SolarCity, SunRun Win Arizona Tax Suit Over Exemption

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Che Odom

SolarCity Corp. and rival SunRun Inc. persuaded an Arizona appeals court that certain tax exemptions for solar panels don’t violate the state constitution, according to an opinion released May 18.

The Arizona Court of Appeals rejected the state Department of Revenue’s contention that solar panels leased to residents and businesses generate electricity just as traditional electricity providers do, subjecting them to the same taxes ( Solarcity Corp. v. Ariz. Dep’t of Revenue , 2017 BL 165607, Ariz. Ct. App., Div. 1, No. 1 CA-TX 15-0008, 5/17/17 ).

SolarCity, founded by billionaire Elon Musk, and SunRun, started by venture capitalist Richard Wong, sell and lease solar panels that generate electricity for individual customers without drawing from a utility company. The systems, at times, generate more electricity than the clients can use, and that extra electricity is transferred to the electric grid.

In exchange for the extra electricity, the utility company applies credits to those clients, who must draw from the grid at certain times, such as during cloudy weather, when the panels aren’t operating at full capacity.

The Department of Revenue argued that transferring electricity to the grid turns the panels into electricity-generating “facilities” under statutes. To exempt the panels would be unfair to “similarly situated,” traditional power providers and violate the state constitution’s uniformity provision, the division said.

The court, however, ruled that electricity-generation facilities and solar panels aren’t “similarly situated.” The SolarCity and SunRun panels convert energy to be used primarily to meet the power needs of the buildings on which they are installed, while merchant electric facilities convert energy to be delivered through the grid to utility customers generally, the court said.

“In fact, the panels are limited to producing no more than 125% of electricity to meet a specific building’s calculated use—a limitation not present for electric wholesalers,” the court said. “Thus, the electric generation statute does not apply to Taxpayers’ solar panels.”

The state’s renewable energy equipment valuation statute also doesn’t apply because solar panels aren’t “renewable energy equipment” as defined by the law, the court said.

To contact the reporter on this story: Che Odom in Washington at COdom@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

For More Information

Text of the opinion is at http://src.bna.com/o04.

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