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VOL. 127 | NO. 76 | Wednesday, April 18, 2012

Pending Bill Could Raise Solar Taxes

By Bill Dries

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The week that two solar farms located in Haywood County and Memphis were dedicated, a bill that would increase property taxes on owners of solar production facilities like the two arrays was undergoing more changes in Nashville and encountering increased opposition from the state’s solar industry.

West Tennessee Solar Farm, Haywood County

(Daily News File Photo: Lance Murphey)

The proposal by the Tennessee comptroller’s office would not affect the Haywood County facility because the University of Tennessee owns it. Silicon Ranch LLC of Nashville owns the Agricenter International array. But Silicon Ranch president Matt Kisber said the company has not applied for any existing tax breaks enacted during the administration of former Gov. Phil Bredesen.

Bredesen is founder and CEO of Silicon Ranch and Kisber was Bredesen’s commissioner of economic development.

“Because the original provision was passed under Gov. Bredesen’s administration, we purposely made a decision that we would not apply for programs that we created,” Kisber said. “So we have not applied for that provision nor have we applied for any grants that the state offers.”

But Kisber said that is the only reason the legislation wouldn’t affect the Agricenter array. And he said it could harm a solar industry in which capital is already difficult to attract and the Tennessee Valley Authority has shifted some of its incentives to emphasize smaller rooftop solar arrays.

“The proposed tax increase … will be a substantial increase on the industry and I think will deter future projects like Agricenter from happening,” Kisber said. “It will tax away their economic viability.”

Without the change in state law, the machinery and equipment used to make electricity at a “certified green energy production facility” is assessed at its salvage value. It applies to any facility used to make electricity off premises using clean energy technology including solar, wind, geothermal and hydrogen technology.

The salvage value is defined as “the estimated fair market value that could be realized upon the voluntary sale or other disposition of such property when it can no longer be used for the purpose for which it was designed,” according to the bill summary. That value cannot go above 0.5 percent of the acquisition value.

But the bill would change the taxation to go up to a third of total installed costs based on the “immediate economic value” of such a facility.

“This bill will take from 10 to 20 percent of the revenue generated by the systems to pay the tax,” said Steve Johnson, the founder and president of LightWave Solar Electric LLC. LightWave designed and installed the Agricenter array.

The state comptroller’s office is calling for the change, saying the existing tax break for such solar installations is on questionable state constitutional ground as noted in two opinions from the Tennessee attorney general’s office.

“The attorney general’s opinion comes down to the fact that there is no green energy exemption in the Tennessee Constitution,” said Kelsey Jones, executive secretary of the state board of equalization, which is part of the comptroller’s office. “There are exemptions for governmental property, for churches, charities and nonprofit educational institutions. But there’s no green energy exemption per se. There’s no pollution control equipment exemption per se.”

The bill has been amended since the March hearing to phase in the increased taxation by 2016. The amended bill was due in the Finance, Ways and Means committees of the House and Senate in Nashville this week. The amendment followed some different definitions of what solar arrays might be affected.

“This type of solar production equipment is given a lot of special tax treatment – a 100 percent sales tax credit, a 100 percent franchise and excise tax credit – and we want to help preserve a special kind of property tax treatment for it,” said Jason Mumpower, executive assistant to Comptroller Justin P. Wilson. “But not as it is under the pollution control standard. We feel like that violates our constitutional duty. We are working hard to preserve special tax treatment for them under the property tax law. I think the worst thing that could happen is if this bill doesn’t pass they face the potential of being assessed at full value.”

But Carl Hartley, the attorney for the Tennessee Solar Industry Association, contends the legal opinions don’t mean the classification should be scrapped entirely.

“I think that the constitutional issue is a tactic,” he said.

“We’re confusing the entire conversation. This is not an exemption. This is a reduction in the value for property tax purposes,” he said of the existing law before addressing the proposed change.

“We are trying to develop alternative forms of energy in this state. We are trying to encourage industry to locate here. We are trying to encourage manufacturing to locate here. … This knocks that in the head and moves it to a higher tax base.”

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