A solar energy system is “real property” once it has been permanently affixed to land or a structure (See Real Property Tax Law §102(12)(b); see also, Metromedia, Inc. v. Tax Commission of the City of New York, 60 N.Y.2d 85, 468 N.Y.S.2d 457 (1983); 8 Op. Counsel SBEA No. 3). As such, it is taxable unless it qualifies for an exemption (Real Property Tax Law §300).

There is an exemption statute that applies specifically to solar energy systems: Section 487 of the Real Property Tax Law (“RPTL”). Section 487, which also covers wind power energy systems and farm waste energy systems, generally provides a 15-year exemption from real property taxation for the increase in value resulting from the installation of a qualifying system. A number of questions have recently arisen concerning the application of this exemption statute.


  1. Must every municipality offer the RPTL §487 exemption? Each municipality may decide for itself whether to offer the exemption. Unlike most other local option exemptions, however this exemption applies within a municipality unless the municipality has taken action to disallow it.
  1. How does the option feature work? The location option that is attached to the RPTL §487 exemption is structured as an “opt-out”, not an “opt-in.” That means that the exemption is automatically in effect within a municipality unless it has adopted a local law, ordinance or resolution providing that the exemption shall not be available therein. In municipalities that have taken no action one way or the other, the exemption is in effect. If a local law, ordinance or resolution opting out of the exemption is adopted, a copy must be filed with the New York State Department of Taxation and Finance and the New York State Energy Research and Development Authority (“NYSERDA”).
  1. May an opt-out be made retroactive? If a municipality opts out, it is effectively disallowing the exemption to solar energy systems where construction had not begun by the effective date of the applicable local law, ordinance or resolution (or by January 1, 1991, if later). See RPTL §487(8)(a). Where a system’s construction had begun by that date, it is not impacted by the opt-out and is entitled to the exemption if otherwise qualified (though it may be obligated to make PILOTs under certain circumstances; See Nos. 6-10 herein. Note that for the purposes of the RPTL §487 exemption, the construction of a solar energy system is deemed to have begun upon the execution of a contract or interconnection agreement with a utility or, if applicable, upon the payment of a deposit thereunder. The owner or developer must give written notice to the appropriate municipalities when such a contract or agreement is executed. See RPTL §487(8)(b).
  1. If a municipality has opted out, may it restore the exemption later? If a municipality that had opted out wishes to begin offering the exemption later, it may do so by repealing the local law, ordinance or resolution that opted out. This is not stated explicitly in the law, but such authority is believed to be implicit in statutes of this nature, absent language to the contrary. A copy of any local law, ordinance or resolution restore the exemption should be filed with both the Department of Taxation and Finance and NYSERDA.
  1. May a municipality opt out of the exemption for commercial property while leaving it in place for residential property? If a municipality does opt out, it must do so for all properties. It cannot allow the exemption for one type of property while disallowing it for another because RPTL §487(8) states that once a municipality has opted out, “no exemption under this section shall be applicable within its jurisdiction.” If a municipality does not opt out, however, the law may allow it to treat commercial and residential properties differently when deciding what their PILOT obligations should be. See No. 8 herein.
  1. If a municipality leaves the exemption in place and requires owners to pay PILOTs, how much should those payments be? That is largely a local decision, except that the statute sets limits on how large these PILOTs may be, and on how long they may last. Specifically, it provides that the PILOTs may not exceed the taxes that would have been payable if the property were not exempt under RPTL §487. It also provides that the period over which the PILOTs are to be paid may not exceed 15 years. See RPTL §487(9)(a). In effect, then, if a municipality leaves the exemption in place and imposes the maximum allowable PILOT obligation, the owner will be making payments to the municipality in the same amount as if the property were fully taxable. The primary difference is that those payments will have the legal status of PILOTs rather than property taxes.
  1. What is the maximum PILOT for a solar farm built on vacant land? The limit on the PILOTs in such an instance is the amount of taxes that would have been levied on the parcel as it now exists – that is, the land with the panels – if the municipality had opted out of the exemption.
  1. May different PILOT requirements be imposed upon commercial and residential systems? While it is clear that a municipality may not opt out of the RPTL §487 exemption for one type of property while leaving the exemption in place for another type (See 5 herein), it is less clear whether it may impose different PILOT requirements on different property types. RPTL §487(9)(a) states simply that the municipality may require “the owner of a property” that qualifies for the exemption “to enter into a contract” to make PILOTs. This wording, which arguably frames the PILOT question as an individualized determination rather than a collective one, provides no guidance as to how owners should be treated relative to one another. While principles of equal protection would clearly preclude a municipality from drawing arbitrary distinctions between similarly-situated owners when setting their PILOT requirements, it is believed the law may reasonably be read as leaving open the possibility of treating owners of different types of property differently, as long as there is a rational basis for doing so. Accordingly, if differential treatment is desired, we suggest that the issue be directed to the municipal attorney, who would have to be satisfied that any such differentiation could successfully be defended in the event of litigation.
  1. May a municipality enter into a PILOT agreement that requires the owner of a solar energy system to provide the municipality with energy at a discounted rate, or that bases the PILOT payments upon the amount of energy produced by the system or the value of the system? Nothing in RPTL §487 prohibits a municipality from structuring a PILOT as described above. However, as noted above (See 6-7), RPTL §487(9)(a) states that PILOT agreements may require annual payments in an amount not to exceed the amounts that would have been payable if not for the exemption. Therefore, no matter how the arrangement is structured, the PILOT obligation imposed upon the owner must comply with this limitation.
  1. Our municipality received a notice stating that the sender of the notice intends to construction a solar energy system within our municipality. What is the significance of this notice? In some cases, a municipality that has not opted out of the RPTL §487 exemption may need to take action to preserve its rights to collect PILOTs on exempt property. The law now provides that the owner or developer of a solar energy system may notify a municipality in writing that it intends to construction such a system. If an owner or developer does so, and the municipality wishes to collect PILOTs on that system, then within sixty (60) days of receiving the notice of intent, the municipality must notify that owner or developer that it intends to require it to enter into a PILOT contract. See RPTL §487(9)(a). Note that the law does not require an owner or developer to use a specific form or include specific language when giving a municipality notice of its intent to construct a solar energy system.
  1. May solar panels receive the RPTL §487 exemption if they are not owned by the owner of the underlying land or building? There is no ownership requirement in RPTL §487, so solar panels that otherwise qualify are entitled to the RPTL §487 exemption even if they are owned by a third party.
  1. Solar panels will be installed on property that is owned either by a municipality or by a public or private college. The panels themselves will be owned by a private entity, which will sell the electricity to the municipality or college at the discounted rate. Due the 15-year limit on the RPTL §487, it has been suggested that the panels may be granted a permanent exemption under the exemption statutes that apply to municipal corporations or not-for-profit educational organizations, rather than under RPTL §487. Is this permissible? The real property tax exemptions that apply to municipalities and not-for-profit education organizations are embodied in RPTL §§406 and 420-a, respectively. Each statute provides that in order to qualify for the exemption real property must be both (1) “owned by” the eligible owner (i.e., the municipality or educational organization) and (2) used for qualifying purposes. Since these panels will be used to general low-cost electricity for the municipality or college, it may reasonably be argued that these panels will be used for qualify purposes. However, the use requirement is just one of the requirements that must be satisfied to qualify for exemption under RPTL §§406 and 420-a. In each case, the property must also be owned by the exempt entity in order to qualify for exemption. Where the panels are owned by a third party, they may not properly be granted a RPTL §§406 and 420-a exemption.   Note that this analysis does not require the removal of the RPTL §§406 and 420-a exemption from the land or buildings to which the panels will be attached.
  2. There is a separate exemption statute for “residential conservation improvements,” namely, RPTL §487-a. Do solar energy systems qualify for this exemption? RPTL §487-a states in its entirety: “Insulation and other energy conservation measures hereafter added to one, two, three or four family homes, which qualify for (a) financing under a home conservation plan pursuant to Article VII-A of the Public Service Law, or (b) any conservation related state or federal tax credit or deduction heretofore or hereafter enacted, shall be exempt from real property taxation and special ad valorem levies to the extent of any increase in value of such homes by reason of such addition.” It is undeniable that solar systems offer many benefits, but energy “conservation” is not among them. A conservation measure leads to the use of less energy. Examples include installing better insulation or upgraded thermostats, replacing leaky windows or inefficient furnaces, etc. Those are the types of improvements that RPTL §487-a was enacted to exempt, as the legislative history indicates (See, e.g., L. 1977, c. 858, §1, “Legislative Findings”). Solar energy systems are in a different category. They lead to the use of clean, renewable energy in place of energy generated from fossil fuels, but they do not necessarily lead to the use of less energy overall. In fact, solar systems may actually lead to the use of more energy, since beyond the fixed cost of installation, the electricity they produce is essentially free. Moreover, it is a broadly-accepted principal of statutory construction that specific legislative language takes precedence over general language. While RPTL §487-a generally applies to “insulation and energy conservation measures,” RPTL §487 specifically applies to solar energy systems (as well as wind and farm waste energy system). In fact, both statutes were enacted in the same year, just a few weeks apart (L. 1977, c. 322 and c. 858). It only stands to reason that RPTL §487-a must have been intended to apply to improvements other than solar energy systems.


*Disclaimer. The content of this article was published in the Association of Towns of the State of New York publication entitled “Talk of the Towns & Topics,” vol. 30, September/October, and was not authored by Courtney M. Hills, Esq.


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