Energy revenue opportunities for rural counties

February 2, 2016

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HB 1305 (Miller) provides a Retail Sales and Use Tax exemption for machinery, tools, and equipment used by a public service corporation to generate energy derived from sunlight and wind. Effective for solar energy equipment, facilities and devices placed in service after December 31, 2016, the bill also provides that the exemption from local taxation for solar photovoltaic systems only applies in full to projects equaling one megawatt or less, measured in alternating current (AC) generation capacity, and applies to 80 percent of the assessed value of projects exceeding one megawatt.

Under current law, raw materials that are inputs to production of electricity, including fuel, used by a public service corporation are exempt from the Retail Sales and Use Tax. All other tangible personal property used by a public service corporation in the generation of electric power is subject to the Retail Sales and Use Tax. Currently, the local tax exemption for solar photovoltaic systems only applies to projects equaling 20 megawatts or less, as measured in alternating current generation capacity.

The provision of the bill providing a Retail Sales and Use Tax exemption for machinery, tools, and equipment used by a public service corporation to generate energy derived from sunlight or wind would have a negative impact on Retail Sales and Use Tax revenues, the magnitude of which is unknown but could be significant.

The bill also modifies the local property tax exemption for solar voltaic systems from applying in full to projects of 20 megawatts or less to applying 1) in full to projects of one megawatt or less and 2) to 80 percent of the assessed value of projects exceeding one megawatt. According to data from the Energy Information Administration, the total amount of solar voltaic capacity installed in Virginia in 2014 was 16.4 megawatts. Given that the total capacity of all projects in Virginia in 2014 was less than 20 megawatts, applying the local property tax exemption to 80 percent of the assessed value of solar voltaic projects exceeding 20 megawatts is not expected to impact local revenues at current levels of investment. Additionally, if future solar voltaic projects are constrained so that each one does not exceed 20 megawatts in generation capacity, the provision of this bill applying the local property tax exemption to 80 percent of the assessed value of solar voltaic projects exceeding 20 megawatts would not impact local revenues.

However, to the extent that the 20 megawatt cap is removed and taxpayers bring larger projects online in the future that qualify for the exemption, localities may observe less property tax revenues from projects that exceed 20 megawatts under this bill than under current law, as only 80 percent of the assessed value would be taxable. To the extent that 20 percent of the assessed value of solar voltaic projects between one megawatt and 20 megawatts would no longer qualify for the exemption, the modification to the local property tax exemption for solar voltaic systems is estimated to result in an increase in local revenues at current levels of investment, the magnitude of which is unknown.

The bill will be up in House Finance this week and VACo supports it as a revenue enhancement opportunity to rural counties.

VACo Contact: Dean A. Lynch, CAE

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