In the wee hours on Friday, June 4, 2010, the Ohio House adopted Amended Senate Bill 232 which was designed to provide a personal property tax exemption to owners of renewable energy projects. Despite the 2008 personal property tax overhaul in Ohio that resulted in the commercial activity tax, owners of energy facilities were still treated as public utilities for purposes of the Chapter 5727 of the Revised Code and their tangible personal property is subject to taxation.
Small capacity generators of renewable energy, which include many on-site solar installations, will still be required to file reports under applicable code sections as incidental generators of electrical energy, but now have an exemption from taxation for the tangible personal property assets used in the production of that electrical energy. In order to qualify for the exemption, any required permit application for the project (i.e. building or zoning permits) must be submitted on or before December 31, 2011, and the personal property will be exempt from taxation for tax years 2011 and 2012, and thereafter if certain continuation reports are filed concerning the operation of the facility. For wind projects and other projects of 5 megawatts or greater, the Board of County Commissioners must adopt a resolution and the Ohio Power Siting Board may be involved. For smaller projects, such as on-site solar projects, the Ohio Director of Development must certify the energy project as operable before December 31, 2011.
The Director will certify the project if the application is timely submitted, the county commissioners have adopted an approval resolution (if applicable), and the project was not in service before December 31, 2009. Annual reporting requirements include demonstrating continued compliance with applicable regulations, certified construction progress report as to percentage of completion, certification of nameplate capacity after construction is completed, and demonstrating that at least 80% of the total number of full-time employees used in the construction of the facility were domiciled in Ohio. The owner of the facility must provide training for fire and emergency responders to deal with any special issues related to emergency situations that could affect the project (such as any specialized fire-fighting requirements for a rooftop solar array).
For any energy project with capacity in excess of 2 megawatts, the owner must establish a relationship with a member of the university system of Ohio to offer apprenticeships for education and training for careers in wind or solar energy industries. Most importantly, the producer must offer to sell renewable energy credits to the electric distribution utilities in the service area who have issued requests for proposals for the purchase of renewable energy credits.
A key feature of the new law is the requirement to make annual service payments in lieu of taxes to the county treasurer on or before the final date for payment of taxes on what would otherwise be public utility personal property taxes for each tax year. For solar projects, the payment in lieu of taxes is $7,000 per megawatt of nameplate capacity annually. The law is not clear whether this is pro-rated. The service payments are different on other types of renewable energy projects based on the number of Ohio employees. The statute provides that the Director of Development, in consultation with the Tax Commissioner, may adopt additional rules to implement the service payment portion of the new law.
The law also contains an exception for the imposition of sales taxes on the sale of energy conversion equipment for purposes of incorporation into a solar energy facility or other renewable energy facility. Taken together, these tax exemptions will enhance the financial viability of a renewable energy project which is intended to create lower cost renewable energy generation for a host with the sale of net metered excess electricity generated back to the utility company.
This is a general summary and cannot be applied to a particular situation, as the statute is complex and has many provisions which are more narrowly tailored to specific situations. In addition, the ability to capture and resell renewable energy credits is dependent on whether the facility is located in the service territory of an investor-owned public utility. Different tax considerations may apply when the facility is to be located in the area of a municipally owned utility company, rural electric cooperative, or other situations.
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Ken's practice touches all areas of real estate development including financing, real estate taxation, building and preservation code matters, rail/utility rights of way, renewable energy leases, sustainable building ...
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