October 26, 2017

Michigan Bill Looks to Clarify Tax Exemptions for Distributed Generation Projects

A bipartisan group of Michigan lawmakers introduced a bill last week that aims to clear up confusion over tax collections for small-scale distributed generation projects.

HB 5143 would reinstate a tax exemption for “alternative energy personal property” that was in place for 10 years under the Michigan Next Energy Authority Act of 2002. That law — signed by former Republican Gov. John Engler — granted the exemption to 13 different kinds of small-scale renewable energy systems meant to offset any portion of a property’s energy use.


The latest bill was introduced by Republican Rep. Tom Barrett and has two Democrat and four Republican co-sponsors, including House Energy Policy Chairman Gary Glenn, who has said he favors incentives for solar energy over mandates. It has been referred to the House Tax Policy Committee.

While it applies to all types of properties, advocates say the bill is meant to provide clarity particularly for residential property owners with solar panels. Over the past several years, Michigan has seen a patchwork of communities that assess solar installations because they are improvements and boost the value of the property.

This has been particularly contentious in Ann Arbor, a city with a strong clean energy track record but that some residents say gives disincentives for installing solar because it would amount to a tax increase. Assessors in other communities have reportedly said they don’t assess panels.

“There’s been a real patchwork of approaches in the assessment of personal property tax,” said Liesl Eichler Clark, president of the Michigan Energy Innovation Business Council, which supports the bill. “Generally if you think about it, it’s weird: You don’t tax my generator, why tax my solar panels? This creates a level playing field across the state.”

Eichler Clark said in some cases it has surprised residents with unforeseen costs, ultimately impacting the pay-back period of a project.

The bill covers small-scale projects that offset a portion or all of a property’s energy use, but advocates say it represents broader disparities in tax treatment for renewable energy projects in Michigan.

“In some cases they get panels up and then get a bill in the mail and installers had no idea assessors are assessing in that community,” Eichler Clark said. “It can really impact the economics of the project.”

Depending on how the system depreciates in value, Eichler Clark said savings could be a few hundred dollars a year.

City officials in Ann Arbor have said they support clarity from the state, suggesting their hands are tied into forcing an assessment on such property.

“The assessor is not the bad guy here. This bill creates clarity,” Eichler Clark said.

State: ‘Must be assessed’

The original exemption sunsetted at the end of 2012, and since then the state of Michigan has eliminated the Personal Property Tax on various types of equipment for commercial and industrial properties. However, it appears this doesn’t apply to something like residential solar panels.

Ron Leix, spokesperson for the Michigan Department of Treasury, said the agency is evaluating the bill and hasn’t yet taken a position.

Leix said local assessors must assess residential solar panels “because the state law says all property must be assessed unless explicitly exempt. Residential solar panels are personal property and assessed as residential personal property.”

In some cases, assessors may have some flexibility, he added.

“The State Tax Commission has provided guidance for the basic valuation for solar panels. There may be cases where that guidance doesn’t account for unusual functional or economic obsolescence. In those situations, the ultimate responsibility for true cash value (is) with the local government’s assessor,” he said.

The House Fiscal Agency reported this week that while “it is not possible to predict how broadly the exemption will be utilized or the taxable values of the alternative energy systems that would become exempt, based on estimates when the exemption was last available in 2012, the initial impact (including property previously exempt) would likely be less than $10 million.”

A spokesperson for the Michigan Municipal League, an advocacy group representing local units of government, said the group is also reviewing the bill and hasn’t yet taken a position on it.

Larry Ward, executive director of the Michigan Conservative Energy Forum, said the current situation allows local assessors to pick whether solar panels on homes are taxed. Ward testified before the House Tax Policy Committee Thursday in support of the bill, saying it is an issue of clarity, fairness and incentivizing self-generation.

“This clarifies what one random assessor does and what another doesn’t do,” Ward said, adding that other types of clean energy improvements — such as an energy-efficient furnace — are not similarly taxed. “We don’t want solar to be treated any different than these other home energy items you do to your house.”

Seeking relief

Some Michigan residents who have seen property tax increases after installing solar panels are already seeking relief.

Ann Arbor resident Mark Clevey, who is a member of the city’s Energy Commission, is appealing to the Michigan Tax Tribunal the city assessor’s bill on his panels. In 2016, Clevey installed a $9,200 project on his property.

“Residential personal property is exempt from property tax,” he says in a prepared statement he plans to give to the tribunal next month. “In addition, the cost of the system was less than $80,000. The Ann Arbor Assessor improperly increased the assessed and taxable value of my property by treating the solar PV installation as real property.”

According to a letter to the tribunal, Ann Arbor City Administrator Howard Lazarus sides with Clevey.

“We do ask that the (tribunal) review its position and exempt small-scale residential and commercial solar installations from property tax valuations, not only in Mr. Clevey’s case but on a statewide basis,” Lazarus writes.

Ultimately, such taxation has a negative impact on the city’s clean energy goals, Lazarus says.

“Residential solar is an important part of our strategy to reduce carbon emissions, unfortunately the position of the Michigan Tax Tribunal (MTT) that these improvements are treated as real property improvements creates a strong economic disincentive to property owners,” Lazarus wrote to the tribunal. “The MTT position also creates a conflict between our Climate Action Plan and our desire to comply with MTT guidance.”


No comments:

Post a Comment