Harvard Law School
Emmett Environmental
Law & Policy Clinic
Harvard Law School
Emmett Environmental
Law & Policy Clinic
Harvard Law School
Emmett Environmental
Law & Policy Clinic
THE SOLAR PROPERTY TAX
EXEMPTION IN MASSACHUSETTS :
INTERPRETATION OF EXISTING LAW &
RECOMMENDATIONS FOR AMENDMENTS
P
Irina Rodina, Clinical Student
Shaun A. Goho, Esq., Sta Attorney
J
Harvard Law School
Emmett Environmental
Law & Policy Clinic
Harvard Law School
Emmett Environmental
Law & Policy Clinic
Harvard Law School
Emmett Environmental
Law & Policy Clinic
THE SOLAR PROPERTY TAX
EXEMPTION IN MASSACHUSETTS :
INTERPRETATION OF EXISTING LAW &
RECOMMENDATIONS FOR AMENDMENTS
P
Irina Rodina, Clinical Student
Shaun A. Goho, Esq., Sta Attorney
J
Emmett Environmental Law & Policy Clinic
Harvard Law School
6 Everett Street, Suite 4119
Cambridge, MA 02138
Phone +1-617-496-2058
Fax +1-617-384-7633
Website http://blogs.law.harvard.edu/environmentallawprogram/clinic/
Citation
is paper may be cited as: Irina Rodina and Shaun A. Goho, e Solar Property Tax Exemption in
Massachusetts: Interpretation of Existing Law and Recommendations for Amendments, Emmett
Environmental Law & Policy Clinic, Harvard Law School, Cambridge, Mass.: July 2013.
Comments are welcome and may be directed to Shaun A. Goho at sgoho@law.harvard.edu.
Acknowledgements
e Clinic thanks the following individuals, who generously shared their time and expertise with us:
Gary Blau, Massachusetts Department of Revenue; Pam Bunker, Assessor, Town of Chilmark, MA;
R. Lane Partridge, Assessor, Town of Concord, MA; Nathan Phelps, Massachusetts Department of
Public Utilities; and Michael Stone, My Generation Energy.
e Emmett Environmental Law and Policy Clinic at Harvard Law School is directed by Wendy B.
Jacobs and is dedicated to addressing major environmental issues in the United States and abroad and
to providing its students an opportunity to do meaningful, hands-on environmental legal and policy
work. Students and clinic sta work on issues such as climate change, pollution reduction, water
protection, and smart growth.
Copyright ©2013 by the President and Fellows of Harvard College. All rights reserved to the Emmett
Environmental Law & Policy Clinic, Harvard Law School.
Cover Image: A 4.5-megawatt solar panel eld situated on twenty-two acres of land, near Route 3 in Westford, MA, available at
Massachusetts Energy & Environmental Aairs photostream, http://www.ickr.com/photos/masseea/6289065105/.
TABLE OF CONTENTS
Introduction 5
Property Tax Treatment of Solar PV Systems in Massachusetts
8
A. Uncertainty and Inconsistency in the Application of the Property Tax Exemption to Solar PV Systems 8
B. Are Solar PV Installations Real or Personal Property?
10
C. PILOT and TIF Agreements Oer Some Potential for Greater Clarity and Certainty,
but Have eir Own Problems
12
Property Taxation of Solar PV Systems in Other States
17
A. States with No Exemption
17
B. State-Mandated Property Tax Exemption
18
C. Local Option Property Tax Exemptions
20
D. Equal Treatment
22
Current Legislative Proposals
23
A. Summary of Introduced Bills
23
B. Areas of Broad Agreement
24
C. Contested Provisions
25
Conclusions
30
Appendix A: Sample Pilot Agreement Terms for Solar
PV Projects in Massachusetts
31
Emmett Environmental Law & Policy Clinic | Harvard Law School
INTRODUCTION
e Commonwealth of Massachusetts has made the promotion of solar photovoltaic (“PV”)
installations a prominent part of its climate change mitigation and economic development agendas.
To this end, it has implemented a set of economic incentives and other policies designed to encourage
homeowners, businesses, nonprots, and local governments to install solar PV systems. e scope of
one longstanding incentive—the exemption from property taxation under M.G.L. c. 59, § 5(45)—has,
however, recently been mired in uncertainty. To address this situation, several bills to amend that
provision are currently pending before the General Court.
is paper reviews the current controversy regarding the application of the exemption, highlighting
areas of ambiguity in current law and the uncertainty they create for both solar developers and
municipalities. It then analyzes current legislative proposals to amend the exemption, and concludes
by recommending that the statute be amended to include:
• A property tax exemption for any solar PV system with a capacity of less than 60 kW and/
or a capacity no greater than 125 per cent of the historic annual energy needs of the prop-
erty upon which it is located; and
• A grant of authority to municipalities to enter into PILOT agreements for any PV installa-
tion not eligible for an exemption at any rate that is the result of good faith negotiations.
• We also recommend that the Department of Revenue issue guidance clarifying that solar
PV installations should usually be assessed as personal property.
In April 2007, the Commonwealth announced a goal of seeing 250 MW of solar power capacity
installed across the state by 2017 and 400 MW by 2020—up from 3.5 MW statewide at the time.
1
Since then, the state has implemented a set of policies designed to encourage the installation of
solar PV systems. Examples of these programs include: net metering,
2
a solar carve-out in the state
Renewable Portfolio Standard,
3
rebates through the Commonwealth Solar and Commonwealth Solar
1 Press Release, Executive Oce of Energy and Envtl. Aairs, Patrick-Murray Administration Selects 10 Commu-
nities to Participate in Massachusetts Solar Incentive Program (Apr. 5, 2013), available at http://www.mass.gov/
eea/pr-2013/press-release-re-massachusetts-solar-incentive-program.html.
2 See 220 CMR 18.01-18.09; Mass. Dep’t of Pub. Utils., Net Metering, http://www.mass.gov/eea/grants-and-tech-
assistance/guidance-technical-assistance/agencies-and-divisions/dpu/dpu-divisions/legal-division/dpu-and-
green-communities-act/net-metering/net-metering.html (last visited July 3, 2013).
3 See 225 C.M.R. 14.05(4); Mass. Exec. Oce of Energy & Envtl. Aairs, About the Solar Carve-Out Program,
http://www.mass.gov/eea/energy-utilities-clean-tech/renewable-energy/solar/rps-solar-carve-out/about-the-
rps-solar-carve-out-program.html (last visited July 3, 2013).
e Solar Property Tax Exemption in Massachusetts | 2013
II programs,
4
tax breaks,
5
and the Solarize Massachusetts program.
6
ese initiatives have resulted in an 80-fold increase in solar energy capacity, with 281 MW of solar
capacity installed in the state as of July 1, 2013.
7
Now that the state has achieved its 2017 goal four
years early, the administration recently announced a new goal of installing 1600 MW by 2020.
8
Image: Governor Patrick annouced that Massachusetts had reached its 250 megawatts of installed solar energy four years early.
He also set a new goal of installing 1600 megwatts by 2020. From May 1, 2013 Solar 250 Event, available at Massachusetts
Energy & Environmental Aairs photostream, http://www.ickr.com/photos/masseea/8718861704.
4 See Mass. Clean Energy Ctr., Commonwealth Solar II, http://www.masscec.com/programs/commonwealth-solar-
ii (last visited July 3, 2013).
5 See Mass. Exec. Oce of Energy & Envtl. Aairs, Renewable Energy Funding and Incentives, http://www.mass.
gov/eea/energy-utilities-clean-tech/renewable-energy/renewable-energy-funding/ (last visited July 3, 2013).
6 “Solarize Massachusetts . . . is a program that encourages the adoption of small-scale solar photovoltaic (PV)
projects by deploying a coordinated education, marketing and outreach eort, combined with a group purchas-
ing model that provides increased savings as more people in the community go solar.” Mass. Clean Energy
Ctr., Solarize Mass, http://www.solarizemass.com/index.cfm/page/About-Solarize/pid/12858 (last visited July 3,
2013).
7 See Mass. Dep’t of Energy Resources, Installed Solar Capacity in Massachusetts, available at http://www.mass.
gov/eea/docs/doer/renewables/installed-solar.pdf.
8 See id.; Erin Ailworth, Dartmouth Leads the Way in Solar, B G, May 2, 2013.
Emmett Environmental Law & Policy Clinic | Harvard Law School
A property tax exemption for solar PV installations is codied in M.G.L. c. 59, § 5(45). For many
years, some participants in the industry believed that this exemption applied broadly to almost all
solar installations.
9
Recently, however, the Department of Revenue has publicized its interpretation
of the exemption to apply only when all energy generated by the system is “consumed on site at all
times.”
10
If this interpretation were applied uniformly across the Commonwealth, virtually no grid-
connected solar PV systems would receive an exemption. As a result, the interpretation might make it
more dicult for the state to achieve its solar development goals.
is paper is organized as follows. Following the introduction, it discusses the history of the
property tax treatment of solar PV systems in Massachusetts. Next it considers the current situation,
highlighting areas where there is uncertainty about how existing law should be applied. ird, it
compares Massachusetts’ tax treatment of solar PV installations with other states’ approaches. e
paper then describes the pending legislative proposals and concludes with recommendations for the
type of bill that the legislature should adopt.
9 Written testimony, My Generation Energy, Endorse Massachusetts House Bill 2740, at 1 (Apr. 9, 2013).
10 Marilyn H. Browne, Chief, Bureau of Local Assessment, DOR, Valuation Workshops for Solar PV Projects Sched-
uled, C T, Jan. 3, 2013, at 2, 3; see Brenda Cameron, Bureau of Local Assessment, DOR, Here Comes
the Sun (and Wind Power), C T, Mar. 2012, at 1, 2.
e Solar Property Tax Exemption in Massachusetts | 2013
PROPERTY TAX TREATMENT OF SOLAR PV SYSTEMS IN
MASSACHUSETTS
Property taxation in Massachusetts is governed by M.G.L. c. 59, § 2, which reads:“[a]ll property, real
and personal, situated within the commonwealth, and all personal property of the inhabitants of the
commonwealth wherever situated, unless expressly exempt, shall be subject to taxation.” Categories
of property exempt from taxation are listed in 59 M.G.L. c. 59, § 5. Property taxation is a municipal
prerogative and is administered by local assessors, although the state Department of Revenue
can advise municipalities regarding its interpretation of the relevant statutes. If a property owner
disagrees with a local assessor’s determine, she can appeal to the Appellate Tax Board. G.L. c. 58A, §
6. Appellate Tax Board decisions can in turn be appealed to the Court of Appeals. G.L. c. 58A, § 13.
A. Uncertainty and Inconsistency in the Application of the Property Tax
Exemption to Solar PV Systems.
Massachusetts rst adopted a property tax exemption for solar- and wind- powered energy systems
in 1975.
11
Under the initial law, such systems were exempt from taxation for 10 years; the legislature
subsequently amended the statute in 1978 to increase the exemption period to 20 years.
12
Under
both the original and amended versions of the statute, the exemption applied only to systems “being
utilized as a primary or auxiliary power system for the purpose of heating or otherwise supplying the
energy needs of property taxable under this chapter.”
13
In the 1970s, most solar PV systems operated independently of the grid.
14
e exemption would
therefore have originally covered almost all solar installations. In the intervening years, however, the
focus of the solar PV industry has changed. Now most solar PV installations in the Commonwealth
are connected to the electrical grid. As a result, even systems that on net produce less energy than is
used on-site still supply energy to the grid at least some of the time. Despite this change, however,
some participants in the industry continued to assume that the exemption applied to all solar PV
11 See 1975 Mass. Acts, c. 734, § 1, available at http://archives.lib.state.ma.us/actsResolves/1975/1975acts0734.pdf.
12 See 1978 Mass. Acts, c. 388, § 1, available at http://archives.lib.state.ma.us/actsResolves/1978/1978acts0388.pdf.
13 e current version of the relevant provision, M.G.L. c. 59, § 5(45), reads:
Forty-h, Any solar or wind powered system or device which is being utilized as a primary or
auxiliary power system for the purpose of heating or otherwise supplying the energy needs of prop-
erty taxable under this chapter; provided, however, that the exemption under this clause shall be
allowed only for a period of twenty years from the date of the installation of such system or device.
14 See D Y, T Q: E, S, R M W 572-75
(2011).
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installations.
15
Recently, however, the Department of Revenue has claried its interpretation of the exemption,
stating that “all energy must be consumed on site at all times in order for the system to be exempt
from taxation.”
16
Under this interpretation, only solar PV systems that generate energy purely for
on-site use at all times qualify for the exemption. erefore, because virtually any installation that is
connected to the grid will send electricity o-site at least some of the time, in DOR’s view even a small
residential system that produces less energy, on net, than is consumed on-site is not eligible for the
exemption. e Department of Revenue considered other interpretations of the statute, including a
netting approach under which systems whose return to the grid is negligible or incidental would be
exempt, but ultimately concluded that the language of the statute was clear and that no netting was
permissible.
17
e Department of Revenue, however, possesses only oversight authority in the administration of
local property taxation. Its guidance is not binding on local assessors, who have primary authority
in applying the statute. Based on our interviews with local tax assessors and anecdotal evidence, it
appears that many municipalities interpret the statute to exempt residential and commercial systems
as long as the total output of the solar panels does not exceed onsite consumption.
18
Neither the
Board of Tax Appeals nor a court has yet ruled on the proper interpretation of the exemption.
As a result, there is considerable uncertainty in the Commonwealth regarding the scope of the
exemption for solar PV systems. Without any authoritative ruling on the issue, property owners
and solar developers potentially face the inconsistent application of the exemption across the 351
municipalities in the Commonwealth. Assessors also desire additional guidance and clarication.
19
As one assessor was quoted as saying in a recent news article, “[t]here’s no standard for taxation
purposes.”
20
15 My Generation Energy, supra note 9.
16 Browne, supra note 10, at 3 (emphasis added).
17 Telephone Interview with Gary Blau, Tax Counsel, Mass. Dep’t of Revenue (Apr. 16, 2013).
18 In practice, this means that all smaller systems in such communities are exempted, because it is impracticable
for towns to monitor the comparative energy production and usage on all properties with solar PV systems. As
one assessor described it, “there is no way to gure energy needs of the house . . . because no resident would
report that they are not using all of their energy on site . . . the only way to do it is get NSTAR to provide data on
how much energy is generated and how much is consumed and then tax the excess.” Telephone Interview with
Pamela Bunker, Chilmark Tax Assessor (Apr. 12, 2013).
19 For example, recent solar PV valuation workshops organized by the Department of Revenue attracted over a
hundred local assessors.
20 Laura Krantz, State Oers Guidance On Solar Tax Questions, M D N, Feb. 27, 2013, http://
www.metrowestdailynews.com/top_stories/x1522329352/State-oers-guidance-on-solar-tax-questions?zc_p=0.
e Solar Property Tax Exemption in Massachusetts | 2013
e possibility that even the smallest systems will be found ineligible for a tax exemption is of
particular concern. If DOR’s interpretation were to prevail, homeowners might be deterred from
installing solar PV systems. is outcome would harm the Commonwealth’s renewable energy goals.
In addition, as discussed in more detail below, uncertainty about whether solar PV systems should be
taxed as personal or real property can be an impediment to the development of innovative nancing
structures for residential systems if those systems are not exempt from property taxation. At the
moment, these fears have generally not come to pass, but the uncertainty and confusion in the current
legal landscape call for prompt legislative clarication.
B. Are Solar PV Installations Real or Personal Property?
An additional source of uncertainty relates to the classication of the solar PV installation: is it real
property or personal property? is distinction does not aect the tax rate applied to the property,
21
but is nonetheless important for at least two reasons. First, classication as real property gives a
municipality power to get a tax lien on said property under G.L. c. 60, § 37 in case a taxpayer becomes
insolvent, while no comparable provision exists for personal property.
Second, personal property is taxed to the owner of the asset, while real property value is included in
the real estate assessment and is taxed to the owner of the land. As a result, the choice of classifying
the PV installation as real or personal could aect who is responsible for paying the tax. For example,
some residential property owners nance their rooop solar installations by leasing them from a
solar developer such as SunRun or SolarCity. If the solar equipment is considered to be personal
property, then the solar developer would be responsible for the tax, whereas if it is real property, then
the homeowner must pay the tax. A parallel situation arises when a large, ground-based installation
is placed on land that the solar developer does not own but instead leases from an independent
landowner. More fundamentally, if the land is owned by a tax-exempt entity, the solar PV installation
would be exempt from taxation if treated as real property but not if treated as personal property and
owned by a non-tax-exempt entity.
G.L. c. 59, §2A(a) denes real property as “all land within the commonwealth and all buildings and
other things thereon or axed thereto.” Property that does not meet this denition is personal
property. erefore, in general:
21 Whether assessed as personal property or as part of the real estate, the tax rate for the property would be the
same; i.e. at the municipality’s single tax rate, or at the commercial tax rate if the municipality has a split rate.
See M. D. E R, T G D S P M-
L 23 (2012), available at http://www.mass.gov/eea/docs/doer/green-communities/pubs-reports/
pvlandllguide.pdf.
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machinery and equipment may be assessed as part of the real estate if they are in-
tended to remain on the site for their entire useful lives, are designed specically 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.
22
For example, in one case the Supreme Judicial Court found that two steam-powered turbine
generators, each “mounted on a massive concrete pedestal, thirty-three feet high and sunk deep into
the ground” were real property.
23
Similarly, in multiple decisions, the Appellate Tax Board has found
that cell phone towers are real property; in one case, even though the tower was “theoretically able
to be dissembled and removed, [it] was nonetheless intended to be permanently situated upon the
subject property, as indicated by its attachment by concrete foundations and guy wires.”
24
By contrast, the Supreme Judicial Court found that a “semiportable asphalt plant” that “c[ould] be
moved from place to place by removing a few nuts,” was not real property.
25
In another case, the
Appellate Tax Board classied underground chemical storage tanks as personal property when:
the tanks at issue are designed to be removable. ey are set on foundations by means
of removable straps. Sand or peastone is placed around the tanks, enabling them to
be removed quickly in an emergency with no destruction to the tanks or to their sur-
roundings. Because they are removable from their surroundings, the tanks resemble
other items that the Board has previously found to be personal property.
26
Under these precedents, there are legitimate arguments that solar PV installations could be properly
classied as either real or personal property. On the one hand, the solar modules themselves are,
like the asphalt plant in B.A. Simeone, detachable “by removing a few nuts.” On the other, at least
some systems are custom-designed for a particular location and are “intended to be permanently
situated upon the subject property.” us the Department of Revenue has stated that solar panels and
associated machinery and equipment may be assessed as real property if they are intended to remain
on the site for their entire useful lives, are designed specically for the parcel, or might cause damage
22 Cameron, supra note 10, at 2.
23 Boston Edison v. Board of Assessors of Boston, 402 Mass. 1, 4, 8 (1988).
24 I. Fred Dicenso Trust v. Board of Assessors of the Town of Wilmington, Nos. F276917-18(04), F279687-88(05),
F283762-63(06), 2009 WL 943056, at *18 (Mass. App. Tax. Bd. Apr. 8, 2009).
25 Bd. of Assessors of Dartmouth v. B. A. Simeone, Inc., 359 Mass. 756, 756 (1971).
26 Perma, Inc. v. Bd. of Assessors, Town of Billerica, Nos. F249189, F257001, 2001 WL 34399733, at *5 (Mass. App.
Tax. Bd. Oct. 25, 2001).
e Solar Property Tax Exemption in Massachusetts | 2013
to the land or equipment if removed.
27
Looking more closely at the elements of a solar PV installation, there is a strong argument that
taxing authorities should distinguish between the modules themselves and the support structures
such as footers, racks, and rails. e modules are generic, o-the-shelf products that are easily
removed from the property; as such, they should be classied as personal property. e support
structures, however, can be more permanently attached to the property (as in ground-mounted
systems with a concrete base) or can be custom-sized and -designed for a particular property
and therefore, at least in some cases, have the characteristics of real property. Dividing up the
installation in this way would, however, create a greater administrative burden for assessors and
increase the complexity of arrangements between solar developers and landowners. Given that
the modules make up by far the largest share of the value of an installed PV system, taxation of
the entire installation as personal property is therefore probably the simplest course for most
projects. e Department of Revenue could issue guidance to this eect to provide greater
certainty and consistency for solar developers and municipalities.
C. PILOT and TIF Agreements Oer Some Potential for Greater Clarity and
Certainty, but Have Their Own Problems.
Some solar PV facilities that do not qualify for a tax exemption under M.G.L. c. 59, §5(45) may
still receive alternative tax treatment through either payment-in-lieu-of-taxes (PILOT) or tax in-
crement nancing (TIF) agreements. ese mechanisms do not fully resolve the problems identi-
ed above, however. First, PILOT agreements are intended to restructure rather than reduce a
property owner’s tax burden. Second, the statutory basis for their application to many solar PV
installations is uncertain. ird, it would not be feasible for municipalities and property owners
to negotiate PILOT agreements for every solar installation in the Commonwealth. Finally, while
TIF agreements could in some circumstances reduce the tax burden for a solar PV installation,
their applicability is limited and they are administratively burdensome. As a result, to date no
TIF agreement has yet been negotiated for a solar PV installation in Massachusetts.
1. PILOT Agreements.
A PILOT agreement is a contract between the municipality and the developer, in which both
sides agree to an alternative tax payment structure that reasonably approximates what the taxes
would otherwise be over the term of the agreement. PILOT payments are treated as property
27 Id.
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taxes for tax classication purposes and are subject to the municipality’s levy limit. Roughly
twenty municipalities have already entered into PILOT agreements with solar developers.
28
e purpose of PILOT agreements is not to provide an exemption or reduced tax rate, but
is instead to allow the town and taxpayer to restructure the course of payments over time.
Nevertheless, both solar developers and municipalities have some incentives to enter into such
agreements. First, PILOTs can provide payment predictability for project owners and revenue
stream stability for municipalities. Second, PILOT agreements can be structured to provide at
or increasing payments over the life of the agreement, which some project owners might prefer
to taxation based on property value, which will be highest at the beginning and then decline over
time.
29
ird, given the legal uncertainty over the scope of the section 5(45) tax exemption, some
municipalities believe that a PILOT provides a clearer taxation mechanism. As explained by Gus
Abalo, a solar developer in Warren, MA, in a newspaper article last year, “the reason for a PILOT
is because the state didn’t give a clear mandate as to how to tax solar projects.”
30
Despite these advantages, PILOT agreements are not without their problems. First, both the
municipality and project developer can nd it expensive and time-consuming to negotiate a
PILOT. For example, in towns, a PILOT agreement must be approved by the town meeting
before it can go into eect, which can add uncertainty and delay to the process. As a result,
PILOT agreements are feasible only for relatively large solar PV installations.
Second, cities and towns have only limited legal authority to enter into PILOT agreements for PV
installations under existing law. Municipalities have been entering into such agreements under
the authority provided by M.G.L. c. 59, § 38H(b), which provides that:
A generation company or wholesale generation company . . . may, in order to
comply with its property tax liability obligation, execute an agreement for the
payment in lieu of taxes with the municipality in which such generation facility is
sited, and said company shall be exempt from property taxes, in whole or in part,
as provided in any such agreements during the terms thereof.
is statute therefore allows communities to enter into PILOT agreements only with a
28 See Appendix A for a table of sample PILOT agreement terms for solar PV projects in Massachusetts.
29 ere are basic two types of payment arrangements under PILOTs: (1) payments based on gross revenue
and cash ow or (2) xed payments for the duration of the PILOT agreement. e former scheme is more
volatile and requires more monitoring and auditing, while the latter creates the most certainty and is the
easiest to administer. PILOT agreements may be 5, 10, or 20 years in duration.
30 Christy Bertini, Voters Approve Solar Tax Agreement, Q C, Feb. 16, 2012, at 12.
e Solar Property Tax Exemption in Massachusetts | 2013
“generation company” or “wholesale generation company.”
ese terms are dened in M.G.L. c. 164, § 1. A “generation company” is “a company engaged
in the business of producing, manufacturing or generating electricity or related services or
products, including but not limited to, renewable energy generation attributes for retail sale to the
public.” A “wholesale generation company” is “a company engaged in the business of producing,
manufacturing or generating electricity for sale at wholesale only.”
Given these denitions, municipalities lack the authority to enter into PILOT agreements with
many owners of PV systems. Homeowners and store owners, for example, are not engaged in
the business of selling electricity at wholesale or retail. erefore, if DOR’s interpretation of the
section 5(45) exemption were to prevail, these individuals would nd themselves both ineligible
for the tax exemption and unable to negotiate a PILOT agreement.
Even when it comes to solar developers, the authority of municipalities to enter into PILOT
agreements is not entirely clear. ese companies would appear to be “generation companies” or
“wholesale generation companies” because they are in the business of generating electricity and
related renewable energy generation attributes. In the context of solar PV projects, however, the
Department of Public Utilities has signicantly limited the reach of these terms. In particular,
it prohibits generation companies (and presumably also wholesale generation companies) from
qualifying for net metering.
31
Since 2008, a privately-owned solar PV installation of up to 2 MW has been eligible for net
metering.
32
In addition, public entities can have up to 10 MW of net metering generating
capacity.
33
e vast majority of solar PV installations in the Commonwealth are below these size
thresholds. Given that net metering provides favorable nancial terms by allowing the generator
to be compensated at the retail price of electricity, most projects that are eligible for net metering
will avail themselves of it. erefore, given that most PV installations are net metering facilities,
and given that the owner of a net metering facility cannot be a generation company or wholesale
generation company, it would seem that very few PV installations would be eligible for PILOT
agreements under M.G.L. c. 59, § 38H(b).
ere is yet another layer of complexity, however. e entity that qualies for net metering
is the customer of the distribution utility. By contrast, the entity that enters into the PILOT
agreement with the municipality is the owner of the PV installation. ese two entities are not
31 See 220 CMR 18.06.
32 M.G.L. c. 164, § 138.
33 M.G.L. c. 164, § 139(f).
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necessarily the same for a given PV project. For example, a private company may develop the solar
PV installation (to be eligible for tax credits and other incentives), while a public entity might own the
land and be the customer of record for the distribution company (and thus be eligible for the higher
net metering threshold).
34
erefore it is possible that some facilities that qualify for net metering are
also eligible for PILOT agreements.
Given the uncertainty and needless complexity created by this legal scheme, the legislature should
clarify the eligibility of solar PV installations for PILOT agreements.
Image: is 49-kilowatt photovoltaic system atop the Artists for Humanity EpiCenter in Boston generates 50% of the
building’s electricity needs, available at Massachusetts Energy & Environmental Aairs photostream, http://www.ickr.com/
photos/masseea/6260744813/
2. TIF Agreements.
TIF agreements are another nancing mechanism for restructuring or reducing a project’s property
tax burden. A TIF agreement provides a full or partial exemption from property taxation on
the “incremental” value of a property as a result of new development. Massachusetts law allows
34 Note that this arrangement is eligible for a PILOT agreement only if the PV installation is assessed as private
property (and therefore the solar developer is the taxable entity). If it is assessed as real property, the landowner
(who is not a generation company or wholesale generation company, M.G.L. c. 59, § 38H(b)) would not be able
to enter into a PILOT agreement.
e Solar Property Tax Exemption in Massachusetts | 2013
municipalities to use TIF agreements to promote job creation in economically depressed areas.
35
ere are several restrictions on the use of TIF agreements that limit their usefulness for solar PV
projects, however. First, only the largest commercial installations could plausibly be considered to
have a suciently great economic impact to qualify for a TIF agreement. Second, TIF agreements
are generally available only in an Economic Opportunity Area, as designated by the Economic
Advisory Coordinating Council.
36
If the proposed location of the installation is not in an Economic
Opportunity Area, the Undersecretary of Business Development must approve the proposed location
as an area “area “presenting exceptional opportunities for increased economic development.”
37
e agreement must also be approved by the Economic Assistance Coordinating Council and the
municipality where the project is located.
38
ere are currently relatively few TIF projects in Massachusetts and none involve solar PV
installations. Renewable energy projects are eligible for TIF agreements under the Green
Communities Act of 2008, however,
39
and the town of Douglas has entered into a TIF agreement
with a 30-MW wind farm.
40
e agreement provides for payments averaging about $5,293 per MW
annually for 15 years in lieu of property taxes.
41
35 See M.G.L. c. 23A, §§ 3E, 3D(a)(ii)(K); c. 40, § 59; 760 CMR 22.03(1).
36 See 760 CMR 22.04(1).
37 760 CMR 22.04(2).
38 760 CMR 22.06-22.07.
39 M.G.L. c. 23A, § 3D(a)(ii)(K).
40 omas Mattson, Douglas Voters Okay Tax Break for Wind Farm, B V T, Nov. 20, 2009,
at A1, available at http://www.blackstonevalleytribune.com/pdf/BLA.2009.11.20.pdf.
41 Id. at A6.
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PROPERTY TAXATION OF SOLAR PV SYSTEMS IN OTHER
STATES
To better understand the implications of Massachusetts’ current approach to taxing solar PV
systems and to explore the range of options available for the Commonwealth, we have reviewed the
approaches to property taxation of solar PV systems in the 48 contiguous states and the District
of Columbia. is review revealed that twenty-nine states oer some variation of a property tax
incentive for solar PV systems, while eighteen states and the District of Columbia do not. In this
Part, we briey summarize the dierent approaches that states have taken in adopting property tax
incentives for solar PV systems and some of the advantages and disadvantages of each approach.
A. States with No Exemption.
First, as noted above, eighteen states and the District of Columbia oer no property tax exemption for
solar PV systems. It is dicult to draw any general lessons regarding the reasons for or eect of these
states’ failure to provide an exemption, but some tentative suggestions are possible.
As for the possible reasons: rst, these states are largely located in the South Atlantic, East South
Atlantic, and Mountain regions, all of which receive relatively high amounts of solar energy.
42
As a
result, it is possible that in these states solar PV installations are not as dependent on this form of
nancial support as they are in other parts of the country. Some of the states, including Nebraska,
Oklahoma, and Pennsylvania, appear to have prioritized wind over solar and oer property tax
incentives for wind systems only.
43
Most of the states do oer a variety of other nancial incentives
for solar projects, including tax credits, rebates, or grants, so it is also possible that they have simply
chosen a dierent portfolio of incentives that could have as great a cumulative eect.
As for the eects of a state not providing a tax exemption—given the complexities just described, it is
again dicult to draw general lessons. It is worth noting, however, that none of these states is in the
top eight states in the country in terms of the amount of solar capacity installed.
44
42 See N R E L, P S R U S
M (2012), available at http://www.nrel.gov/gis/images/eere_pv/national_photovoltaic_2012-01.jpg.
43 Neb. Rev. Stat. § 77-6203(2)(a); Okla. Stat. tit. 68, § 2902; 53 Pa. Cons. Stat. §§ 8811, 8842.
44 See Solar Energy Industries Ass’n, Solar Industry Data, http://www.seia.org/research-resources/solar-industry-
data (last visited July 3, 2013).
e Solar Property Tax Exemption in Massachusetts | 2013
B. State-mandated Property Tax Exemption.
A plurality of states—twenty-two of them—mandate that municipalities oer some form of property
tax exemption. is group includes the top ve states in installed solar PV capacity as of the end of
2012—California, Arizona, New Jersey, Nevada, and North Carolina.
45
Although all of these states
provide tax exemptions for at least some solar PV installations, a number of them limit the availability
of the exemption in various ways.
1. Property- or Place-based Approaches.
First, some states require that energy produced by a solar PV system be used on-site to qualify for a
property tax exemption. For example, New Jersey exempts systems used to supply the “general energy
needs of [the building],”
46
Oregon limits its exemption to systems “primarily designed to oset onsite
electricity use,”
47
and Arizona’s exemption applies to systems “used to produce energy primarily for
on-site consumption.”
48
In these states, it makes no dierence whether the system is installed on
residential, commercial, industrial, or mixed-use property.
Recognizing that a grid-connected, net-metered system will inevitably feed some energy into the grid,
most such states either explicitly or implicitly allow some energy to be sent o-site without losing the
exemption. us, for example, Nevada provides that its exemption applies “regardless of whether
the owner . . . participates in net metering,”
49
and Oregon species that exempt systems include “a
net metering facility.”
50
In Iowa, as explained in a Department of Revenue opinion letter, a system is
exempt as long as the system “is primarily used to provide energy” to the property where it is located,
even if excess energy is sold to the grid.
51
2. Purpose-Based Approach.
A second group of states limit the availability of the exemption based on the purpose for which the
solar system is installed and used. Under the most common purpose-based limitation, an exemption
45 Id.; DSIRE, Property Tax Incentives for Renewable Energy, http://www.dsireusa.org/incentives/index.cfm?SearchT
ype=Property&EE=0&RE=1 (last visited July 3, 2013).
46 N.J. Stat. 54:4-3.113a.
47 Or. Rev. Stat. § 307.175.
48 Ariz. Rev. Stat. § 42-11054.
49 Nev. Rev. Stat. § 701A.200.
50 Or. Rev. Stat. § 307.175.
51 See Letter from Dale Hyman, Administrator, Property Tax Division, Iowa Dep’t of Revenue, to John Lawson,
Clay County Assessor (Jan. 16, 2009), available at http://www.iowa.gov/tax/locgov/prop011609.html.
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is available only for solar PV installations on residential properties. For example, Connecticut limits
the exemption to installations “for a single family dwelling, multifamily dwelling consisting of two to
four units, or a farm.”
52
Other states with similar approaches include New Mexico,
53
North Carolina,
54
and Louisiana.
55
52 Conn. Gen. Stat. § 12-81(57).
53 N.M. Stat. § 7-36-21.2 (providing exemption for residential property).
54 North Carolina exempts 80% of the valuable of taxable solar VP systems. N.C. Gen. Stat. § 105-275. In addi-
tion, however, the Department of Revenue has determined that residential PV systems are completely exempt.
See Memorandum from David B. Baker, Director, Local Gov’t Div., N.C. Dep’t of Revenue, to County Asses-
sors 1 (Feb. 15, 2011) (“[S]ystems owned by individuals and not used to produce income or in connection with
a business are not taxable. Photovoltaic systems installed on a private residence may t into either category.
Photovoltaic systems installed on the premises of a business will normally be business personal property and
therefore taxable.”).
55 La. Rev. Stat. § 47:1706 (exempting “any equipment attached to any owner occupied residential building or
swimming pool as part of a solar energy system”).
State exemption
No exemption
Equal treatment
Opt-out local option
Opt-in local option
e Solar Property Tax Exemption in Massachusetts | 2013
3. Capacity-based Approach.
A third group of states provide a property tax exemption for solar PV systems below a certain size
threshold. For example, South Dakota exempts systems with a capacity of less than 5 MW,
56
Ohio
exempts systems of 250 kW or less,
57
and Colorado exempts independently-owned residential systems
of no more than 100 kW.
58
All of these states base the exemption on the system’s capacity rather than
its actual energy production.
4. Other Limits on Eligibility for the Exemption.
Besides application of a property, purpose, or size-based approach or a combination thereof, most
states do not impose any other restrictions on property tax exemption for solar PV systems. Two
states, however, impose monetary limits. Montana exempts from taxation PV systems up to $20,000
in value for single-family homes or up to $100,000 for multi-family dwellings and non-residential
structures.
59
South Dakota exempts up to the rst $50,000 or 70 percent of the assessed value of the
renewable energy property, whichever is greater.
60
In addition, a number of states have temporal
limits, under which the property tax exemption is available only for a xed number of years from the
date of installation, such as 5 in Iowa
61
and North Dakota
62
and 10 in Montana.
63
C. Local Option Property Tax Exemptions.
Some states do not mandate a state-wide approach to property tax exemptions for solar PV systems
but instead provide municipalities with exibility in deciding whether to adopt or reject a property tax
incentive for solar PV systems. States use one of two models to implement this approach.
56 S.D. Codied Laws § 10-4-44.
57 Ohio Rev. Code § 5709.53(B).
58 Colo. Rev. Stat. § 39-3-102. An “[i]ndependently owned residential solar electric generation facility” is a facility
“located on residential real property” and “owned by a person other than the owner of the residential real prop-
erty.” Colo. Rev. Stat. § 39-1-102(6.8). As discussed below, Colorado also provides local governments with the
option of providing exemptions for other residential PV systems and for commercial systems.
59 Mont. Code § 15-6-224. e exemption is calculated based on the Department of Revenue’s determination of
the system’s market value. Mont. Admin. R. 42-19-1104(2)(e).
60 S.D. Codied Laws § 10-4-44.
61 Iowa Code § 441.21.
62 N.D. Cent. Code § 57-02-08.
63 Mont. Code § 15-6-224.
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1. Opt-in Model.
An opt-in model is used by six states, with three of them—New Hampshire, Rhode Island, and
Vermont—in the New England region. States in this group provide each municipality with an option
to adopt a property tax exemption for particular energy sources. e opt-in approach provides
municipalities with signicant autonomy with regard to property taxation matters but may discourage
residents of municipalities that choose not to opt-in from installing solar PV systems. One state—
Missouri—has adopted a compromise approach by setting a state-mandated property tax exemption
oor of 50 per cent and allowing municipalities to raise the exemption amount up to 100 per cent.
64
Colorado also has a hybrid system, with a statewide exemption for independently-owned residential
systems below 100 kW (as described above) and a local option to provide exemptions for other
residential systems and for commercial systems.
65
e opt-in approach is also sometimes used by
states with two levels of property taxation—state and local—as is the case in Vermont, which provides
a uniform exemption from the state property tax for projects below a size threshold and an option for
municipalities to exempt solar projects from local property taxes.
66
2. Opt-out Model.
An opt-out approach is relatively rare and is used only by two states: New York and Michigan.
67
Under this model, the state creates a statewide default property tax exemption but allows
municipalities to opt out of it. e opt-out model presents a compromise between a state-mandated
exemption and an opt-in approach, and is more favorable to residents seeking to invest in solar PV
systems and solar developers than an opt-in approach because municipalities have to go through a
formal process to opt out.
64 Missouri Department of Economic Development, Enhanced Enterprise Zone, http://www.ded.mo.gov/BCS%20
Programs/BCSProgramDetails.aspx?BCSProgramID=39 (last visited July 3, 2013).
65 Colo. Rev. Stat. §§ 31-20-101.3 (providing authority to municipalities); 30-11-107.3 (providing authority to
counties).
66 32 Va. Code Ann. §§ 3802(17); 8701(c) (statewide); 32 Va. Code Ann. § 3845 (local option).
67 Mich. Comp. Laws § 211.9i; N.Y. Real Prop. Tax Law § 487. Note that Michigan’s exemption, which was adopted
in 2002, expired at the end of 2012.
e Solar Property Tax Exemption in Massachusetts | 2013
D. Equal Treatment.
e equal treatment model is used in only two states: Rhode Island and Illinois. is approach
mandates that the solar equipment is valued at no more than the value of “energy production capacity
that otherwise could be necessary to install in the building.”
68
In practice, this approach should result
in a complete exemption for systems used primarily for on-site energy consumption.
69
Rhode Island
has a hybrid approach, granting local governments an option to provide an exemption and mandating
equal treatment in municipalities that choose not to oer an exemption.
70
Image: e Greater Boston Food Bank’s solar panels, available at Massachusetts Energy & Environmental Aairs
photostream, http://www.ickr.com/photos/masseea/5857332148/
68 R.I. Gen. Laws § 44-57-4(a)(6); 35 Ill. Comp. Stat. 200/10-10.
69 See Michelle Hickey, Special Assessment for Illinois Solar Energy Systems, I S E A
B (July 11, 2012), http://www.illinoissolar.org/blog?mode=PostView&bmi=1005734.
70 R.I. Gen. Laws §§ 44-3-21 (“e city or town councils of the various cities and towns may, by ordinance, exempt
from taxation any renewable energy system located in the city or town.”); 44-57-4(a)(6) (“Notwithstanding any
other provisions of the general laws, for purposes of local municipal property tax assessment, qualifying renew-
able energy systems shall not be assessed at more than the value of a conventional heating, conventional hot
domestic hot water systems, or energy production capacity that otherwise could be necessary to install in the
building.”).
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CURRENT LEGISLATIVE PROPOSALS
In this Part, we draw on the observations in the previous Parts to assess the pros and cons of several
bills currently pending in the state legislature that would amend the laws relating to the taxation
of solar PV systems. Each bill contains two central provisions: (1) a property tax exemption for
solar PV systems under a certain size threshold,
71
and (2) specic authority for PILOT agreements.
In reviewing the bills, we focus on their impact on the state’s goal of promoting solar energy
development and on municipalities’ ability to generate tax revenue. We also consider the bills under
some of the traditional criteria for assessing a tax system, including equity, economic eciency,
certainty, and administrability.
72
A. Summary of Introduced Bills.
ere are four bills addressing the taxation of solar PV systems that have been introduced in the
General Court in the current legislative session:
• H.2677 An Act relative to the equitable taxation of ground mounted solar systems.
• H.2740 An Act to modernize the renewable energy tax exemption.
• S.1329 An Act relative to the equitable taxation of solar systems.
• H.2505 An Act relative to solar taxation.
Because H.2677 does not purport to provide a comprehensive revision of the law, but instead
addresses only ground-mounted systems, our discussion focuses on the other three bills.
1. H.2740
H.2740 was introduced by Representative Smizik and Senator Joyce and has nine co-sponsors. It
would amend G.L. c. 59, § 5(45), the statute creating the tax exemption for solar PV systems, to:
• Exempt solar PV systems with a capacity no greater than 60 kW for 20 years;
71 e exception is H.2677, which eliminates the tax exemption for ground mounted solar systems.
72 U.S. G’ A O, U T T R D: B, C,
A Q 24 (2005), available at http://www.gao.gov/new.items/d051009sp.pdf. Equity includes both
horizontal equity, which requires taxpayers in similar situations to receive the same tax treatment, and vertical
equity, which requires the tax burden to correspond to taxpayers’ ability to pay. Id. at 27-28. Economic e-
ciency encompasses the degree to which a tax program distorts the economic decisions of taxpayers. Id. at 35.
Certainty refers to predictability, transparency, and overall understanding of the tax system by taxpayers. Id. at
45-48. Administrability encompasses cost and ease of implementation, enforcement, and compliance. Id. at 49.
e Solar Property Tax Exemption in Massachusetts | 2013
• Exempt 85% of the appraised value of solar PV systems with a capacity greater than 60 kW for
20 years; and
• Provide explicit authority for municipalities and project owners to enter into PILOT agree-
ments, which “shall be the result of good faith negotiations and shall be the equivalent of the
property tax obligation based on full and fair cash valuation.”
2. S.1329
S.1329 is sponsored by Senators Downing, Jehlen, and Eldridge. It would amend G.L. c. 59, § 5(45) to:
• Exempt a solar PV system “that is capable of producing not more than 125 per cent of the an-
nual energy needs of the property upon which it is located;” and
• Exempt other solar PV systems, provided that the owner makes a “payment in lieu of taxes
equal to 6 percent of the system’s gross electricity sales.”
3. H.2505
H.2505 is sponsored by Representatives Beaton and Ferguson. It is identical to S.1329, except that,
rather than set a xed PILOT rate of 6 percent, it instructs municipalities to “establish a rate between
0 and 20 percent that will be used in calculating all payments in lieu of taxes relative to this section,
which then shall be applied to a system’s gross electricity sales.”
B. Areas of Broad Agreement.
ere are three topics regarding which there are uncontroversial, win-win changes to the law that
all sides should favor. First, there is a consensus that the status quo is unsatisfactory and some
clarication of the law is necessary. As explained above, there are signicant ambiguities and
uncertainties in the application of current law regarding both the renewable energy property tax
exemption and PILOT agreements to solar PV projects. is uncertainty hinders the development of
renewable energy projects and increases the administrative burden on municipalities. It is therefore
not a surprise that both the solar industry and municipal assessors have requested that the legislature
clarify the scope of the exemption.
73
73 See My Generation Energy, supra note 9; Memorandum from Peter Rothstein, President, New England Clean
Energy Council, to Members of the Massachusetts House of Representatives 3 (June 27, 2012) (“Today, so-
lar project developers face as many dierent views on how to assess solar generation facilities for local taxa-
tion as there are local assessors. . . . e property tax burden can be priced into the product, but an uncertain
future property tax liability cannot be.”); See Letter from R. Lane Partridge, Assessor, Town of Concord, to Jay
Kaufman, Chair, Massachusetts House of Representatives, Michael Rodrigues, Chair, Massachusetts Senate, and
Joint Committee on Revenue (April 22, 2013), at 1 (“I can not stress enough the need for Chapter 59, Section 5,
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Second, there is consensus that at least some smaller PV systems should be exempt from local
property taxes.
74
Municipal assessors are already generally treating residential systems as exempt
and R. Lane Partridge, President-Elect of the Massachusetts Association of Assessing Ocers, has
indicated that he supports an exemption for systems from which most energy is used on-site.
75
As
discussed below, however, there remains disagreement about how best to identify the subset of solar
PV installations that should be eligible for this exemption.
ird, there is broad agreement that the authority of municipalities to enter into PILOT
agreements with solar PV project owners should be claried. As discussed above, under current
law, municipalities do not have the authority to enter into PILOT agreements with respect to all
solar PV projects that are not eligible for a property tax exemption. A legislative amendment that
clearly established this authority would eliminate any lingering legal uncertainty about current
agreements and would allow project owners and municipalities to negotiate new agreements with the
condence that these agreements will be upheld if challenged later. Here too, however, there remain
disagreements about the precise dimensions of this authority.
C. Contested Provisions.
1. Scope of the Property Tax Exemption.
ere are three, interrelated points of contention regarding the appropriate scope of the exemption.
e rst involves how many projects should be exempted. e second concerns the manner in which
the threshold should be identied, whether by the PV system’s capacity or by the proportion of the
energy produced by the system that is used on-site. e third involves the treatment of larger projects
that do not qualify for an exemption: should they receive a partial exemption or have their taxes
capped?
As for the rst issue, the exemption should be large enough to cover all installations whose energy is
wholly or primarily used on site. ese installations are not intended as prot-making businesses. In
Clause 45 to be claried.”); but see Letter from Georey Beckwith, Executive Director, MMA, to Jay R. Kaufman,
House Chair, et al. (Apr. 9, 2013), available at http://www.mma.org/advocacy-mainmenu-100/letters-to-state-
leaders/11817-mma-letter-to-revenue-committee-opposing-bills-that-would-alter-local-taxing-authority-on-
renewable-energy-equipment (“ere is no need to change the current law.”).
74 Note that this agreement reects the implicit assumption that there should be a statewide exemption, rather
than an opt-in or opt-out exemption, as adopted in some other states, as discussed above. See text accompany-
ing notes 64-67, supra. We believe that a uniform, statewide exemption is better than a local option approach,
because it better promotes renewable energy development and is also preferable from the perspectives of admin-
istrability and horizontal equity.
75 Telephone Interview with R. Lane Partridge (Apr. 16, 2013).
e Solar Property Tax Exemption in Massachusetts | 2013
addition, according to a report prepared last year by the Vermont Department of Public Services and
Vermont Department of Taxes, “there is no market evidence suggesting that the presence of small
scale solar . . . projects increase the value of the real estate.”
76
Failing to exempt these systems would
also greatly increase the administrative burden on municipalities and impede the Commonwealth’s
renewable energy goals.
On the second issue, the bills before the legislature adopt two approaches. H.2740 proposes a
specic numerical threshold for eligibility—equivalent to what we described as the “capacity-based
approach” in our discussion of other states, above.
77
H.2505 and S.1329 instead would establish a
threshold based on a percentage of the property’s annual energy needs—what we referred to above as
a “property- or place-based approach.”
78
e specic numerical threshold of 60 kW included in H.2740 provides the most certainty and
predictability. Residential, nonprot, or commercial property owners who choose to install solar
systems with less than 60 kW capacity would benet from the property tax exemption regardless of
whether the energy produced by their systems is used as primary or backup power system for the
property or was sold to the grid. Considering a typical residential system capacity in Massachusetts
is approximately 5 kW, this threshold would exempt virtually all residential systems in the
Commonwealth, which would be consistent with both the spirit of the statute as originally adopted
in the 1970s and with the most common current interpretation of the provision by local assessors.
Larger-scale commercial projects, such as those listed in Appendix A, would not qualify for an
exemption under this scheme. Municipalities would also benet from lower administrative costs due
to ease of interpretation and enforcement of the statute, and lower compliance costs.
An approach based on a percentage of the property’s annual energy needs, as proposed by H.2505
and S.1329, is harder to administer and enforce because local tax assessors would have to determine
“annual energy needs” of the property either through self-reporting or the use of historic energy
consumption data, assuming it constitutes an accurate prediction of the future energy needs. If actual
energy use is used, this approach also creates a perverse incentive for the property owner to increase
76 Vt. Dept. of Public Service & Vt. Dept. of Taxes, Report on the Valuation of Renewable Energy Property 3 (2012),
available at http://www.state.vt.us/tax/pdf.word.excel/misc/Renewable%20Energy%20value%20report%20
to%20legislature%201%2010%2012%20%282%29.pdf.
77 All of the bills use “energy generating capacity” rather than actual energy production to determine which
systems qualify for the exemption. Using the actual energy production gure would result in a more equitable
property taxation system but would be overly complex to administer, because actual energy production is likely
to uctuate from year to year. A capacity-based tax also “provides additional incentives to property owners to
design, locate, operate and maintain their systems to maximize the electricity generated.” Id. at 6.
78 None of the bills adopts a purpose-based approach. Cf. text accompanying notes 52-55, supra.
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its energy use in order to qualify for the exemption. is approach also provides less certainty than a
numerical limit, especially in cases of new residential or commercial construction projects where no
historic data exists with regard to annual energy needs.
Another possible solution, not advanced in the current bills, is a hybrid system. Under this approach,
any solar PV project with generating capacity of less than 60 kW or over 60 kW but less than 125
per cent of the energy needs of the property would be exempt.
79
e hybrid system would provide
certainty and exibility but it would also result in a somewhat greater administrative burden. (e
burden will be less than under a pure “annual energy needs” approach because all projects below the
size threshold would automatically qualify without any need for measuring that property’s energy
use.) To enhance the administrability of a hybrid scheme, exemptions based on energy generation
as a percentage of energy needs should be calculated using the historic energy consumption of the
property. is approach would also avoid the perverse incentive to increase energy use identied
above.
2. PILOT Agreements.
Each of the bills includes a clause allowing municipalities to enter into PILOT agreements with
the owners of solar PV systems not otherwise exempt from property tax. e proposals range
from setting a state-mandated xed rate for a PILOT agreement (S.1329), to providing a range of
permissible rates (H.2505), to giving municipalities power to negotiate any rate “in good faith”
(H.2740). e basic dispute on this issue is between solar developers’ preference for a low xed rate
and municipalities’ preference for greater exibility.
80
79 e main beneciaries of this approach would likely be large industrial or commercial projects. For example,
REI has added 200 kW of solar PV capacity to its Framingham store and IKEA in Stoughton has installed a 591
kW system. Erin Ailworth, Mass. Businesses Driving Growth in Solar Investments, B G, Sept. 23,
2012. Because these systems have a capacity of more than 60 kW, but nevertheless produce less electricity than
is used on-site, they would qualify for an exemption under this hybrid scheme, but not under a pure size thresh-
old approach.
80 is dispute played out last year, when both S.2214, passed by the Senate, and H.4198, passed by the House,
included xed rates for PILOT agreements (ve percent and six percent, respectively). Aer signicant opposi-
tion from cities and towns represented by Massachusetts Municipal Association (MMA), see, e.g., Letter from
Georey Beckwith, Executive Director, MMA, to erese Murray, Senate President (Mar. 28, 2012), available at
http://www.mma.org/advocacy-mainmenu-100/letters-to-state-leaders/6420-mma-letter-to-senate-president-
urging-caution-on-solarwind-tax-exemption, the provision was removed from the bill in conference committee
before it was enacted as An Act Relative to Competitively Priced Electricity in the Commonwealth. 2012 Mass.
Acts ch. 209.
e Solar Property Tax Exemption in Massachusetts | 2013
Municipalities are concerned that a low xed PILOT rate provides solar developers with a windfall
and reduces municipal revenues necessary for critical local services,
81
forcing municipalities either to
make budget cuts or to increase property tax rates for other businesses and homeowners. Cities and
towns further argue that it is impossible to set a fair xed rate at the state level without taking into
account multiple factors that inuence the negotiated PILOT rates, including property tax rates, land
values, and power purchase agreements (PPA).
82
Under power purchase agreements, municipalities
may buy power from solar projects at a discount and simultaneously agree to a lower tax rate in a
coordinated PILOT agreement. Solar developers on the other hand favor a xed rate for its certainty
and predictability and argue that a xed rate would help smaller communities that do not have
signicant negotiating experience and allow solar facilities to be developed in the best locations based
on infrastructure and the power grid and not on the availability of local tax rate incentives.
83
H.2505 provides a range of permissible PILOT rates from 0 to 20 percent of electricity sales, giving
more exibility in the administration of property taxes to municipalities and certainty to solar
developers. H.2740 goes even further, allowing municipalities to negotiate PILOT agreements for
any amount as long as the rate is “the result of good faith negotiations.” is proposal provides the
most autonomy to municipalities and allows competition among municipalities. At the same time,
however, it disadvantages smaller municipalities that are not experienced in negotiations.
84
is
shortcoming could be remedied by DOR- or MAA-administered educational programs for local
ocials. is model may also result in higher transaction costs for developers and municipalities
and not give solar developers their desired level of certainty. Solar projects rarely advance past the
planning stage before the property tax arrangement is settled, however, meaning developers would
undertake capital expenditures with full knowledge of their expected property tax liability regardless
of the PILOT rate model in place. It is also important to note that PILOTs are entirely voluntary
for municipalities and mandating a xed PILOT rate or a range of PILOT rates may discourage
municipalities from oering PILOT agreements, thus hindering the Commonwealth’s goal of
promoting solar energy development.
81 Ken Cleveland, Solar Taxation Remains Up in the Air in Mass., W T G (Sep. 5,
2012), http://www.telegram.com/article/20120905/NEWS/109059894/1237.
82 Letter from R. Lane Partridge, supra note 73, at 1.
83 Cleveland, supra note 81.
84 is shortcoming could be remedied by DOR- or MMA-administered educational programs for local ocials.
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On the whole, the open-ended PILOT authority of H.2740 is the best approach. It is suciently
exible to accommodate municipalities’ concerns. In addition, as long as it is combined with a
suciently generous exemption from taxation, it should not impede the expansion of solar power in
Massachusetts.
85
85 None of the bills address whether PV installations should be taxed as real or personal property. Despite the
uncertainty surrounding this issue, as discussed above, it is best for the legislature not to address it at this time.
ere is too much diversity in solar PV installations, and the technology is changing too rapidly, for a one-size-
ts-all legislative solution to work. As indicated above, however, we believe that the Department of Revenue
should issue guidance indicating that most PV installations, which use o-the-shelf PV modules that can easily
be removed, should be taxed as personal property. is approach would also ensure that when the owner of the
PV installation is not the owner of the land, which is the case under the increasingly popular solar leasing ar-
rangements, it is the owner of the PV installation against whom the tax is assessed.
e Solar Property Tax Exemption in Massachusetts | 2013
CONCLUSIONS
We recommend that the legislature pass a law containing the following elements:
• A property tax exemption for any solar PV system with a capacity of less than 60 kW, com-
bined with an exemption for a system that has a capacity no greater than 125 per cent of
the historic annual energy needs of the property upon which it is located; and
• A grant of authority to municipalities to enter into PILOT agreements for any PV installa-
tion not eligible for an exemption at any rate that is the result of good faith negotiations.
is statutory scheme would achieve several goals:
• resolve ambiguity in G.L. c. 59, § 5(45);
• provide an automatic tax exemption for residential and small commercial and industrial
solar PV systems, which is consistent with the spirit of the original statute and current
practice;
• preserve municipal autonomy to negotiate PILOT agreements based on local property tax
rates, associated PPAs, and the municipality’s nancial position; and
• promote solar development in accordance with the Commonwealth’s stated renewable
energy goals.
Emmett Environmental Law & Policy Clinic | Harvard Law School
APPENDIX A: SAMPLE PILOT AGREEMENT TERMS FOR
SOLAR PV PROJECTS IN MASSACHUSETTS
e following table presents a sample of currently active PILOT agreements in the Commonwealth:
86
86 e data have been compiled from the following sources: George Sansoucy, Solar Photovoltaic (PV) Projects
for Ad Valorem Tax Purposes or for Negotiation of PILOT Agreements, Presentation (Feb. 27, 2013); Deborah
Gauthier, Northbridge Oks Solar Power Agreement with Con Edison, N D V, Feb. 12, 2013,
available at http://northbridge.dailyvoice.com/politics/northbridge-oks-solar-power-agreement-con-edison;
Christopher Nichols, Solar Power Soars to New Highs in Berkley, S S R E (Jul.
14, 2012), available at http://southernskyrenewable.com/news/; Town of Ashburnham, Board of Selectmen
Meeting Minutes (Apr. 2, 2012), available at http://www.ashburnham-ma.gov/Pages/AshburnhamMA_BOS-
Min/2012%20BOS%20Minutes/2012-4-2%20BOS%20Minutes.pdf; as well as copies of PILOT agreements
produced by the Department of Revenue in response to a public records request and on le with the authors.
Location
Project Size
Average Annual
Payment
Price/MW
Ashburnham
3 MW $75,000 $25,000
Berkley
6 MW $31,568 $5,261
Berkley
2.9 MW $20,300 $7,000
Carver
6 MW $88,000 $14,667
Chicopee
2.5 MW $25,000 $10,000
Douglas
2 MW $48,950 $24,475
Groveland
3.5 MW $22,000 $6,430
Mashpee
1.83 MW $25,446 $13,905
Millbury
6.0 MW $73,000 $12,166
Northbridge
4 MW $39,224 $9,806
Rochester
4.2 MW $40,000 $9,524
Shrewsbury
3.326 MW $37,424 $11,252
Southbridge
1.6 MW $22,751 $14,219
Uxbridge
2.5 MW $41,000 $16,400
Uxbridge
0.9 MW $15,300 $17,000
Warren
6 MW $42,000 $7,000
Whateley
2.4 MW $20,167 $8,403
Winchendon
6 MW $140,000 $23,333
Winchendon
3 MW $70,000 $23,333
e Solar Property Tax Exemption in Massachusetts | 2013
Note, however, that a straight per-megawatt comparison does not necessarily provide a full picture
of the economic arrangement between the municipality and the solar developer. Municipalities that
operate their own electric utility will typically also enter into a power purchase agreement (PPA) with
the solar developer to buy the energy produced by the solar
installation. Given that negotiations over the PPA and PILOT agreements can occur simultaneously, a
lower PILOT rate may be exchanged for a lower per-megawatt purchase price for the energy.
87
For the same reason, it does not necessarily provide a complete picture to compare the per-megawatt
rates imposed on solar PV projects or negotiated for these projects in PILOT agreements to the per-
megawatt tax rates for conventional power plants. Nonetheless, it is striking that, by this measure, all
virtually all of the PILOT rates identied above are higher than the average tax rate for such plants in
Massachusetts.
88
87 See Letter from R. Lane Partridge, supra note 73.
88 See My Generation Energy, supra note 9.
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Harvard Law School
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Cambridge, MA 02138
Phone +1-617-496-2058
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e Emmett Environmental Law & Policy Clinic at Harvard Law School is directed by Wendy B.
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to providing its students an opportunity to do meaningful, hands-on environmental legal and policy
work. Students and clinic sta work on issues such as climate change, pollution reduction, water protec-
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