413 P.3d 678
Ariz.2018Background
- SolarCity and Sunrun ("Taxpayers") lease solar panels to residential and commercial property owners; the panels remain owned by the lessors and are installed on lessees’ property to generate electricity for self-use, with excess fed to the utility grid.
- ADOR issued a notice of value for tax year 2015 assigning full cash values to those leased panels and assessed taxes, prompting Taxpayers to seek declaratory relief that the panels have zero value under A.R.S. § 42-11054(C)(2) and that ADOR lacks authority to centrally value them under A.R.S. §§ 42-14151 and -14155.
- The tax court held ADOR lacked authority under §§ 42-14151/-14155 and concluded county assessors should value the panels, but it found § 42-11054(C)(2)’s zero-value provision unconstitutional under the Exemptions and Uniformity Clauses.
- The court of appeals affirmed that ADOR lacks §§ 42-14151/-14155 authority but held § 42-11054 authorized ADOR (via appraisal guidelines) to value the panels and that § 42-11054(C)(2) is constitutional, requiring ADOR to assign zero value.
- The Arizona Supreme Court granted review, holding ADOR is not authorized to value the leased panels and remanding the remaining statutory and constitutional questions to the tax court to be decided in the first instance.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether ADOR may centrally value leased solar panels under A.R.S. §§ 42-14151 & -14155 | Taxpayers: they only lease panels; they do not operate electric generation facilities, so ADOR lacks authority | ADOR: panels convert solar energy and excess is transmitted to grid, constituting electric generation facilities ADOR may value | Held: ADOR lacks authority under §§ 42-14151/-14155 because Taxpayers do not operate electric generation facilities; affirmed against ADOR |
| Whether A.R.S. § 42-11054 authorizes ADOR to value panels by prescribing appraisal guidelines (including a zero-value rule) | Taxpayers: § 42-11054 only prescribes appraisal methods to be used by ADOR and county assessors; it does not confer valuation authority to ADOR | ADOR/court of appeals: § 42-11054(A) + (C)(2) effectively let ADOR apply methods and assign zero value centrally | Held: § 42-11054 prescribes appraisal methods for both ADOR and county assessors and does not authorize ADOR to value the panels; court of appeals vacated |
| Whether leased solar panels are real property or personal property for taxation | Taxpayers: panels are not fixtures and remain lessors’ property; thus personal property | ADOR: panels may be business personal property or otherwise valued under county methods; some argue different valuation regimes might apply | Held: Panels are personal property (business personal property), not real estate; tax court reversed on real-property conclusion |
| Whether county assessors may value the panels, whether § 42-11054(C)(2) mandates zero valuation, and whether that provision violates constitutional Clauses | Taxpayers: § 42-11054(C)(2) mandates zero value; if applied, ADOR’s zero-value statute is constitutional | ADOR: county valuation method (§ 42-13054) may preclude using § 42-11054(C)(2); alternatively, if zero applies, it is unconstitutional | Held: Remanded to tax court to decide (1) whether § 42-13054 authorizes county valuation, (2) whether § 42-11054(C)(2) applies to require zero valuation, and (3) if applicable, whether that provision violates the Exemptions or Uniformity Clauses; Supreme Court declined to resolve these issues now |
Key Cases Cited
- Delgado v. Manor Care of Tucson AZ, LLC, 242 Ariz. 309 (Ariz. 2017) (standard of review for summary judgment and statutory interpretation)
- State ex rel. DES v. Pandola, 243 Ariz. 418 (Ariz. 2018) (statutory interpretation principles and effectuation of legislative intent)
- Sw. Airlines Co. v. Ariz. Dep’t of Revenue, 217 Ariz. 451 (App. 2008) (distinction between real estate and personal property for tax purposes)
- Bennett v. Brownlow, 211 Ariz. 193 (Ariz. 2005) (desirability of fully developed adversarial presentation and joinder of interested parties)
- SolarCity Corp. v. Ariz. Dep’t of Revenue, 242 Ariz. 395 (App. 2017) (court of appeals decision reviewed and vacated in part by the Supreme Court)