Ariz. high court declares solar leases exempt from state tax

The Arizona Supreme Court in a ruling Friday spared tens of thousands of homeowners who lease rooftop solar panels from paying property taxes to the state on that equipment.

“Because taxpayers do not operate electric generation facilities, (the Arizona Department of Revenue) lacks authority under (state law) to value the solar panels,” Justice Ann A. Scott Timmer wrote for the unanimous opinion of the court.

Friday’s ruling leaves open the possibility that lower courts could decide that counties, not the state, could as-

sess taxes to leased solar panels. The Supreme Court opted not to offer an opinion on that and instead left it to the lower courts.

“The Supreme Court’s decision gives more Arizonans the freedom to choose their own clean energy,” said Alex McDonough, vice president of public policy at solar-leasing firm Sunrun Inc. “Property taxes should not apply to home solar, and we’re pleased that Arizona and the vast majority of other states recognize this reality.”

The debate stretches to 2013, when the Department of Revenue decided to assess property taxes on leased solar panels. Arizona Public Service Co., the state’s biggest electric company, supported that move.

“The Department of Revenue appreciates the Arizona Supreme Court’s decision as this is a complex case involving business personal property,” the department said in a statement following the decision.

“The department is committed to following the direction that the state Supreme Court outlined in its ruling,” it added.

Arizona law includes a statute that states: “Solar energy devices ... designed for the production of solar energy primarily for on-site consumption are considered to have no value and to add no value to the property on which such device or system is installed.”

The Department of Revenue decided that the leased panels did not qualify for the exemption and that companies such as SolarCity Corp. and Sunrun would be assessed taxes on the systems like any other utility property.

The taxes would have been pushed onto solar customers — not only affecting tens of thousands of people who lease panels by making their investment uneconomical, but also likely hurting solar-leasing companies going forward.

The debate wound through the courts before landing at the state Supreme Court.

SolarCity and Sunrun potentially faced millions of dollars in taxes because of the Department of Revenue’s decision to assess the panels as utility equipment.

The companies said most of their leasing contracts would pass the liability on to the homeowners, businesses, schools and non-profits that lease the panels.

Most schools, churches and other government and non-profit organizations that install solar get the equipment via leases.

Based on the Department of Revenue’s figures, a $34,000 solar-panel array leased by a homeowner would have cost about $152 in property taxes in its first year, decreasing every year as the system depreciated.

Solar prices have fallen since that estimate.

Many residential customers who lease panels save $5 to $10 a month on the balance of their power bills and new lease payment, or $60 to $120 a year. The tax hit would have eliminated savings from solar for most.