Virginia Advisory Opinions August 14, 2024: 23-009

Advisory Opinion Text

The Honorable Robert S. Wertz, Jr.

Commissioner of the Revenue

County of Loudoun

Post Office Box 8000

Leesburg, Virginia 20177-9804

Dear Commissioner Wertz:

Jason S. Miyares Attorney General

I am responding to your request for an official advisory Opinion in accordance with § 2.2-505 of the Code of Virginia.

Issues Presented

You present multiple questions regarding the local taxation of property associated with solar energy initiatives. Your inquiry arises out of your duty to make assessment determinations regarding such property. Your specific questions, which implicate several different provisions of the Code, are as follows:

1) Whether it is mandatory under § 58.1-3660 for a locality to provide a property tax exemption for solar photovoltaic systems, and whether a locality may limit the duration of such an exemption;

2) Whether it is mandatory under § 58.1-3661 for a locality to provide a property tax exemption for the types of small-scale solar facilities described in subsection A of that statute, and whether a locality may limit the duration of such an exemption;

3) Whether it is mandatory under § 58.1-2606.1 for a locality to impose a tax or gradually diminishing exemption on the generating equipment of solar photovoltaic projects with 5 megawatts or less in generating capacity;

4) Whether the term "generating equipment" in § 58.1-2606.1 (A) refers only to generating equipment that is owned by public service corporations; and

5) Whether the tax on generating equipment set forth in § 58.1-2606.1(A) extends to the generating equipment of the types of small-scale solar facilities that otherwise are exempt from taxation under § 58.1-3661(A).

Response

It is my opinion that:

1) A locality is required under § 58.1-3660 to provide a property tax exemption for the qualifying solar photovoltaic systems enumerated in that statute, to the extent specified in the statute, and a locality has no discretion to limit the duration of such an exemption;

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2) A locality is required under § 58.1-3661 to provide a property tax exemption for the types of small-scale solar facilities described in subsection A of that statute, and a locality may not limit the duration of such an exemption;

3) A locality is required generally under § 58.1-2606. to impose a tax and gradually diminishing exemption on the generating equipment of solar photovoltaic projects with 5 megawatts or less in generating capacity, as described in that statute;

4) The term "generating equipment" in § 58.1-2606.1(A) refers to all generating equipment otherwise within the ambit of the provision, regardless of ownership; and

5) The tax on generating equipment set forth in § 58.1-2606.1(A) does not extend to the generating equipment of the types of small-scale solar facilities that are exempt from taxation under § 58.1-3661(A).

Applicable Law and Discussion

Your inquiry regards the taxation of property associated with solar energy. It is well settled that taxes can be levied and assessed only in accordance with law1 and that tax exemptions "shall be strictly construed." Your questions involve several related, yet distinct, provisions of Virginia law.

The Constitution of Virginia directs that "(a]ll property, except as hereinafter provided, shall be taxed." To implement this directive, the General Assembly is authorized to classify property into different types and to segregate it for local taxation. The Constitution then sets forth categories of property that "shall be exempt from taxation" and categories of property for which the General Assembly may provide an exemption. Pertinent to your inquiry, the Constitution provides that the General Assembly "may define as a separate subject of taxation any property, including real or personal property, equipment, facilities, or devices, used primarily for the purpose of abating or preventing pollution of the atmosphere or waters of the Commonwealth or for the purpose of transferring or storing solar energy." Upon such classification, the General Assembly is further authorized to "allow the governing body of any [locality] to exempt or partially exempt such property from taxation, or ... directly exempt or partially exempt such property from taxation" by general law.

Pursuant to this authority, the General Assembly has enacted several statutes providing for the taxation—and exemption therefrom—of property affiliated with solar energy. Your request specifically seeks clarification on the application of Code §§ 58.1-3660, 58.1-3661, and 58.1-2606.1.

Familiar rules of statutory construction govern your inquiry. In construing the applicable statutes, the "primary objective" is "to ascertain and give effect to legislative intent[,]" which "must be gathered

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from the words used in the statute." Courts "assume that the General Assembly chose, with care, the words it used in enacting [a] statute[,]" and when the language of a statute is plain and unambiguous, the words will be given their clear effect. In addition, statutes addressing the same subject "should be read, construed and applied together so that the legislature's intention can be gathered from the whole of the enactments."

Local Discretion under § 58.1-3660

You ask whether § 58.1-3660 requires a locality to provide a property tax exemption for solar photovoltaic systems. Section 58.1-3660 declares "[c]ertified pollution control equipment and facilities" to be "a separate class of property" and expressly directs that such property "shall be exempt from state and local taxation[.]" Nevertheless, the statute further provides that, "[f]or solar photovoltaic (electric energy) systems, the exemption applies only to" certain enumerated qualifying projects. For some of these qualifying projects, the exemption is only partial, limited to a percentage of assessed value that decreases incrementally over time. Whether a project qualifies for exemption under the statute (in full or partially) depends on factors such as the project's generating capacity, the date on which an initial interconnection request form was filed, and/or whether the locality has adopted a revenue share ordinance.

Although the exemption for solar photovoltaic systems in § 58.1-3660 applies only to certain qualifying projects, and further is limited for some of these projects, the General Assembly clearly has provided that the exemption "shall" apply to the property it encompasses. The word "shall" in a statute

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typically is construed as mandatory absent any manifestation of contrary intent by the legislature. There is no indication in the language of § 58.1-3660 that the word "shall" is intended to be other than mandatory. Therefore, in my opinion a locality is required under § 58.1-3660 to recognize the exemption for qualifying solar photovoltaic projects, to the extent specified in the statute.

You also ask whether a locality may limit the duration of the exemption afforded qualifying solar photovoltaic projects under § 58.1-3660. There is no language in the statute that explicitly or implicitly permits a locality to limit the duration of the exemption for such projects. In interpreting statutes, it is not permissible to "add to the words of the statute" or interpret a statute "to mean what it does not state." Accordingly, in the absence of any language in § 58.1-3660 permitting a locality to limit the duration of the exemption for qualifying solar photovoltaic projects, it is my opinion that a locality is not permitted to do so. This conclusion applies regardless of whether the exemption applies in full to the project, or whether the exemption is limited in percentage.

Local Discretion under § 58.1-3661

You also inquire regarding the scope of a locality's discretion under § 58.1-3661 to extend a tax exemption to the types of small-scale solar facilities described in subsection A of that statute. You ask whether such an exemption is mandatory and whether a locality may limit its duration.

Section 58.1-3661(B) provides that "[c]ertified solar energy equipment, facilities, or devices . . . are hereby declared to be a separate class of property and shall constitute a classification for local taxation separate from other classifications of real or personal property" and authorizes localities, "by ordinance, [to] exempt or partially exempt such property" in accordance with law. The statute then directs, among

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other things, that, "if such ordinance is in effect," the "exemption shall be effective beginning in the next succeeding tax year and shall be permitted for a term of not less than five years."

With respect to "[a]ny solar facility installed pursuant to subsections A or B of § 15.2-2288.7 with a nameplate rated electrical generating capacity measured in direct current kilowatts of not more than 25 kilowatts[,]" however, § 58.1-3661(A) more specifically establishes such a facility as a distinct tax classification and directs that "[s]uch facilities shall be wholly exempt from state and local taxation . . . ." Because the General Assembly has mandated directly that this type of solar facility "shall be" tax exempt, a locality is without power to disregard the exemption. Accordingly, the plain language of § 58.1-3661 makes clear that, while a locality generally has discretion to adopt an ordinance exempting certified solar energy facilities from taxation (subject to the statute's term prescriptions), a locality does not have any discretion with respect to exempting the facilities specifically identified in § 58.1-3661(A).

In addition, as with the exemptions established in § 58.1-3660, the exemption created by the General Assembly under § 58.1-3661(A) is indefinite. Section 58.1-3661 contains no language authorizing a locality to limit the duration of the exemption for the facilities identified in § 58.1-3661(A). In the absence of any such language, a locality has no discretion to limit how long the exemption for these facilities remains in effect.

Application of § 58.1-2606.1 Your next several questions relate to § 58.1-2606.1(A). The provision states that

[notwithstanding clause (iv) of subsection (C) of § 58.1-3660, generating equipment of solar photovoltaic projects five megawatts or less shall be taxable by a locality, at a rate determined by such locality, but shall not exceed the real estate rate applicable in that locality . . .,

The provision then further establishes that

notwithstanding subsection F of § 58.1-3660, the exemption shall be as follows: 80 percent of the assessed value in the first five years after commencement of commercial operation, 70 percent of the assessed value in the second five years of service, and 60 percent of the assessed value for all remaining years in serviced

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Your first question with respect to this statute relates to the degree of discretion it affords local governments. You ask whether the statute renders the imposition of either a tax or gradually diminishing exemption mandatory.

The text of § 58.1-2606.1(A) makes clear that it is to be read in the context of § 58.1-3660. As discussed above, § 58.1-3660 generally exempts, in full, certified pollution control equipment and facilities from local taxation, but it also excludes from the exemption solar photovoltaic systems unless a project falls within one of five subclassifications. Nevertheless, § 58.1 -3660(F) provides a partial exemption that is limited to projects that fall within either of two of those subclassifications; for qualifying projects, the partial exemption is reduced over time.

Section 58.1-2606.1(A) provides that "notwithstanding" an otherwise applicable provision of § 58.1-3660, the subject generating equipment "shall be taxable." The relevant clause of § 58.1-3660— clause (iv) of subsection (C)—includes among the tax-exempt solar photovoltaic systems those "projects equaling five megawatts or less, as measured in alternating current (AC) generation capacity, for which an initial interconnection request form has been filed with an electric utility or a regional transmission organization on or after January 1, 2019[.]" Although the General Assembly thus has provided a tax exemption for such projects generally, pursuant to § 58.1-2606.1(A)—"notwithstanding" this exemption —the generating equipment associated with the project "shall be taxable."

Consequently, absent another applicable exemption, such property must be taxed. The rate of taxation remains a matter of discretion for the local governing body, provided the rate does "not exceed the real estate rate applicable in that locality." Unlike exemptions mandated by the Constitution or an act of the General Assembly, the levying of local taxes and setting of tax rates are legislative functions that may be exercised only by the governing body of the local taxing jurisdiction; consequently, a duly adopted ordinance setting forth the applicable tax rate is required to put the tax into effect.

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Although generating equipment governed by § 58.1-2606.1(A) remains taxable, its full value is not subjected to the applicable tax rate. Rather, in enacting the remainder of § 58.1-2606.1(A), the General Assembly extended the partial exemption afforded only two other projects under § 58.1-3660(F) to "generating equipment of solar photovoltaic projects five megawatts or less." Because the General Assembly opted to directly provide this limited exemption by general law rather than authorizing local governments to provide for any such exemption, I conclude that, other than setting an appropriate tax rate, localities have no discretion to tax or exempt this classification of property in any other manner.

You next ask whether "generating equipment," as used in § 58.1-2606.1(A), is limited to generating equipment owned by public service corporations. Your question arises from the statute's codification within Chapter 26 of Title 58.1, which is entitled "Taxation of Public Service Corporations."

It is well established that "[a] provision's placement in a particular [portion of the Code} does not substitute for a statute's operative text." As Virginia courts have observed, "a statute's placement in a particular part of the Code may generally not be considered when the language of the statute is clear and unambiguous." Accordingly, the title of the chapter in which a statute is codified does not override the statute's plain meaning

Here, the language of § 58.1-2606.1(A) is clear and unambiguous. Nothing in this language limits the scope of the term "generating equipment" to generating equipment owned by public service corporations. Had the General Assembly intended to limit the scope of the term, it knew how to do so, as evidenced by the language of surrounding statutes that refer to "the property of public service corporations" assessed under the chapter. Moreover, on a broader level, the chapter deals not only with the taxation of the property of "public service corporations," but also the taxation of property of "other persons" assessed under the chapter, which necessarily encompasses persons owning generating equipment subject to the tax who are not public service corporations. Therefore, in the absence of any qualifying language in § 58.1-2606.1, it is my opinion that the term "generating equipment" in § 58.1-2606.1(A) is not limited to

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generating equipment owned by public service corporations, but instead refers to all "generating equipment" otherwise described in the provision, regardless of ownership.

Lastly, you ask whether the property that is taxable under § 58.1-2606.1(A) includes generating equipment of small-scale solar facilities, i.e., those with a generating capacity of not more than 25 kilowatts, that otherwise are exempt from taxation under § 58.1-3661(A).

As noted above, § 58.1-3661(A) provides that solar facilities with a nameplate rated electrical generating capacity of 25 kilowatts or less, as measured in direct current kilowatts, are "wholly exempt" from local taxation when they are "installed pursuant to subsections A or B of § 15.2-2288.7." Subsections A and B of § 15.2-2288.7, in turn, relate generally to certain solar facilities installed on the roofs of residential dwellings to serve the energy needs of residential or agricultural properties on which they are located.

Therefore, under § 58.1-3661(A), if a solar facility (1) has a nameplate rated electrical generating capacity measured in direct current kilowatts of not more than 25 kilowatts, and (2) is installed to serve the energy needs of a property in accordance with the conditions of § 15.2-2288.7(A) or (B), it is exempt from state and location taxation. It follows that the generating equipment of such facilities also is made exempt under this provision.

There is nothing in § 58.1-2606.1 that disturbs this exemption. To the contrary, § 58.1-2606.1(C) specifically provides that "nothing herein shall be construed to authorize local taxation pursuant to this section ... of generating . .. equipment of solar photovoltaic projects that serve the electricity needs of that property upon which such solar facilities are located, as is provided in § 15.2-2288.7." Accordingly, generating equipment used in small-scale solar photovoltaic facilities made exempt pursuant to § 58.1-3661(A) is not subject to taxation under § 58.1-2606.1(A).

Conclusion

Accordingly, it is my opinion that:

1) A locality is required under § 58.1-3660 to provide a property tax exemption for the qualifying solar photovoltaic systems enumerated in that statute, to the extent specified in the statute, and a locality has no discretion to limit the duration of such an exemption;

2) A locality is required under § 58.1-3661 to provide a property tax exemption for the types of small-scale solar facilities described in subsection A of that statute, and a locality may not limit the duration of such an exemption;

3) A locality is required generally under § 58.1-2606.1 to impose a tax and gradually diminishing exemption on the generating equipment of solar photovoltaic projects with 5 megawatts or less in generating capacity, as described in that statute;

4) The term "generating equipment" in § 58.1-2606.1(A) refers to all generating equipment otherwise within the ambit of the provision, regardless of ownership; and

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5) The tax on generating equipment set forth in § 58.1-2606.1(A) does not extend to the generating equipment of the types of small-scale solar facilities that are exempt from taxation under § 58.1-3661(A).

With kindest regards, I am,

Very truly yours,