Ruling Handed Down On Solar Property Tax Case Against State Revenue Department

By Kristena Hansen
Published: Tuesday, June 23, 2015 - 5:53pm
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A superior court judge has issued a ruling on a complicated case involving two Arizona solar companies that have been battling over tax issues with the state Department of Revenue, but it’s unclear as to what the ruling really means.

The lawsuit stems from Arizona’s drastically different renewable energy landscape back in 2009, when solar was a burgeoning industry flush with rebates and incentives that had been in place for several years prior.

That same year, state lawmakers passed new legislation that exempted homeowners and businesses from paying property taxes on their solar systems.

But in 2013, as solar was becoming an increasingly polarized political hot button, the Arizona Department of Revenue determined the exemption does not apply to leased systems, the bulk of rooftop solar in the state. It subsequently decided it would begin assessing such taxes on leased systems.

Two solar leasing companies, SolarCity and Sunrun, fired back with a lawsuit against the DOR last summer in the Maricopa County Superior Court.

Earlier this month, the judge handed down a ruling that essentially tossed out the basis for the DOR’s argument, calling its logic “tortured.”

“That’s absolutely right," said Court Rich, attorney and senior partner at Scottsdale-based Rose Law Group who represents Sunrun in the case. "There was just no way the DOR could articulate how we fit into that statute and it was clear that they didn’t understand how rooftop solar even worked.”

The DOR’s so-called “tortured” logic pertains to its contention that because leasing companies, rather than homeowners or businesses, own the systems, the systems themselves are acting as mini utilities selling power to customers. Therefore, the DOR argued that leased systems should be taxed accordingly.

“The companies who lease solar panels are in the business of providing power to the folks they lease to and they’re operating like utilities and therefore their property ought to be [taxed] in the same manner,” said Sean Laux, the DOR’s legislative liaison.

However, the ruling didn’t necessarily favor the solar companies either. The judge declared the 2009 exemption upon which the plaintiff’s argument was based as unconstitutional.

So it’s not only unclear who the ruling technically sided with, but also what it means for taxing leased solar systems.

“We still may appeal because we do firmly believe this property should be centrally valued and disagree with the judge’s logic,” Laux said.

Both Rich and Laux said the tax assessment decision will probably end up in the hands of county assessors. But no one will know for sure until the judge officially decides in the coming months.

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