Taxation of Solar Plants used to Generate Electricity
Bill Johnson, Director PVR
With the passage of Act 127 of the 2012 Legislative Session, a new taxation system was established for solar photovoltaic plants that generate electricity. The new system has four basic components.
The law establishes a State education tax for all solar generating plants that have a name-plate capacity that is greater than 10 kW. This tax, to be assessed and collected by the State, creates an annual tax liability for plant owners of $4.00 per kW capacity as specified on the plant’s Certificate of Public Good (CPG).
- The law requires a State education property tax on the value of the land associated with the solar plant with a capacity greater than 10 kW. This tax is based on the highest and best use of the land without regard to the presence of the plant. The tax is to be assessed and collected by municipalities as part of the overall property tax system.
- The law requires a municipal property tax on electric generating solar plants with a capacity greater than 10 kW. This tax, to be assessed and collected by municipalities, is based on the fair market value of the plant.
- The law also exempts from both the State capacity tax and the property tax (both the State and municipal property taxes) all electric generating solar plants with a capacity of 10 kW or less as specified by their CPG. This exemption begins with the 2013 tax years and extends for 10 years at which time it is automatically repealed unless the Legislature acts to extend the exempt.
State Education Tax based on a Plant’s Capacity
Beginning in calendar year 2013, there is a State education tax on all solar plants with a name-plate capacity greater than 10 kW that are generating electricity. The plant capacity is as defined on the CPG issued by the Public Service Board. The tax liability is determined by simply multiplying the name-plate capacity of a specific plant by $4.00, so a 20 kW plant would have an annual assessment of $80.00. The tax applies to all solar plants with a capacity greater the 10 kW that have received a CPG from the Public Service Board. As such, the tax not only applies to plants directly connected to the grid but also net metered plants. “Off-grid” plants would not have a CPG, not be metered and would not be subject to this tax. For plant owners with a tax liability, the tax is payable to the Vermont Department of Taxes and payment is due annually on or before April 15th. This tax is separate from the education property tax and will be assessed and collected by the Vermont Department of Taxes.
State Education Property Tax on Land associated with a Solar Plant
In addition to the State capacity tax, there will be a State education property tax payable on the value of the land that underlies all solar plants, whether the plant fixtures are taxable or exempt from the Vermont property tax. The tax is to be assessed and collected by the Vermont municipality in which the plant is located. The tax is based on the highest and best use of the land without regard to the presence of the plant and would be assessed using the municipality’s nonresidential education tax rate multiplied by one percent of the education grand list value.
In valuing the land, municipalities should use their land schedule(s) and make the same grading adjustments to the value that would be called for if no solar plant was located on the property. If the land used to site the plant is larger than the footprint of the plant, then the entire land parcel should be valued without regard to the presence of the plant. The presence of a solar plant should not affect whether the assessment official believes that a housesite value should or should not be applied to the property.
Municipal Property Tax on the Electric Generating Solar Plants
The valuation of a solar plant with a name-plate capacity greater than 10 kW for the municipal property tax is to be based on the fair market value of the plant and any other property that constitutes the parcel. The tax is to be assessed and collected by the municipality in which the plant is located and should be taxed based on the same municipal tax rate that is applied to all other properties that are taxable on the municipal grand list.
As with any generation facility, whether the resulting electricity results from solar, wind or hydroelectric generation, the value will in large part be determined by the amount of electricity that the plant produces. As part of Act 127, the Legislature directed the Tax Department to periodically make recommendations to municipal assessment officials on how to determine a market valuation for solar plants. To fulfill this requirement the Division of Property Valuation and Review (PVR) has identified an income approach to value model that under most circumstances it recommends that municipalities use in valuing solar facilities. The valuation model was developed by Sandia National Laboratories to be used specifically for the fair market valuation of solar plants and is available on their website at no charge. PVR also has developed recommendations on the inputs that can be used within the Sandia solar valuation model and has developed a sample inventory form that Listers and assessors can use to collect from owners the necessary data inputs to operate the model. Finally, PVR has developed detailed instructions on how to use the spreadsheet that performs the model’s calculations.
You will find directions on the location and use of the valuation model as well as a downloadable version of the inventory form at the following link on the Tax Department’s webpage.
Exemption from both the Education Capacity Tax and Property Tax for Certain Solar Plants
Beginning in the 2013 tax year, solar generation plants with a name-plate capacity of 10 kW and less, will be exempt from both the education and municipal property taxes. This exemption extends for 10 years at which time it is automatically repealed unless the Legislature acts to extend the exemption. The exemption applies only to the fixtures and other improvements that constitute the plant and not to any underlying structure (e.g., a building that serves to site the plant) or the underlying land.
Act 127 Language
If you are interested in reading the law in its entirety, please use the following link to access the language.
As always, if you have questions about the valuation or taxation of solar facilities, please contact your PVR District Advisor.