Does A Solar Energy System Raise Property Taxes?

The answer is no! In fact the better answer would be that solar is exempted from property taxes in the vast majority of states. In order to stimulate the solar industry, there have been many programs passed by local and state legislatures to provide for a tax exemption for installed solar energy systems on residential and commercial properties. So you don't have to pay additional money for property taxes after you have gone solar? That's great news! The questions we should ask are why and how much do you save?

For one thing, there is a great desire from the government for solar and energy efficiency projects to be introduced into residential and commercial buildings. The main government programs are the President's Clean Power Plan and individual state Renewable Portfolio Standards. Energy independence and affordable pricing are national priorities. Solar has dropped precipitously in price for the consumer over the last seven years. To keep the price low while the industry is in its nascent development, individual states can decide to make solar more attractive by forgoing tax money from property assessment to encourage industry growth.

What is a Property Tax Exemption?

The most basic definition would be that, "Property tax exemptions allow businesses and homeowners to exclude the added value of a solar system from the valuation of their property for taxation purposes." An exemption for solar makes it more likely for a prospective solar customer to purchase solar since they will have a smaller tax burden. Property taxes are collected locally and some states have granted local taxing authorities the option of allowing a property tax incentive for solar. There are 38 states that offer property tax exemptions for renewable energy. Ohio is one of these 38 states.

The incentive programs in these states generally follow the same procedure and exclude the added value of solar-energy systems from the home or business for tax purposes. Most of the state incentives do not have an expiration date on the tax exemption.

What is Available?

Solar property tax exemptions in Ohio are available at the state and local levels. The state program is called the Qualified Energy Property Tax Exemption for Projects 250 kW or less and the Qualified Energy Property Tax Exemption for Projects over 250 kW. These exemptions were passed in January 2010 and state that the owner of the system, "...will not be subject to the payment in lieu of property tax."

Prior to these property tax exemptions, taxes were considered a significant obstacle in encouraging people to adopt solar.  

Both the cities of Cincinnati and Cleveland offer up their own property tax abatement programs for green buildings. These programs are for energy efficiency measures which feature solar and wind. New property for both residential and commercial installations receive a tax abatement of 15 years. Existing property for both residential and commercial installations receive a tax abatement of 10-12 years.  

What is the property tax rate in Ohio?

Ohio's real property tax is the oldest tax in Ohio, going back to 1825. In its current form, "the state's average effective property tax rate is 1.52%, placing it among the ten highest in the country." However, since the property tax is collected at the county level, the rate you will pay depends on which county you live in. But the number we will go with is 1.52%.

So if there were no property tax abatement on solar in Ohio, how much would you have to pay? For our example we will start with a 7 kW array. The proper way to value a solar energy system and attain its home equity is to assign a value of $3.11 per watt for the array. This gives us a figure of 7,000 x $3.11 = $21,770 as a value for the array.

If the average effective property tax rate is 1.52%, that would mean the extra tax burden for a solar energy system would be $21, 770 x 1.52% = $330.90 per year. But of course we have to depreciate the system at a rate of 4% per year for 25 years. We will also figure out in raw numbers just how big a tax burden this would be for a homeowner. Here is what we came up with:

Year Property Tax Rate Value of System Tax Burden Present Value 
1 1.52% $24,500.00 $372.40 $361.55
2 1.52% $23,520.00 $357.50 $336.98
3 1.52% $22,540.00 $342.61 $313.53
4 1.52% $21,560.00 $327.71 $291.17
5 1.52% $20,580.00 $312.82 $269.84
6 1.52% $19,600.00 $297.92 $249.50
7 1.52% $18,620.00 $283.02 $230.12
8 1.52% $17,640.00 $268.13 $211.66
9 1.52% $16,660.00 $253.23 $194.08
10 1.52% $15,680.00 $238.34 $177.34
11 1.52% $14,700.00 $223.44 $161.42
12 1.52% $13,720.00 $208.54 $146.27
13 1.52% $12,740.00 $193.65 $131.86
14 1.52% $11,760.00 $178.75 $118.18
15 1.52% $10,780.00 $163.86 $105.17
16 1.52% $9,800.00 $148.96 $92.83
17 1.52% $8,820.00 $134.06 $81.11
18 1.52% $7,840.00 $119.17 $70.00
19 1.52% $6,860.00 $104.27 $59.46
20 1.52% $5,880.00 $89.38 $49.49
21 1.52% $4,900.00 $74.48 $40.04
22 1.52% $3,920.00 $59.58 $31.10
23 1.52% $2,940.00 $44.69 $22.64
24 1.52% $1,960.00 $29.79 $14.66
25 1.52% $980.00 $14.90 $7.11
    Total: $4,841.20 $3,767.13

The tax burden decreases as time goes on. When you factor in the time value of money and set this total taxed amount of $4,841.20 at an interest rate of 3% over 25 time periods, we can change this future value to a present value. The total amount of money that you are saving on taxes with the property tax abatement program on green energy systems comes out to be $3,767.13.

So the property tax abatement should not be taken for granted. If a homeowner purchases the average-sized system they will not have to pay a present value of just over $2,000 during the natural life cycle of their system. So unlike building a deck or remodeling your kitchen which increases your home equity and thus your property tax, solar is regarded differently than other home improvements and does not elicit taxable property.

It should be remembered that there is no sales tax charged on your solar panels when you purchase them. Ohio has a sales tax of 7.11%. So for that same 7 kW system that costs $21,770, if there were sales tax being charged it would come out to be $1,548. So just for purchasing solar and not being charged for sales tax ($1,548) and property tax ($2,054) the customer is saving a total of $3,602 that the government is not collecting. Solar panels for your home are well worth the price. So no matter if you choose to go with the best solar panels, the most efficient solar panels, solar panels for sale, or simply cheap solar panels, solar panels for your home are a great deal.