Connecticut lawmakers are urgently working on passing a forgotten exemption to the state tax code that’s leaving businesses susceptible to thousands in municipal assessments for building solar and other renewable energy systems.
Many of the systems are being installed under a $1 billion state credit program launched last year.
The state’s tax law grants municipal tax exemptions to Class I renewable energy systems such as solar, fuel cells, and wind on residential and farm property, but those on industrial and commercial property are not afforded the same exemption.
The tax problem — described as a legislative oversight at the end of last year’s short session — snags Connecticut plans to proliferate clean energy installations throughout the state. The centerpiece of the effort is the $1 billion credit program known as ZREC/LREC, launched last year. The first year of that 21-year program calls for 97 solar arrays and fuel cells to be installed this year.
“How is it going to work when the tax bill is bigger than the energy savings?” said George Ford, senior energy consultant for Pennsylvania-based Energy Systems & Installations, which is working on ZREC projects in Connecticut. “To go out and promote this program without having a tax exemption bill first is crazy.”
Ford has a customer in Bloomfield vying for a 2013 ZREC contract that is getting cold feet because the solar installation will increase the tax bill $13,000.
“If he had to make a decision today, the answer would be no because it makes no financial sense,” Ford said. “You have a very pissed off commercial business owner that isn’t able to improve his property to offset rising energy costs.”
The General Assembly’s Energy & Technology Committee approved legislation in 2012 granting tax exemptions to commercial renewable systems, which was a key part of Gov. Dannel Malloy’s plan to make energy cleaner, cheaper, and more reliable. The House of Representatives approved the bill; but the Senate failed to take a vote due to last-minute scrambling that also left out other key provisions of Malloy’s energy strategy, including virtual net metering. The commercial property assessed clean energy program had to be passed in a special session.
This year, the Energy & Technology Committee has a sense of urgency to get a commercial tax exemption passed, said State Sen. Bob Duff (D-Norwalk), co-chair of the committee.
“There are a lot of moving parts on this,” Duff said.
Duff and State Rep. Lonnie Reed (D-Branford) took over as Energy & Technology co-chairs this year and are committed to reversing the committee’s history of waiting until the last minute to push bills through the legislature, Reed said. The commercial tax exemption is high on the priority list.
“It is one of the things that we can get out early,” Reed said. “The forward thinking towns are already inviting these installations into their communities.”
Assessors in towns such as Stratford have written letters of forgiveness to commercial businesses saying the renewable energy systems won’t be taxed, Reed said.
New Haven is backing legislation put forth by Senate Majority Leader Martin Looney (D-New Haven), calling for the commercial tax exemption retroactive to Oct. 1, 2012.
“They wanted to encourage alternative energy development in the city,” Looney said.
Other towns such as Bloomfield are taking a harder stance, where assessor Walter Topliff said he grants exemptions only to farms and residential systems.
“I just follow the statute,” Topliff said. If the statute is modified to include exemptions for commercial and industrial systems, then Topliff said the town will change its stance.
“We are expecting it to be passed this year,” Topliff said.
The main points of contention in the legislature are whether the General Assembly should force municipalities to grant the exemption or simply give them an option. The energy committee also is debating what types of renewables should be eligible for exemption, such as just Class I or a broader definition that includes technologies such as solar thermal.
The Department of Energy & Environmental Protection, which is implementing much of Malloy’s energy plan, is pushing for a voluntary exemption.
“We don’t want to be in a position of mandating an exemption, particularly in these tough economic times,” said Alex Kragie, special assistant to the DEEP commissioner. “There are a lot of communities in the state that are leaders of clean energy, and tax exemptions are an excellent way to push that further.”
On the energy committee, Duff favors a voluntary exemption while Reed is leaning toward mandatory. The Connecticut Conference of Municipalities has been pushing against unfunded mandates, but Reed said that is the short-sighted approach when it comes to renewables.
“We are really, really trying to convince municipalities to see this as a gift to their communities,” Reed said. “The reality is these property owners won’t want to install renewable systems if you tax them. Businesses will pick and choose where they want to put them.”
Ford, the solar installer, said making the exemption voluntary will lead to renewable systems only going into certain pockets of the state, while the other areas are shunned.
Several business landowners have gotten ZREC awards or are about to receive them but don’t know if the towns will grant an exemption. That could lead to problems with implementation of the program, Ford said.
“People might start opting out of doing projects,” Ford said. “This should have been resolved before the program was initiated.”
