunct landfills, is necessary in order to collect the sun's rays at a rate able to produce ample amounts of energy.
Wind power is also considered a form of solar energy. Winds are caused by the uneven heating of the atmosphere by the sun. Wind power is the process by which the wind is used to generate mechanical power or electricity by converting the kinetic energy in the wind into mechanical power. A generator then converts the mechanical power into electricity.
Power Used on Site
In order for the wind or solar system or device to be exempt from local taxation, it must be used "as a primary or auxiliary power system for the purpose of heating or otherwise supplying the energy needs of property taxable under this chapter." In our opinion, this means the exemption applies only to those systems or devices being used as the primary or backup heating or power system for the taxable real estate on which they are installed (or associated, e.g., a contiguous parcel owned and used by the same owner together with the other parcel). It is for property owners who install systems or devices for use on their own properties, not for solar or wind facilities or farms constructed and operated for purposes of generating energy for sale to the grid. Once the local board of assessors determines that the system or device qualifies for the exemption, it is exempt for 20 years. The exemption does not extend to the land and any other real or personal property. A single abatement application is sufficient to apply for the exemption for its duration. See IGR 84-209, Property Tax Exemption for Solar and Wind Powered Systems or Devices.
Power Sold to the Grid
For solar or wind facilities built to generate electricity for sale to the grid, there are two tax agreements allowed by state law that may apply. Both agreements require approval by the municipality's legislative body. The first, a tax increment financing (TIF) exemption agreement, generally requires the facility to be located within an Economic Opportunity or Economic Target areas as designated by the Economic Advisory Coordinating Council. TIF agreements may reduce the taxes of a new generating facility for up to 20 years in exchange for providing specific job creation and economic benefits. M.G.L. c. 23A, § 3E; c. 40, § 59; c. 59, § 5, Clause 51. The second is a payment in lieu of tax agreement (PILOT) for facilities owned by an electric generation or wholesale generation company under M.G.L. c. 59, § 38H(b). This agreement provides tax stability for the company and municipality rather than a complete or substantial exemption from taxation. M.G.L. c. 164, § 1 provides a definition of electric generation and wholesale generation companies.
Communities should consult with their municipal counsels who can assist with language to safeguard the community in the event the company abandons or sells the facility before the end of the agreement. Many of these agreements offer the companies substantial tax benefits in the early years and equalize them later in the agreement. If so, the community may want to provide for recovery of taxes deferred to later years. A power plant PILOT agreement should also address adjustments in the annual payment for any property additions, replacements or deletions and since no tax lien exists to secure the payments, a contractual lien or other means to ensure collection if payment is not made. Any contractual lien will not supersede pre-existing liens such as mortgages.
Assessment as Real or Personal Property
Absent a permitted tax agreement, solar or wind facilities are valued at fair cash value as of January 1, but are they assessed as real or personal property?
For property tax purposes, solar array panels, wind turbines and associated machinery and equipment may be assessed as part of the real estate if they are intended to remain on the site for their entire useful lives, are designed specifically for the parcel, or might cause damage to the land or equipment if removed. However, if they are easily removable or intended to be removed and replaced periodically while located at the site, they could be separately assessed as personal property. A property owner who believes the property is personal property must report it to the assessors on a Form of List by each March, but the assessor decides whether the assets are real estate or personal property based on the degree of attachment. See Boston Edison Co. v. Board of Assessors of Boston, 402 Mass. 1 (1988)(Taxable machinery of a utility used in the manufacture of electricity, and significantly attached to a parcel of real estate, but traditionally assessed as personal property, may be assessed as either real or personal property.)
If the assets are determined to be personal property, the assessment is made to the owner of the panels and associated machinery, not the land owner, if different. Typically a replacement cost new less depreciation methodology should be developed to value the assets. Proper depreciation would require an age/life analysis and must be applied uniformly.
If the assessors determine panels, associated machinery or assets of the facility are part of the real estate, their valuation would be included in the real estate assessment to the owner of the land. The assessors would have to support the value with appraisal documentation, which may include a valuation from their in-house appraisal system and not necessarily a fee appraisal. Two approaches to value should be performed by the assessors in accordance with DOR guidelines.