Chapter 7.5
Energy Conservation and Efficiency

• ALL
• Remove Code Barriers
• Create Incentives
• Fill Regulatory Gaps

Property Tax Exemptions for Renewable Energy Systems

INTRODUCTION

Renewable energy generation systems, like solar panels and geothermal, have the potential to increase property values.[1] However, even with incentives and rebates, some property owners may be hesitant to install renewable energy generation systems because the increased value often translates into higher property taxes. An ordinance that exempts the value augmented to property by the addition of renewable energy generation systems from property taxes makes owning solar, wind, geothermal or other renewable energy sources less burdensome and may encourage increased renewable systems.

This ordinance entices people to install and own renewable energy systems by exempting the added value of renewable energy systems from property tax assessments. Local governments can draft this ordinance to give homeowners the ability to have the additional value of property created by a renewable energy generation system, exempted from the taxable value of their property.[2] This would make the taxable value of the home the same as before the renewable energy system was installed.[3] This ordinance may contain the types of renewable energy systems that qualify for the property tax exemption (typically a very inclusive list), the maximum amount that is exempt, and the proof necessary to show the amount exempted (usually determined by an assessor or percentage of the renewable energy system).[4] Ordinances can be created to include exemptions for residential and/or commercial property, making them beneficial to business owners as well residential property owners.[5]

Over half the states have some form of tax exemption, either on the state level or a local opt-in or out program.[6] Some states mandate that local governments provide some form of tax exemption for solar panels that can be adjusted by the local government.[7] A full list of tax incentives for property and other taxes can be found in the Green Tax Incentive Compendium.[8]

EFFECTS

Providing residential and/or commercial property tax exemptions for renewable energy systems can promote local economies, encourage  healthy living, and reduce greenhouse gas (GHG) emissions and other pollutants involved with the burning of fossil fuels.[9] Renewable energy sources help minimize dependence on fossil fuels, that create air pollution and emit GHGs.[10] Coal, natural gas, and petroleum make up 99% of carbon dioxide emissions from electrical energy production.[11] These GHG emissions have created major health concerns, with new residential and commercial property owners utilizing renewable energy generation systems reliance on fossil fuels can drop, benefiting local communities.[12] Burning fewer fossil fuels, reduces GHG’s and other air pollutant emissions, thereby helping to mitigate climate changing impacts and improve air quality.[13]

Local governments that provide tax exemptions for renewable energy systems make it more affordable to own and keep renewable energy systems and homes containing those systems. Higher property taxes make certain areas less desirable to live in and more expensive to open a business. Local governments that provide exemptions for the assessed added value of property after the installation of a renewable energy system create a more desirable location for perspective home and business owners.[14] With more municipalities offering tax exemptions for the value added by renewable energy systems, consumers may be inclined to move to these jurisdictions, while the lack of an exemption may lead individuals to avoid these locations.[15] Increasing property value has become a negative for many homeowners, as an increase in value means an increase in taxes. Failure to maintain property can lead to a decrease in value of the neighborhood that may lower property values in the area.[16] Having an ordinance that exempts the additional value encourages property owners to improve property, which can increase the value of an area as whole.

With more people looking to install and maintain renewable energy sources, new jobs for the installation and maintenance will also be created.[17] The labor-intensive fields of renewable energy have been growing and will continue to grow with more renewable energy generation systems being built.[18] The added jobs can have a ripple effect on local markets by bringing in more people who in turn spend money at local stores and restaurants.[19] Furthermore, the addition of more renewable energy sources helps stabilize utility prices. By using an inexhaustible resource, such as wind and solar, the prices of electricity are less volatile to the shifting prices of fossil fuels, giving consumers a more consistent energy bill.[20] The use of renewable energy gives the community more predictable energy bills and can drastically lower energy costs for homeowners.[21]

EXAMPLES

Pearisburg, VA

Pearisburg exempts certified solar energy equipment, facilities, and devices from property taxation.[22] To receive the exemption for real or personal property, the local authority (in this ordinance the county Building Department) must designate the solar equipment as certified pursuant to the specific criteria made by the Virginia (State) Board of Housing and Community development.[23] The equipment must be used to collect or create energy that will replace energy consumption from fossil fuels.[24] The City’s exemption applies to any person residing in Pearisburg, and the equipment can be fully or partially exempt from taxation.[25] The amount of the exemption is determined by deducting the property tax amount of the solar equipment from the real property tax due on the property to which the equipment is attached.[26] The Ordinance also presumes that the value of the qualifying solar equipment is not less than the cost of purchasing and installing the equipment.[27] The tax exemption is effective when the property is first assessed following the installation of the system.[28]

To view this provision, see Pearisburg, Va., Code of Ordinances § 66-37 (2014).

Winder, GA

Winder exempts from property tax assessment all tangible property used for solar energy heating or cooling, consisting of equipment used to manufacture of solar energy systems.[29] This includes controls, tanks, pumps and other equipment used for utilizing solar energy, but does not include walls or other structures modified to capture energy from the sun.[30] Meaning things that would ordinarily be part of a building, such as walls that are painted to harness or repel solar energy (heat), are not considered for tax exemptions. This ordinance adds some limitations to the amount of tax exemptions, but still applies to a broad range of improvements, including water heating and drying devices.[31]

To view this provision, see Winder, Ga., Code of Ordinances § 29-10 (2017).

ADDITIONAL EXAMPLES

Kenai Peninsula Borough, AK, Code of Ordinances tit. 5 § 5.12.101 (2018) (residential renewable energy systems are exempt from real property tax, must file application to be exempt).

Vernon, CT, Code of Ordinances § 12-5 (2011) (provides a tax exemption for the value of a renewable energy system attached to property that exceeds the amount of such property with conventional energy systems).

Cheshire, CT, Code of Ordinances §§ 17-2 – 17-5 (2017) (provides property tax exemptions for solar heating or cooling systems; those wanting to qualify must apply and the exemption is good for 15 years after construction).

Warwick, RI, Code of Ordinances § 74-52 (2017) (creates a tax exemption for additional value added by a renewable energy system).