September 01, 2014 | By Keith Martin in Washington, DC

Arizona remains a battleground for solar rooftop companies.

SolarCity and Sunrun asked the state tax court for a declaratory judgment in late June that rooftop solar systems that the companies own and lease to customers in Arizona are not subject to property taxes. 

By statute, a system that a homeowner owns and uses to generate electricity for his own use is not considered to add to the value of the house for property tax purposes. The Arizona Department of Revenue said in a 2013 memo that this provision does not provide any relief from property taxes to a solar company that owns a system independently from the house. 

The two companies argue that the exemption applies to equipment that is “designed for the production of solar energy primarily for on-site consumption” and, under this standard, the leased systems are exempted from tax The state has started sending valuation notices to rooftop companies as a step toward collecting taxes starting in 2015. 

The tax would run $152 a year for a typical system, eating up about 42% of the $360 in annual savings a homeowner realizes by adding solar. Leases may require homeowners to reimburse the solar company for such taxes. The solar company must value the system for property tax purposes at 20% of its depreciated cost. 

Separately, Arizona Public Service asked the Arizona Corporation Commission in July for permission to install 20 megawatts of solar rooftop systems on about 3,000 homes and put the costs into rate base. The systems would be used to supply electricity to the grid. The utility would pay customers $30 a month to lease their rooftops for 20 years. 

Many solar companies believe regulated utilities have an unfair advantage in competing for solar customers if they can put the systems into rate base. The commission will have to decide. 

Last year, it rejected a request by Arizona Public Service to let the utility charge solar rooftop customers a back-up charge of $50 to $100 a month for remaining connected to the grid and to credit solar customers who send excess electricity to the grid through net metering only at the wholesale rate rather than the retail rate for electricity. 

The commission approved a charge of roughly $5 a month for the average customer and said it would revisit both the backup charge and net metering in the next rate case the utility files.