396 P.3d 631
Ariz. Ct. App.2017Background
- SolarCity and SunRun (Taxpayers) lease, install, operate grid-tied rooftop photovoltaic systems that generate electricity "behind the meter" primarily for the host building; surplus flows to the utility grid under net-metering.
- Arizona statutes at issue: (1) A.R.S. § 42-11054(C)(2) (solar energy systems statute) directs appraisal guidelines and provides that grid-tied PV systems "designed for the production of solar energy primarily for on-site consumption" are "considered to have no value and to add no value"; (2) A.R.S. §§ 42-14151–14156 (electric generation/renewable energy valuation statutes) centrally assess and value "electric generation facilities" and "renewable energy equipment" (valued at 20% of depreciated cost) that generate electricity "to be delivered to customers through a transmission and distribution system" and are "not intended for self-consumption."
- In 2013 the Department of Revenue concluded leased panels are centrally assessable renewable energy equipment because the panel owners (solar companies) do not themselves consume the electricity produced.
- Taxpayers sued for declaratory relief; the tax court held the Department lacked authority to centrally assess the leased panels under the electric generation/renewable energy statutes, but ruled the solar energy systems statute (zero-value rule) was unconstitutional under the Exemptions and Uniformity Clauses and directed counties to assess locally.
- On appeal, the court affirmed that the Department cannot centrally assess Taxpayers’ leased rooftop systems, reversed the tax court’s constitutional holdings (upholding the zero-value statutory scheme), reversed the requirement of local assessment, and remanded with an award of attorneys’ fees to Taxpayers.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Department may centrally assess leased rooftop PV systems under the electric generation statute / renewable energy valuation statute | Taxpayers: systems are designed primarily for on-site consumption and do not "generate" electricity to be delivered through a transmission and distribution system; thus not subject to central assessment | Department: ownership by a third-party lessor means the panels are not for self-consumption and fall within the central-assessment/renewable equipment statutes | Held: No. Panels convert solar to electricity primarily for on-site use behind the meter; surplus later flows to the grid but is not generated for delivery through the utility transmission/distribution system, so Department lacks authority to centrally assess under those statutes |
| Whether the solar energy systems statute's zero-value rule unlawfully exempts panels from taxation (Exemptions Clause) | Taxpayers: declaring panels to have no value effectively exempts them and thus violates the Constitution | Department: statute prescribes valuation methodology, not a constitutional exemption; Legislature may direct valuation methods | Held: Statute is not an unconstitutional exemption. It prescribes that such systems be assessed as having no separate value when applying standard appraisal methods (a legislative valuation choice) |
| Whether the solar energy systems statute violates the Uniformity Clause by treating similarly situated property differently | Taxpayers: statute creates inconsistent treatment between systems "primarily" for on-site consumption (zero value) and others (20% of depreciated cost), and could vary month-to-month based on actual usage | Department: systems designed for on-site consumption are functionally distinct from large-scale generation that supplies customers through transmission/distribution | Held: No Uniformity violation. The two property classes are not similarly situated—different purpose, scale, placement (behind vs. in front of meter), and regulatory limits—so different valuation is permissible; application depends on design intent, not fluctuating actual usage |
| Whether Taxpayers are entitled to attorneys’ fees and whether sanctions were warranted | Taxpayers: they prevailed on meritorious statutory interpretation and sought fees under A.R.S. § 12-348(B) | Department: sought sanctions/fees under A.R.S. § 12-349 for discovery abuse and delays | Held: Denial of Department sanctions was affirmed (no clear discovery abuse). Taxpayers were entitled to attorneys’ fees under § 12-348(B) because they prevailed on the Department’s central-assessment and valuation claims; remanded to determine fees amount |
Key Cases Cited
- Duke Energy Arlington Valley, 219 Ariz. 76 (court reviewed summary judgment and statutory application)
- Chevron U.S.A. v. Arizona Dep’t of Revenue, 238 Ariz. 619 (statutory construction reviewed de novo)
- General Motors Corp. v. Maricopa County, 237 Ariz. 337 (plain-meaning and legislative intent in statutory interpretation)
- Corbett v. ManorCare of America, Inc., 213 Ariz. 618 (avoid rendering statutory words superfluous)
- Airport Properties v. Maricopa County, 195 Ariz. 89 (Legislature’s discretion not to tax classes of property explained)
- Cutter Aviation, Inc. v. Arizona Dep’t of Revenue, 191 Ariz. 485 (distinguishing valuation rules from exemptions)
- Arizona Dep’t of Revenue v. Raby, 204 Ariz. 509 (construction to avoid absurd results)