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Commonwealth's Counties

Bills extending state-mandated exemption from local taxes for large solar projects pass both chambers

HB 1131 (Jones), HB 1434 (Jones) and SB 762 (Barker), SB 763 (Barker) are bills that extend a state mandate to exempt utility-scale solar projects from local tax to 2030 (currently set to expire in 2024) have passed in the House and the Senate. VACo opposes the extension of the deadline.

In 2016, the state mandated an 80% exemption from local Machinery and Tool Tax (M&T) for solar projects greater than 5 megawatts (MW) in energy capacity. Legislators, recognizing the impact this could have on local revenues and wary of providing the tax subsidy in perpetuity, set an expiration date for the exemption. Specifically, for projects greater than 20 MW, the mandatory exemption expires for any project that has not begun construction by January 1, 2024. Successful legislation supported by VACo in 2018 returned this authority to Counties for projects 150 MW or larger in capacity in advance of the 2024 expiration date.

HB 1131/SB 762 provide the option for a locality, by local ordinance, to replace the M&T tax with an energy tax of $1,400 per MW of capacity installed per project. In addition to extending the expiration date of the mandatory tax exemption, HB 1434/SB 763 provide a step down in the mandatory exemption (80% for the first 5 years of operation, 70% for the next five years, and 60% beyond). The energy tax option may provide more revenue than the currently 80% mandated exemption, but that depends on the size of the project and specific local tax rates. The M&T step down provides a minimal improvement to the current mandated exemption. If both measures are enacted, Counties will need to carefully examine the option of an energy tax versus the current M&T tax. Should this take place, VACo will provide additional information and analysis to assist members.

VACo had supported returning the authority to Counties to determine local tax incentives for utility-scale solar installations. Unfortunately SB 800 (Lewis), which  advanced the expiration date of the state-mandated 80% tax exemption from M&T Tax for utility-scale solar projects greater than 20 megawatts (MW) from 2024 to 2021, failed in committee.

VACo Contacts: Joe Lerch, AICP and Chris McDonald, Esq.

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