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Policy & Politics Solar Panels atop Buildings in Tucson, AZ – photo by David Crummey, CC by SA 2.0

Published on July 7th, 2014 | by Roy L Hales

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SolarCity and SunRun vs Arizona Department Of Revenue

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July 7th, 2014 by  

Originally Published inte ECOreport

Solar Panels atop Buildings in Tucson, AZ – photo by David Crummey, CC by SA 2.0

Another obstacle to the growth of rooftop solar has arisen in Arizona. The Arizona Department of Revenue (ADOR) claims that solar energy equipment is taxable if it is owned by a solar company and installed on another person’s property. They have assigned a value for property tax purposes at 20% of its depreciated cost, which amounts to about $152 a year for an average solar customer. This has prompted a lawsuit: SolarCity and SunRun vs the Arizona Department of Revenue.

As 85-90% of the state’s rooftop solar installations are leased, rather than owned, this new tax could have a strong negative impact.

The Arizona state department seems to perceive solar panels as small power plants providing electricity to homeowners or businesses.

In their writ, the solar companies lawyers pointed out that their clients are not in the business of “generating, transmitting or distributing electricity to customers.” They lease equipment that allows the customer to generate their own electricity.

“ … The Arizona Legislature has made it clear that the Subject Property, when used “primarily for on-site consumption” of the electricity generated by such property, is “considered to have no value and to add no value” to the property on which it is installed, and thus it should not be separately assessed for property tax purposes. Specifically, A.R.S. §42-11054(C)(2) provides:

“Solar energy devices, as defined in section 44-1761, grid-tied photovoltaic systems and any other device or system 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.”

A spokesperson for SunRun said she believes “the Arizona Department of Revenue’s interpretation is illegal.”

“As with any additional cost, it would reduce Arizonans’ ability to turn to an alternative to Arizona Public Service in order to save money on monthly electricity bills, and would reduce rooftop solar’s addressable market,” SolarCity Director of Public Affairs Will Craven told pv magazine.

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About the Author

is the editor of the ECOreport (www.theecoreport.com), a website dedicated to exploring how our lifestyle choices and technologies affect the West Coast of North America and writes for both Clean Techncia and PlanetSave. He is a research junkie who has written hundreds of articles since he was first published in 1982. Roy lives on Cortes Island, BC, Canada.



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  • Patrick Lawson

    Personally, I don’t care for the monthly lease one bit. But I did my part and went down to the statehouse to support those against the decision to tax leased systems.

    In my mind this could very well be a blessing in disguise. I’m seeing companies drop their lease program and instead focus on loan programs which are better for the consumer anyway. I’m of the opinion that the sooner the lease is gone the better, because as things are going now it’s only a matter of time before the CFPB turns it’s attention to the solar industries leasing practices and that will be no fun for anyone.

  • Lee

    Thank god for SolarCity!

    • ronwint

      You must be joking ! The leasing companies charge the consumer nearly three times more than what you can purchase the same system for. You mean thank God for the tax on leased systems don’t you?

      • Lee

        Go play some Poker Ron.

  • JamesWimberley

    This is fun to watch, and SolarCity can look after itself. It’s unfair to single out solar leasing, since owned installations that are clearly additions to the capital value of houses are exempt. But it make little difference to the medium-term prospects of solar. Arizona homeowners will just turn to the growing offer of 0% down loans.

    • ronwint

      $0 down loans with tax deductible interest. Solar leases don’t offer tax deductible interest and good luck ever selling your home with a solar lease attached to it.

      • Lee

        Dude, do you have a fulltime gig trashing solar? You’ve been doing literally it for years now. Go away already.

        • ronwint

          I don’t trash solar. I work for one of the oldest solar companies on the planet. I trash the expensive solar lease and PPA model. There’s a difference.

      • Bob_Wallace

        Right.

        “I”m not about to buy this house for $250k. It has a leased solar system on it and no electric bill.”

        “I’m going to buy the identical house across the street for $250k. The one that comes with a $300 per month electric bill.”

        • Patrick Lawson

          The logic does not quite work that way. It’s more like:

          “I’m not about to buy this house for $250K. It has a 8.5K leased solar pv system with a lease payment of $122/mo and no electric bill.”

          I’m going to buy the identical house across the street for $250K. Buy a new 8.5K of my choice and add it to my mortgage for only $96.47/mo. Deduct the additional mortgage interest and pocket $6,700 in tax credits at the end of the year.”

          • Bob_Wallace

            Patrick, you’re thinking deeper/differently than many buyers will think.
            Last night I was lurking on a site where a lot of intelligent, pro-environment people socialize. On one thread they started talking about rooftop solar. These are largely successful people, graduate degrees are common.

            There was something of an attitude of “Solar is a good idea. One might save a little more money by purchasing, but leasing is easy and someone else has to take care of the system”.

          • Patrick Lawson

            For the most part I agree with you. But lenders like myself think that way and real estate agents with Green or Ecobroker designations think that way as well. Between real estate industry working groups and educating installers and journalists who cover our local markets we are changing the perception that. “leasing is easy and someone else has to take care of the system.”

            After-all, where did homeowners get the idea that the lease is easier and someone will take care of the system for them? That’s just people parroting what they were told by a salesperson. I do however conced that most sales people make that assertion in good faith.

          • Bob_Wallace

            Look, I agree with you that owning makes the most financial sense. Were I in need of a system I’d buy it, not lease it. But I also buy my vehicles while a lot of other people lease.

            I do not think a house with a leased solar system will decrease in market value. It might just not increase as much as one with a paid off system. But we won’t know how leases will change market value until there have been enough sales to create a reliable sample. Until then things are speculative.

          • Patrick Lawson

            I’m not saying that a lease decreases the value of a home. In regards to home value it just does not add value. So in the above example of the two identical homes, 1 with a solar lease and 1 with a virgin roof, I’d say home with the virgin roof has more value because more options are available as far as choice in solar to install and finance method. Would an appraiser factor that in? Highly unlikely, from an appraisal standpoint the home with leased solar simply has no more value than the home without.

            This is the kind of debate a solar salesperson would want to avoid like the plague. The easiest answer to the value question is this. Leased solar adds no value to the home and owned solar adds value as determined by an independent appraisal. Period.

            I don’t mean to direct all the above at you, but I feel this is a point that needs to be driven home in order for the industry to mature. Solar integrators are experts in solar PV, not real estate and as solar continues to develop as a real estate improvement the industry needs to understand what that does and does not mean.

          • Bob_Wallace

            Patrick, do you realize that you are arguing without data?

            Now, I’m willing to speculate about what the data might look like once we have some.

            Two tract houses. Identical. One has a leased solar system and a $120/mo payment. The other has a $300/mo electricity payment.

            When the appraiser does his/her magic and produces a number which represents the total cost of ownership might one of these houses come in $180/mo less than the other?

          • Patrick Lawson

            There’s decades of data and established principals.

            The home appraisal can’t factor in the value of leased solar because it is not the property being appraised. Leased solar belongs to the investor. The home and it’s improvements belong to the homeowner. When you sell the home you don’t transfer title (ownership) of the solar with the home when the solar is leased.

            Homes are used as collateral for mortgages. By saying that leased solar should add value to the home you’re saying that a lender should take the property of someone else as collateral for their loan. It just doesn’t’ work that way.

            As much as some want leased solar to add to the value of a home it does not and for many good reasons. Not the least of which is that you don’t own it. That’s simply the way it is.

            Let me know your local market and if it’s large enough I’ll email you a couple of appraiser contacts who may be more inclined and and more qualified than me to explain these principals.

          • Bob_Wallace

            How about we wait for data and see how this all plays out?

            The actual selling price is the important metric.

          • Patrick Lawson

            How about we stop propagating lies about leased solar adding to the value of the home?

          • Bob_Wallace

            And you are the controlling authority?

          • Patrick Lawson

            I wish you the best in your endeavor to have the value of leased solar recognized in the home appraisal. God’s speed.

          • Bob_Wallace

            Perhaps you don’t know the difference between appraisal value and market value.

            I’m not particularly interested in the appraiser’s opinion. My experience is that it somehow always turns out to be a bit higher than the contract price. I’ve bought and sold 30-40 properties and never had an appraisal come in low. (I’ve also heard the realtor tell the appraiser the contract price more than once.)

            Appraisers might be very skilled at guessing market prices for a particular property, but it’s selling price that tells the actual story.

          • Patrick Lawson

            I understand the difference. As a lender I’m concerned with appraised value. When determining the maximum loan available in the case of a purchase we work off of sales price or appraised value, lower of the two. So if someone needs a loan to purchase a property appraised value is very much important.

            If leased solar could add to a homes appraised value that would be great for me personally. A lot of new business would open up for me, so I’m not against the concept of leased solar being added to the appraised value. But, I work within the system as it is now and that means if someone wants a home loan to refinance or purchase a property I know that the appraisal is not going to reflect any value for leased solar.

            If we’re talking “market value” independent of appraised value then yes, I’m inclined to agree with you. Leased solar could command some additional value, but it’s nearly impossible to say with any certainty what that value is.

          • Bob_Wallace

            ” but it’s nearly impossible to say with any certainty what that value is.”
            And we finally arrive at the same place.

            When we have more leased-solar home sales then we’ll be able to tell. We’ve seen studies with owned solar but leasing is newer and AFAIK no one has pulled the data together yet.

          • Patrick Lawson

            You’re slippery Bob. It’s been fun.

            I figure maybe 3 people have bothered to read through this little back and forth.I’m pretty confident that if any of them are concerned with accurately representing to homeowners the appraised value of leased solar they will not be towing the party line at the next kitchen table sit. That means at least one homeowner will not be deceived in regards to the appraised value of leased solar and that makes todays back and forth worth it.

            Have a good weekend.

          • Bob_Wallace

            Slippery?

            Certainly not with intent.

            Looking back at the thread I can see where the communication problem probably arose.

            This is an old topic on this site. We’ve kicked around the topic of owned and leased solar in terms of selling cost. In previous discussions I’ve made the point that we simply don’t have data to determine the effect of leased solar.

            I sort of picked up where we had left off before in my reply to ronwit and you jumped in after that. I should have realized what was happening and provided context.

            Sorry.

          • jeffhre

            In exam taking, the long answer is often the correct one. In life however, people tend to choose the shortest and least confusing answer.

            Hence on paper, a 0% loan sounds awesome. In actual markets though, Solar City is a rapidly growing company, valued in the billions. The “word” get out regarding the value of financing your own system – but who is promoting it right now?

            Do you add another layer of decisions for your customers and say, look it’s in your best interest to choose option number 2 regarding solar? Or do you say, I’ll get this to the underwriter right away, thank you and enjoy your new home?

        • ronwint

          That 250k house that you are referring to may have a slightly reduced electric bill (10 to 15% which is all the savings that the solar leasing companies advertise on their web sites) but it does come with a 20 year lease contract.

          And that’s the problem, most people would rather deal with a utility company rather than a lease company that can come and remove the system and charge you for the removal and then take legal action against you to collect the balance owed on the lease contract for only being 10 days late on a single lease payment.

          Read the lease contract under the heading of “remedy in case of default”

          • Bob_Wallace

            ” most people would rather deal with a utility company rather than a lease company”

            Ron, did you ever take any sort of a science class where they discussed the difference between anecdotal and quantitative scientific measurement?

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