We have good news! On April 6th Virginia’s Tax Commissioner, Craig M. Burns, issued a letter clarifying the valuation of solar projects within the Composite Index. The bottom line: these solar farms will provide a net revenue benefit to the county. As previously stated, bureaucratic bookkeeping could have inadvertently ground Virginia solar development to a halt by reducing county revenue when new solar farms are built. The following is the third of three installments highlighting SolUnesco’s research on the Virginia Composite Index and its impact on solar electric generation. To download our complete findings, click here.
As highlighted in Part One of this series, The impact of solar on the Composite Index starts when the SCC assesses the value of solar projects and reports that value to the DOT. The SCC reports both the Full Value (Fair Market Value) equal to the total project costs and the Assessed Value equal to the project cost minus any tax exemptions. The Full Value represents what can be taxed, while the Assessed Value represents what is taxed.
For the tax exemptions provided to Pollution Control Equipment (PCE Exemption), the DoT historically used the Full Value because, until recently, counties controlled the decision to provide these tax exemptions. The state based this valuation policy on the core tenant that if a county provided the tax exemption, other counties should not partially subsidize this decision by underreporting the county’s potential taxable base.
However, on January 1, 2017, the state-mandated PCE Exemption (outlined in Part Two of this series) kicked in for solar farms greater than 20 MWs, restricting the county to collecting tax on only 20% of the Full Value. Solar farms offer significant tax revenue, but not nearly as much as including the Full Value in the Composite Index assumes. In specific instances, the net impact of taxing 20% of the Full Value while adding 100% of the Full Value to the Composite Index would have reduced state funding by more than the gain in new taxes.
A net revenue loss would have punished economic development and would have been contrary to the state’s broader solar policy. The state provides tax exemptions to promote a public good. If counties lose money every time the industry places a solar farm into service, then counties will likely deny solar permits and the industry may be stopped dead in its tracks.
As we reported at the beginning of this blog, Virginia’s Tax Commissioner recently issued a letter clarifying the valuation methodology for the Composite Index. While keeping track of the differences between “True Value,” “Full Value,” and “Assessed Value” may be confusing, the bottom line is a solar project’s contribution to local revenues will exceed the impact of the state’s adjustment to the Composite Index. Counties will receive a net revenue gain from these projects.
The Tax Commissioner’s letter stated:
“… in the event that the proposed solar farm is built and qualifies for the 80% exemption under Va, Code § 58.1-3660, the Department will exclude the exempt value of the property from the true values of real estate and PSC property in the county. … The actual assessed value will be reported by the Department to the Department of Education (DOE) as the true value of property to be used by DOE to calculate the amount of state educational funding.”
The timing for this clarification was critical because certain parts of the development process impose tight timing windows on ‘Go / No Go’ decisions. Without clarity on the county permitting process, developers may have abandoned projects.
We and the solar development community appreciate the attention and the ultimate timing of the state’s clarification. We have been working with staff throughout the state government who have been very responsive in helping to reach a resolution. We thank Governor McAuliffe’s team and the staff for both reaching a decision consistent with the state’s policies and for recognizing the need for a timely decision.