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Bryan Miller, Sunrun's vice president of public policy and power markets, called the Department of Revenue's reading of the law "a contortionist routine" that mixes up statutes written separately for rooftop solar panels and utility-scale systems designed to export power to the electric grid.
SolarCity Corp. and Sunrun Inc. are suing the Arizona Department of Revenue over a decision to tax leased solar equipment, an interpretation of existing law that would cost Sunrun's in-state customers more than $7.6 million in tax year 2015, according to documents filed in Arizona Superior Court.
Arizona law exempts from property tax collection solar panels that produce electricity "primarily for on-site consumption," while another statute states that panels not used for self-consumption are valued at 20% of the depreciated cost of the equipment. The state Department of Revenue in a 2013 memorandum drew a distinction between solar panels that homeowners buy themselves and those that are leased from companies including Sunrun and SolarCity.
"The production of power for on-site consumption is not the determinative factor for central valuation," the Department of Revenue said. "The analysis must consider if the on-site renewable energy equipment produces energy that is not intended for self-consumption."
Solar panels are considered taxable property if the equipment's owner -- a solar company or utility in the case of leasing arrangements -- does not consume the power, Michael Galloway, a tax lawyer with Gallagher & Kennedy LLP, wrote in a blog post.
Bryan Miller, Sunrun's vice president of public policy and power markets, called the Department of Revenue's reading of the law "a contortionist routine" that mixes up statutes written separately for rooftop solar panels and utility-scale systems designed to export power to the electric grid.
"The job of any court and any agency interpreting the law is to read statutes to not find a conflict, and there's no conflict here. ... The statute says if [a rooftop solar system] is designed primarily for on-site consumption, it's not taxed, period," Miller said. The Department of Revenue seems to be saying that "they view the statute that talks about self-consumption as overruling, somehow, the statute that talks about on-site consumption."
Sunrun and SolarCity in a complaint said they "are not in the business of generating, transmitting or distributing electricity to customers within the meaning of [the law]," and that the leased panels are not subject to property assessments because they are used primarily for on-site consumption and are "not delivered via a transmission and distribution system."
Galloway said July 1 that the case seems to boil down to the role of third-party solar leasing companies, which he described as a "new beast" that courts and regulators have to deal with. While solar leasers contend that they simply are leasing equipment that generates electricity for customers to use, "in reality, it seems like they're providing electricity," he said.
Galloway said the distinction "seems to be the rub," adding that the Department of Revenue's reading "makes total sense."
Miller said the function of third-party solar leasing companies is an "interesting" policy question but not one that factors into his company's complaint. "How do I get around the simple black-and-white language in this that says, if [a solar system] is designed primarily for on-site consumption, it's not taxable?" he asked.
Sunrun and SolarCity said language in their lease contracts would pass any property taxes on to their customers.
Copyright SNL Financial LC Jul 02, 2014