HB2493 - 541R - Senate Fact Sheet

Purpose

Considers solar energy devices characterized as personal property to have a 10-year life. Prescribes a formula to adjust the depreciation schedule.

Background

Current statute considers solar energy devices, grid-tied photovoltaic systems and any other device or system designed to produce solar energy primarily for on-site consumption (device or system) to have no value and to add no value to the property on which such a device or system is installed (A.R.S. § 42-11054). A solar energy device is a system or series of mechanisms that is designed primarily to provide heating, provide cooling, produce electrical power, produce mechanical power, provide solar daylighting or provide any combination of these uses by collecting and transferring solar-generated energy by either active or passive means (A.R.S.
§ 44-1761).

In 2014, the Arizona Department of Revenue (ADOR) issued notices of value to businesses that own and lease solar panels to residential and commercial property owners, stating that the solar panels had been assigned full cash values and that taxes would be assessed for tax year 2015. In SolarCity Corp. v. ADOR (2018), the Arizona Supreme Court affirmed that ADOR lacks statutory authority to value leased solar panels and remanded for the Tax Court to determine whether county assessors are authorized to value solar panels and, if so, whether a zero valuation is appropriate.

According to a Joint Legislative Budget Committee (JLBC) fiscal note, the
strike-everything amendment to H.B. 2493 would increase the cost of Basic State Aid (BSA) to the state General Fund by up to $1.1 million annually due to more favorable depreciation of leased solar panels. The increase in BSA costs would be partially offset by valuation of
commercially-owned solar panels. The magnitude of this offset is currently unknown, but the increased property valuation is unlikely to fully offset the increase in BSA costs. This bill may also result in a shift of the tax burden to other property owners, property tax losses for local governments or a combination of both outcomes.

JLBC staff is also unable to quantify the potential level of refunds under the bill. ADOR estimates that the recalculations required to provide these refunds will result in one-time administrative costs of $7.6 million. JLBC staff is unable to verify this cost estimate but believes that this cost may be overstated (JLBC fiscal note).

Provisions

1. Removes the consideration of a device or system as having no value.

2. Requires a device or system characterized as personal property to be valued annually at its taxable original cost, minus any appropriate depreciation.

3. Requires a county assessor to use the depreciation table prescribed by ADOR for personal property with a 10-year life, based on the date each device or system was placed into service.

4. Requires a county assessor to adjust the depreciation schedules prescribed by ADOR using:

a) 3 percent of the scheduled depreciated value for the 1st tax year of assessment;

b) 3 percent of the scheduled depreciated value for the 2nd tax year of assessment;

c) 3 percent of the scheduled depreciated value for the 3rd tax year of assessment;

d) 4 percent of the scheduled depreciated value for the 4th tax year of assessment;

e) 5 percent of the scheduled depreciated value for the 5th tax year of assessment;

f) 6 percent of the scheduled depreciated value for the 6th tax year of assessment;

g) 8 percent of the scheduled depreciated value for the 7th tax year of assessment;

h) 11 percent of the scheduled depreciated value for the 8th tax year of assessment;

i) 24 percent of the scheduled depreciated value for the 9th tax year of assessment; and

j) 100 percent of the scheduled depreciated value for the 10th tax year of assessment.

5. Requires taxes paid for tax years preceding the effective date in excess of taxes as calculated by the ADOR depreciation table for personal property with a 10-year life and the accelerated depreciation schedule for a device or system to be refunded to the taxpayer.

6. Requires taxpayers owning a device or system to annually report the taxable original cost of the device or system.

7. Defines taxable original cost as the original cost less the value of any investment tax credits, production tax credits or cash grants in lieu of investment tax credits applicable to the taxable renewable energy equipment.

8. Makes technical and conforming changes.

9. Becomes effective on the general effective date.

Amendments Adopted by Committee

1. Adopted the strike-everything amendment.

2. Requires taxes paid for tax years preceding the effective date in excess of taxes as calculated by the ADOR depreciation table for personal property with a 10-year life and the accelerated depreciation schedule for a device or system to be refunded to the taxpayer.

Revisions

· Adds fiscal impact analysis from JLBC fiscal note.

Senate Action

FIN 3/27/19 DPA/SE 8-0-2