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Ariz. high court to decide tax status of leased rooftop solar equipment

The Arizona Supreme Court agreed to hear the state Department of Revenue's appeal of lower court rulings that companies leasing rooftop solar systems cannot be charged property taxes on equipment they lease.

The tax department's petition for review was granted Dec. 11, but oral argument has not yet been scheduled, according to the Supreme Court clerk's web page. (SolarCity Corporation/Sunrun Inc. v ADOR, Arizona Supreme Court No. CV-17-0231-PR)

Rooftop solar companies SolarCity Corp. and Sunrun Inc. have so far won their case against the state tax department. The Arizona Court of Appeals, Division One, on May 18 issued an opinion that the solar panels the companies lease to homeowners and businesses are not taxable.

The appeals court concluded the Legislature chose to assign a value of zero to grid-tied photovoltaic systems used primarily for on-site consumption. The solar energy systems statute is not an exemption from taxation but is the Legislature's directive to assess and tax a specific property class in a particular way, the court said.

The tax department argued the state's electric generation statute mandates that the department centrally assess leased solar panels because the leasing companies are in the business of operating electric generation facilities under the statute's definition. Since the solar leasing companies own the rooftop panels, they should pay a tax, the department argued.

The appeals court rejected the argument and concluded the leasing companies are not functionally equivalent to the local utilities and electric generation facilities taxed under the electric generation and renewable energy equipment valuation statutes. The leasing companies do not sell electricity or control the use of the energy that is generated and do not receive any benefit from the traditional utility companies for the generation of surplus power, the court concluded.