Third-party solar scores big court victory in Arizona (full decision embedded)

The state’s appeals court rejected the tax department’s contention that it should be able to treat third-party installed solar arrays as utilities for tax purposes.

May 23, 2017 Frank Andorka

Given the recent history of Arizona’s attitude toward the rooftop solar industry, it’s understandable why some companies held their collective breaths as the Arizona Court of Appeals handed down its decision on whether third-party installed arrays should be taxed as utilities.

At issue was the contention by the state’s Department of Revenue that third-party installed rooftop solar arrays should be taxed at the same rate as utilities. The department also argued that the tax exemptions granted such systems violated the state’s constitution because it did not treat all rooftop solar installations the same.

Yesterday, the Court of Appeals affirmed the lower tax court’s decision that third-party installations – like those done by plaintiffs SolarCity and Sunrun – can’t be treated like electrical-generation facilities, even if they produce more electricity than the property consumes.

But it rejected the lower court’s ruling that tax exemptions were unconstitutional, saying that no two solar-electric systems are exactly the same. As a result, it did not violate the constitution’s provision for equality in taxation. In its decision, the court wrote:

…we affirm the tax court’s declaration that Taxpayers’ solar panels cannot be centrally assessed pursuant to the electric generation statute and the renewable energy equipment valuation statute. We also affirm the tax court’s denial of the Department’s motion for sanctions against Taxpayers. However, we reverse the tax court’s judgment that the solar energy systems statute is unconstitutional and cannot apply to Taxpayers’ solar panels, as well as the court’s mandate that the counties locally assess the panels.

The initial complaint was brought by national rooftop solar installers SolarCity and Sunrun.

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