Two solar panel companies filed a lawsuit today alleging the Arizona Department of Revenue acted illegally last year by issuing a new interpretation of existing property tax law which stripped an exemption from homeowners’ leased solar panels.
The interpretation, which was issued in April 2013, declared that rooftop solar panels must be taxed like renewable energy generation equipment owned by large and medium-sized utilities.
SolarCity and SunRun are asking the Arizona Tax Court to issue a declaratory judgment reversing the DOR interpretation.
If the legal challenge fails, homeowners who lease solar panels from the two companies will be forced to pay about $150 in property tax this year (for an averaged sized solar panel installation), because the lease arrangements contain provisions passing any taxes to the lessor.
The companies claim that DOR used a flawed understanding of their lease arrangements to make the interpretation and that the agency has erroneously cast them as being in the business of buying and selling electricity. The companies’ lawsuit reiterates what they have maintained since this interpretation was penned, which is that they lease solar panels and have nothing to do with the sale or purchase of energy.
They also claim that DOR applied an existing tax scheme intended for utility-scale energy generation to the leased equipment.
Finally, the complaint alleges that treating the same solar panel equipment differently based on whether it is owned or leased violates rules requiring equality in tax assessment.
Bryan Miller, vice president of public policy at Sunrun, said he believes the case should only lead to one conclusion.
“The most important thing here is a very strong taxpayer concept in Arizona law: If a court finds any ambiguity on a tax issue, it has to be construed in favor of the taxpayer,” Miller said. “This is not an ambiguous case. It’s not even close.”
Miller said that DOR chose to read conflict into statutes where there really is none, and that the law exempting rooftop solar panels from property taxes is clear.
Sen. Michele Reagan, who voted on bills in 2006 and 2009 that established tax exemptions for rooftop solar panels, said the DOR interpretation contradicts the spirit of the law. Reagan introduced legislation earlier this year that would have reiterated in law the desire to exempt the solar panels, but the bill only received a committee hearing and never was considered by the full Senate.
A spokesman from The Department of Revenue said the department would not comment on pending litigation.