By Philip S. Olsen, partner, Davis Malm
On March 26, 2021, Massachusetts Governor Charlie Baker signed a comprehensive climate change bill known as Senate Bill 9 – An Act Creating a Next Generation Roadmap for Massachusetts Climate Policy, which is designed to eliminate carbon emissions in Massachusetts by 2050 by promoting renewable energy and reducing the state’s reliance on fossil fuels. The Act contains several provisions addressing local property taxation of wind, solar, energy storage and fuel cell technologies.
“M.G.L. c. 59, § 5, clause Forty-fifth” previously exempted from taxation any solar- or wind-powered system or device used as a primary or auxiliary power system for property subject to local taxation. Clause Forty-fifth has been replaced with a new version that extends the exemption significantly. It no longer confines the exemption to solar- or wind-powered systems serving the energy needs of taxable property. This requirement resulted in a fair amount of litigation between taxpayers and assessors. The removal of this limitation is a win for taxpayers.
The Act now exempts any solar or wind system that may or may not be co-located with an energy storage system, that is:
- Capable of producing not more than 125% of the annual electricity needs of the real property upon which it is located, including contiguous or non-contiguous real property within the same municipality in which there is a common ownership interest;
- A solar- or wind-powered system equal to or less than 25 kW in capacity; or
- A solar- or wind-powered system or energy storage system, or a combination therein, that has entered into an agreement with the municipality where the system is located for payment in lieu of taxes associated with the system.
Energy storage systems were not previously exempt. Their inclusion indicates that the legislature recognized storage technology as instrumental to the clean energy program.
Fuel cells may now also be eligible for the property tax exemption. Newly added clause Forty-fifth B extends the exemption to include qualified fuel-cell-powered systems constructed after January 1, 2020. Similar to the requirements of clause Forty-fifth, the fuel cell system may not produce more than 125% of the annual energy needs of the real property upon which it is located.
Municipalities have also been given greater authority to enter into agreements for payments in lieu of taxes for solar and wind systems, storage batteries and fuel cells.
Finally, the Department of Revenue is required to issue guidance for municipalities and solar, wind and energy storage system owners within nine months of the effective date of the Act. Among other things, the guidance must address:
- assessment of solar, wind and energy storage systems;
- standardization of agreement terms; and
- where feasible, standardization of tax policy when agreements for payments in lieu of taxes are not in place.
Philip S. Olsen is a tax attorney at the Boston law firm of Davis Malm, where he focuses on state and local tax consulting and litigation. He has over 25 years’ experience litigating and resolving major tax controversies before courts and administrative boards. He can be contacted at polsen@davismalm.com.
