Massachusetts Appellate Tax Board Finds MA Department of Revenue’s Denial of Property Tax Exemption for Virtually Net Metered Solar Facility “Incorrect,” Based on an “Illusory Distinction” and “Entitled to No Deference”

On December 4, 2014, the Commonwealth of Massachusetts’ Appellate Tax Board (the “Board”) promulgated its Findings of Fact and Report in Forrestall Enterprises, Inc. v. Board of Assessors of The Town of Westborough.

Major Change

The Findings represent a major change in the application of the Commonwealth’s property tax exemption for off-site, net-metered and virtual-net-metered wind and solar systems. For some time now, the Massachusetts Department of Revenue (“DOR”) has taken the position that certain net metered solar and wind systems, in particular off-site or virtually net-metered systems, do not qualify for the exemption available under clause “forty-fifth” of Massachusetts General Laws, Chapter 59, Section 5.

These Findings overturn DOR’s position in some significant ways.

The Exemption

That exemption reads as follows to exempt from property taxation by local assessors:

[a] solar or wind powered system or device which is being utilized as a primary or auxiliary power system for the purpose of heating or otherwise supplying the energy needs of property taxable under this chapter; provided, however, that the exemption under this clause shall be allowed only for a period of twenty years from the date of the installation of such system or device.

Under its long-standing interpretation, DOR had viewed the language “supplying the energy needs of property taxable under this chapter” as providing the exemption only to taxpayers whose solar (or wind) systems were interconnected directly to their buildings.

The language of the exemption is here. (Hint: search for “solar.”) See also DSIRE’s summary of this incentive here.

Summary of Facts

Mr. Forrestall owns a large solar array built on otherwise vacant land. It is connected only to the local distribution network and not to any building or structure. He entered into a net metering arrangement with his local distribution company under which all of the electricity produced by the solar project was delivered to the local utility in return for a net metering credit calculated by the local utility. Mr. Forrestall directed the utility to apply the net metering credit to the electric bills he received for several other properties which he either owned personally or were owned by corporations of which he was the sole owner.

None of the physical electricity generated by the solar project was actually consumed in any of the properties to which he directed the utility to allocate the net metering credit. For that reason, his local assessor assessed and collected property taxes on the solar array and DOR agreed with the assessor’s denial of the statutory exemption under clause forty-fifth. Mr. Forrestall appealed. The Board sided with Mr. Forrestall back in November of 2013 and Mr. Forrestall requested these written Findings on December 4, 2013. One year later, here are the Findings.

The Findings: “Incorrect “Illusory Distinction” “Entitled to No Deference”

The Findings state that “because [Forrestall] is using [his] solar panels as a source of electricity for taxable property of its sole owner,” the solar facility is exempt from tax under the plain meaning of the exemption.

The Board made their views quite clear. In procedurally significant and perhaps ominous words, it found the “plain meaning” of the statute’s language “unambiguous” even if “the duty of statutory interpretation rests ultimately with the courts.”

Most interesting, while the DOR “interpreted [the exemption] so as to limit its application only to solar property that is located either on the same parcel or a contiguous parcel to the property it is intended to power,” in its own strong words, the Board “found and ruled the Department’s limitation … to be an illusory distinction which finds no basis in the [exemption].” In fact, it went a bit further and stated that “an incorrect interpretation of a statute by an administrative agency is entitled to no deference.” Yikes!

Broader Applications?

As big a deal as these Findings are, they appear to be limited to application in situations where the same taxpayer owns the off-site solar facility qualifying for the exemption and also owns the buildings whose electricity bills receive allocation of the net metering credit. They might not be directly applicable to the common situation in which a third party investor owns a virtually net metered solar or wind project and sells electricity or allocates net metering credits to a third party purchaser. Indeed, the Board paid some mind to that distinction but determined that it didn’t need to address it directly in the Findings.

What About Community Solar?

Could the Findings provide the authority for assessors to permit certain kinds of community shared solar structures and community solar (or wind?) to be exempted from local property taxes? For instance, if a number of individuals owned an offsite solar array together in some fashion and applied net metering credits generated from the system to their homes, would the system be exempted from local property taxes? Consider that and this previous post and the possibilities for emergent forms of community solar become a bit clearer for the Commonwealth in particular.