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ARIZONA STATE SENATE
Fifty-Fourth Legislature, First Regular Session
VETOED
AMENDED
renewable energy storage equipment; valuation
Purpose
Exempts renewable energy storage equipment from transaction privilege taxes (TPT), use tax and municipal tax. Prescribes a valuation formula for renewable energy storage equipment.
Background
Current statute defines renewable energy equipment as electric generation facilities, electric transmission, electric distribution, gas distribution or combination gas and electric transmission and distribution, and transmission and distribution cooperative property. Renewable energy equipment must be used or useful for the generation, storage, transmission or distribution of electric power, energy or fuel derived from solar, wind or other nonpetroleum renewable sources not intended for self-consumption, including materials and supplies and construction work in progress.
The gross proceeds of
sales or gross income derived from sales of machinery, equipment or
transmission lines used directly in producing or transmitting electrical power,
but not including distribution, are exempt from TPT and affiliated excise tax
imposed on the retail classification. These items are also exempt from use tax.
Transformers and control equipment used at transmission substation sites
constitute equipment used in producing or transmitting electrical power and are
therefore exempt from these taxes (A.R.S. §§ 42-5061;
42-5061;
Version 2; and
42-5159).
The full cash value (FCV) of renewable energy equipment is 20 percent of the depreciated cost of the equipment, which is the taxable original cost less depreciation. Depreciation may not exceed 90 percent of the adjusted original cost. Taxable original cost is defined as original cost less the value of any investment tax credits, production tax credits or cash grants applicable to the taxable renewable energy equipment (A.R.S. § 42-14155).
The governing body of a city or town or a county Board of Supervisors may designate a renewable energy incentive district if the proposed district is appropriate for the construction and operation of renewable energy equipment and the proposed district is located such that the construction and operation of renewable energy equipment would not be incompatible with other uses of property in the area. If a renewable energy incentive district is established, a renewable energy incentive plan must be adopted to encourage the construction and operation of renewable energy equipment in the district (A.R.S. §§ 9-499.14 and 11-254.07).
The Joint Legislative Budget Committee (JLBC) is unable to determine the fiscal impact of H.B. 2617. The bill would reduce current revenue collections by providing more favorable TPT and property tax treatment for renewable energy storage equipment. However, the amount of renewable energy storage equipment currently purchased in Arizona is unknown. Furthermore, national and state trends toward renewable energy sources will likely increase the rate of purchase of renewable energy storage equipment in future years and could result in significant future loss of revenue. The JLBC also estimates that lower property tax payments will increase the cost of Basic State Aid to the state General Fund by $42,000 in FY 2021.
The Arizona Department of Revenue (ADOR) does not have a fiscal impact estimate for H.B. 2617 (JLBC fiscal note).
Provisions
1. Exempts the gross proceeds of sales or gross income derived from sales of machinery and equipment used directly for storing energy for later electrical use from the TPT imposed on the retail classification.
2. Exempts machinery and equipment used directly for storing energy for later electrical use from use tax.
3. Prohibits a city, town or special taxing district from levying a TPT, sales, use or other similar tax on the gross proceeds from sales or gross income derived from sales of machinery and equipment used directly for energy storage for later electrical use.
4. Prescribes the FCV of renewable energy storage equipment, in addition to that of renewable energy equipment, as 20 percent of the depreciated cost of the equipment, which is the taxable original cost less depreciation.
5. Requires ADOR to determine the FCV of taxable renewable energy storage equipment, in addition to that of renewable energy equipment, through December 31, 2040.
6. Requires ADOR to annually determine the valuation of all property, owned or leased, used in the operation of an energy storage, transmission or distribution system.
7. Includes the consideration of renewable energy storage equipment in designating a renewable energy incentive district.
8. Requires consideration of the construction and operation of renewable energy and storage equipment in a renewable energy incentive district's renewable energy incentive plan adopted by the governing body of a city or town or a county Board of Supervisors.
9.
States that all energy storage equipment, both collocated with renewable
energy and
stand-alone energy storage equipment, qualifies for valuation.
10. Defines energy storage as commercially available technology for electric utility scale that is capable of absorbing energy, storing energy for a period of time and thereafter dispatching the energy, and that uses mechanical, chemical or thermal processes to store energy.
11. Defines machinery and equipment used directly as all machinery and equipment used for electric energy storage from the point of receipt from the grid in order to facilitate storage of the electric energy to the point where electric energy is released to the grid.
12. Modifies the definition of renewable energy and storage equipment to include energy storage.
13. Applies the definition of taxable original cost to renewable energy storage equipment, in addition to renewable energy equipment.
14. Contains a technical conditional enactment for provisions affecting sections amended by Laws 2018, Chapter 263.
15. Makes technical and conforming changes.
16. Becomes effective on the general effective date, except as otherwise noted.
Amendments Adopted by Committee
1. Specifies that the gross proceeds of sales and gross income derived from sales of machinery and equipment used directly for storing energy for later electrical use, instead of machinery, equipment and transmission lines used directly in storing electrical power, are exempt from the TPT imposed on the retail classification.
2. Specifies that machinery and equipment used directly for storing energy for later electrical use, instead of machinery, equipment and transmission lines used directly in storing electrical power, are exempt from use tax.
3. Requires ADOR to annually determine the valuation of all property, owned or leased, used in the operation of an energy storage system, instead of property used in the operation of an electric storage system.
4. States
that all energy storage equipment, both collocated with renewable energy and
stand-alone energy storage equipment, qualifies for valuation.
5. Eliminates the presumption that renewable energy storage equipment stores energy that is generated by solar, wind or other nonpetroleum renewable sources in order to support those sources of energy.
6. Modifies the definition of renewable energy and storage equipment to include energy storage, instead of electric storage, if any portion of the stored electric power was generated by solar, wind or other nonpetroleum renewable sources, in addition to renewable energy equipment.
7. Eliminates the consideration of transformers and control equipment used at storage substation sites as equipment used in producing and transmitting electrical power.
8. Makes conforming changes.
Amendments Adopted by Committee of the Whole
1. Redefines terms.
2. Adds provisions relating to municipal taxation.
Governor's Veto Message
The Governor indicates in his veto message that H.B. 2617 should be discussed as part of the budget along with any other tax or policy change and that it should be considered as part of a broader budget discussion in advance of the next legislative session.
House Action Senate Action
WM 2/18/19 W/D FIN 3/13/19 DPA 9-0-1
APPROP 2/20/19 DP 10-0-0-1 3rd Read 5/24/19 22-4-4
3rd Read 3/4/19 48-10-2
Final Read 5/27/19 48-12-0
Vetoed by the Governor 6/7/19
Prepared by Senate Research
July 22, 2019
CS/LC/kja