Local Property Taxes for Solar Farms

Landowners – Have you thought about solar farming? Massachusetts is a national leader in the solar industry [1], and solar developers often enter into land leases instead of purchasing land for their solar installations. Land leases can offer multiple benefits to both parties, including stable income streams for landowners and lower capital investment for solar developers. However, an outside but integral party – the locus municipality – could, either inadvertently or deliberately, imperil these benefits via its authority to classify solar farm components as real property or personal property.

Solar farms can significantly increase a municipality’s property tax revenue [2], and its power to maximize and protect this new revenue could potentially create a mountain of problems for unprepared solar developers and landowners.

According to the Massachusetts Department of Revenue (“DOR”), municipalities may assess “solar array panels… and associated machinery and equipment” as real property if they are (a) intended to remain on the site for their entire useful lives, (b) designed specifically for the parcel, or (c) could damage the land or equipment if removed [3]. However, solar array panels that are easily removed or “intended to be removed and replaced periodically” [4] may be assessed as personal property.

Is the Solar Farm Real Property or Personal Property?   It Depends.

Using the DOR’s analysis above, (a) Is the land lease term 20 years or more? The expected life span of current panels is 15-25 years. (b) Did the parcel’s specific characteristics, i.e. its location or topography, factor into the solar farm’s design? (c) Could the land be damaged by the removal of the array? If you can answer yes (or even if you can’t), a local tax assessor could, and thus classify the solar array panels as real property.

Conversely, solar modules themselves are often easily removed with the intention of periodic replacement, possibly resulting in a personal property classification. In short, there is no single answer on whether solar array panels and associated equipment are real or personal property. In fact, there could be up to 351 separate answers.

Who Decides: The Municipality’s Tax Assessor

The tax assessors in each of the Commonwealth’s 351 cities and towns have the authority and discretion to determine whether solar panels are affixed to the land in her or his municipality and therefore taxable as real property or personal property [5]. Thus, it is within each assessor’s purview to decide whether unpaid taxes associated with the solar array could become a tax lien on the underlying land.

Why are Local Property Taxes an Issue?  Nonpayment can result in Tax Liens and Tax Takings.

As you are likely reminded quarterly, landowners must pay property taxes on their real property, i.e. the land and any buildings, to municipalities. In Massachusetts, however, real property also includes “other things” on the land or “affixed” to the land [6]. If a developer’s solar farm is classified as an other or affixed thing, i.e. real property, the landowner could become a de facto guarantor of the solar farm’s property taxes, as the municipality could levy a tax lien [7] against the landowner’s property if the solar farm taxes are unpaid. And, unless there is a PILOT agreement where the allocation of responsibility has been negotiated or defined, property classification is both uncertain and, potentially, beyond both parties’ control. While seemingly more detrimental to the landowner, violation of business terms, such as keeping the land lien free, whether inadvertent or not, could endanger or even terminate a solar developer’s rights under its land lease.

The Solar Farm is Classified as Personal Property, Are You All Set?   Most Likely, But…

Municipalities can only attach tax liens to real property, and there is no equivalent provision for personal property [8]. Nevertheless, municipalities occasionally attempt to use creative methods to ensure payment of a solar company’s personal property taxes, and both landowners and solar developers should ensure that their interests are not negatively impacted.

Can You Protect your Land Lease Interests?  YES!

Give us a call. We have helped solar developers and landlords implement layers of protection, including negotiating PILOT agreements, proactive lease provisions, discussions with town officials, indemnities, retainages, bonds and other methods.