Property tax dilemmas for solar photovoltaics placed on rooftops

There are few cases in practice where municipalities have started charging property tax for solar photovoltaics (PV) placed on rooftops.

This currently isolated practice raises two fundamental questions for PV owners ( i ) whether the PV as an asset or any value it eventually adds to an existing real estate are taxable with property tax, and if so, (ii) how that tax is determined. The responsibility for providing answers to these questions falls on state and local officials involved in the administration of the property taxes. These officials operate within the confines of the Property Taxes Law (the PTL) and the prescribed Methodology for evaluation of the market value of real estate for property tax purposes (the Methodology). 

According to the PTL, property tax is payable on all real estate, except the ones that are explicitly exempt. The definition of real estate includes land, buildings and other construction objects, as well as the fixtures raised above or below them and permanently attached to them.

The classification of rooftop PV as items subject to property tax can be challenging due to the following:

•The decision whether a PV is readily removable equipment or a fixture ” that is permanently attached to the building, depends on the interpretation of these terms by the local authorities;

•The list of other construction objects (garages, barns, stables, and sheds) in the Methodology does not include PVs.

Another dilemma is the evaluation of the rooftop PVs for property tax purposes. According to the Methodology, the market value of construction objects for property tax is determined per square meter of functional area based on a sum of calculation points as follows:

•Points for basic elements for property features such as type of construction, doors, windows, type of installations etc., which together represent the construction value of the property and;

•Points for additional elements for property features such as number of floors, micro and macro location, exclusivity, which are added to the construction value and represent the market value of the property.

However, the issue is that the Methodology does not prescribe specific evaluation criteria for PVs placed on a rooftop. Additionally, in the limited cases we are aware of, the municipality did not disclose the valuation criteria for assessment of the property tax base for the PVs. 

The last dilemma for the state and local authorities to decide is whether imposing property tax for rooftop PVs to households and businesses is the right step going forward, considering the national Strategy for Climate Action. In some European countries, in order to encourage the development of alternative energy, property tax incentives have been introduced for properties, lands and fixed assets used for the production of renewable energy. 

The Ministry of Finance, as a competent authority for monitoring the implementation of the property taxes legislation, may help in resolving the above dilemmas by taking a formal stand on the issue and setting guidelines for the municipalities.

How can we help you?

PricewaterhouseCoopers DOOEL can help you with

1. Assistance and advice in relation to property taxes.
2. Assistance and advice in other tax and legal matters concerning solar photovoltaics.
3. Specialized training courses for employees.

For more details, please address your regular contacts at PricewaterhouseCoopers DOOEL or the persons listed in the Contacts section below.