Massachusetts provides a property tax exemption for wind and solar projects. A recent opinion by the Massachusetts Appellate Tax Board (ATB) demonstrates the complexity of that rule for projects with net metering contracts opposite tax-exempt organizations. The case is United Salvage Corp. of America v. Board of Assessors of the City of Framingham (May 29, 2020).
For a wind or solar project to qualify for the property tax exemption, the project, according to Massachusetts law, must have been used to supply the energy needs of a property that was subject to property tax. In 2013, the owner of the 800 KW project entered into a net metering agreement with the City of Framingham. The ATB describes the agreement as the City purchasing “one hundred percent of the net-metering credits generated by the Solar PV System for a period of five years. Pursuant to the Net-Metering Agreement, the City then distributed the net-metering credits that it purchased from the appellant to three municipal properties that it owned and operated.” The ATB describes net metering as “an owner of a solar photovoltaic system may receive and accrue ‘net metering’ credits from Eversource for electricity that the owner supplies to the grid. Such an owner may apply the net metering credits to reduce its electricity bills and may also sell any unused net-metering credits to other utility customers connected to the electric grid.”
Several years after the net-metering agreement was signed, the Board of Assessors of the City of Framingham decided to assess the project over $40,000 in property tax for each of fiscal year 2016 and 2017. One might have expected the project owner and the City to have worked this issue out before signing the net-metering agreement. Did something sour between parties from 2013 to 2016 or was the assessor looking for tax revenue from any source it could?
The project owner argued “that the Net-Metering Agreement does not determine the recipient of the energy generated by the Solar PV System. [The] net-metering credits are merely financial figures and do not represent the actual energy produced by the Solar PV System. The [project owner] instead theorize[d] that, because the Solar PV System was connected to the electric grid, its energy was dispersed and distributed to numerous Eversource electric customers connected to the grid. Eversource has approximately 1.4 million electric customers in 140 different communities within the commonwealth, including many non-municipal customers.”
The ATB held that based on prior solar cases “the Net-Metering Agreement provided that all of the [project owner’s] net-metering credits were transferred for the benefit of three municipal properties. Because these properties were exempt from property tax, … the Solar PV System did not qualify for the … exemption because it supplied the energy needs of property that was not subject to property tax.” In the prior cases, tax assessors argued that utility scale solar projects that sold electrons into the grid did not qualify for the exemption because some of the electrons were used by tax-exempt organizations; however, the ATB ruled for the project owners in those instances because it “did not require a taxpayer seeking the exemption to trace solar-generated energy through a massive electric grid to the end user because such an effort would be fruitless and would ignore the reality of the solar energy industry where electricity generated by a solar photovoltaic system is routinely transferred to the grid in exchange for net metering credits.”
This case would appear to suggest that if a community solar project in Massachusetts sold 95 percent of its capacity (i.e., bill credits) to individual consumers and five percent of its capacity to a school district that five percent of the project would be subject to property tax in the town in which it is located. Therefore, any Massachusetts project that would have a full or partial net metering relationship with a tax-exempt organization should, during the development process, negotiate a payment in lieu of taxes (PILOT) arrangement with the town the project is located in.