Arizona to impose new tax on solar lease customers

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The battle lines for solar in Arizona are being redrawn this week following an about-turn on PV tax policy from the State Department of Revenue.

In a move that has angered solar supporters in the state and beyond, Arizona’s State Department of Revenue has proposed a reinterpretation of a tax policy that exempts solar equipment from property tax. The exemption currently covers all types of rooftop solar panels, but the State Department now says that only those solar panels owned outright are exempt from tax, with homeowners who lease solar panels facing a possible $152 increase to their annual property tax bill.

This reinterpretation labels leased panels as merchant power plants, and stresses that the leasing companies must pay tax on them. Any additional taxes levied on this sector would undoubtedly flow through to the customer at some point of the value chain.

The State Department of Revenue has been accused of colluding with state utility Arizona Public Service to undermine the cost benefits of adopting solar power in Arizona, where solar leasing contracts account for the majority of distributed solar generation.

"Arizona is breaking new ground for being an extremely strange political environment," said Bryan Miller, president of The Alliance for Solar Choice (TASC), who added how bemusing it was that such an interpretation could arise in a state that is notoriously anti-tax.

Despite claiming a neutral position on the matter, Arizona Public Service (APS) general manager of regulatory policy Barbara Lockwood wrote a letter supporting the tax to the utility’s regulators.

Miller retaliated, calling the utility "serial liars" – a reference to APS’s proven underhand involvement in an anti-solar smear campaign in the state last year when trying to push through an average monthly surcharge on rooftop solar of $150. In the end, the state Corporations Commission settled on just $5 per month, which was a victory of sorts for the solar industry in Arizona.

This new interpretation of the solar tax law will come into effect in October 2015 unless the Department of Revenue reconsiders. Currently, Arizona is home to more than 20,000 residential solar customers, of which approximately 85% are solar lease households.

Across Arizona – and numerous other U.S. states – the American middle class is driving forward the solar leasing sector. Research from the Center for American Progress has found that more than 60% of leased solar installations are occurring in zip codes where median incomes range from $40,000 to $90,000 annually.