TN attorney general says solar tax exemption is unconstitutional

2:43 PM, Nov 3, 2012   |    comments
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By Chas Sisk, The Tennessean

A tax break for Tennessee's solar industry violates the state constitution because it favors certain taxpayers, state Attorney General Robert Cooper said Friday, jeopardizing the future viability of the credit.

An exemption created in 2010 for solar and other green energy installations is prohibited by a provision of the state constitution that says the legislature cannot pass laws that let certain taxpayers out of paying property taxes, Cooper said.

The break was one of three that former Gov. Phil Bredesen pushed through the legislature in the waning days of his administration. The decision is likely to rekindle efforts, led by state Comptroller Justin Wilson, to roll back the property tax exemption and replace it with a less generous tax cut.

"The opinion reaffirms the position the comptroller's office has held all along," said Jason Mumpower, the comptroller's chief of staff.

Bredesen, a Democrat, pushed breaks for green energy as part of his 2010 tax bill, arguing that the state's nascent solar power sector needed to be bolstered.

But questions about the tax breaks began just weeks after they were passed, when Bredesen and two top aides, Economic and Community Development Commissioner Matt Kisber and Revenue Commissioner Reagan Farr, formed a solar energy company, Silicon Ranch Corp. Eight of the company's projects were approved this summer to receive the tax breaks.

Earlier this year, Wilson, a Republican, urged the GOP-dominated legislature to repeal the property tax break. Wilson said the break on property taxes is so generous that it is in effect an exemption.

That runs counter to a 1986 attorney general's opinion that Tennessee's constitution forbids the legislature from letting select taxpayers out of property taxes, the comptroller said.

Wilson's office urged lawmakers to repeal the break.

Industry fights back

Supporters of the solar industry have fought back. They say that removing the exemption would amount to a tax hike on an industry that is still getting off the ground.

"It's a huge problem for us," Gil Hough, chairman of the Tennessee Solar Energy Industry Association and manager of the renewable energy division of Restoration Services Inc. in Oak Ridge, said Friday. "This will kill a lot of projects and a lot of jobs in the state."

After several weeks of debate during the 2012 legislative session, lawmakers set the issue aside so Cooper's office could review the constitutionality of the exemption.

Cooper, a former adviser to Bredesen, sided with the comptroller's office. Saying that nothing in the law has changed since 1986, Cooper and other state attorneys wrote that the state constitution still prohibits a blanket exemption from property taxes for any group of companies.

"There is no basis to presume that all machinery and equipment used to produce electricity in a certified green energy production facility is of negligible value," they wrote. "The valuation method ... effectively gives certain business owners a property tax exemption that is not authorized by the Constitution."

The ruling does not kill tax breaks for green energy altogether. Two other breaks - a credit for sales tax paid on green energy machinery and equipment and an exemption from franchise taxes - have not been challenged by the comptroller's office.

The comptroller also has proposed a less generous property tax break for solar power. Rather than an exemption, Wilson's office proposed valuing solar equipment at one-third of its installation cost, a break already enjoyed by wind power.

"It's a different way of doing the same thing," Mumpower said. "What we want to do, unequivocally, is fix this issue."

But with its narrow profit margins, the solar industry would struggle with a smaller property tax break, Hough said.

"We are very hopeful that we can work something out with the comptroller's office," he said. "This last bill kind of caught us by surprise, but I think we can come up with a compromise that is constitutional and won't hurt the industry."

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