Developers of ground-mounted solar energy facilities received an early holiday gift from the commonwealth’s Appellate Tax Board’s recent ruling in Forrestall Enterprises Inc. v. Board of Assessors of the Town of Westborough that may have a long-term impact on tax revenues municipalities receive from solar and wind commercial facilities.

Forrestall Enterprises Inc. (FEI), like Westborough Automotive Service Inc. and Car Wash & Detailing of Westborough Inc., are Westborough-based Massachusetts corporations wholly owned by Bruce F. Forrestall, who also owns a personal residence and eight condominium units at Westborough Suites Condo in Westborough. FEI installed a 240 kilowatt (kw) (the Solar PV System) on a five-acre parcel land it owned on Milk St. in Westborough. Forrestall aimed to apply net metering credits from the Solar PV System to offset a substantial portion of the electricity usage by his other Westborough properties.

The town valued the Solar PV System at more than $1.3 million in fiscal year 2012, on which it collected more than $25,000 in personal property tax, and another $14,000 plus in personal property tax for fiscal year 2013, based on a valuation exceeding $748,000.

FEI timely paid the respective tax bills, then unsuccessfully sought an abatement both years from the Westborough Board of Assessors, arguing that the Solar PV System was statutorily exempt from property tax pursuant to G.L. c. 59, §2, cl. 45 (Clause 45).  The town contended that the Solar PV System was not shielded from taxation by Clause 45, as FEI claimed, because the exemption applied only to solar-powered systems that were installed on the same parcel or a contiguous parcel to the property they powered and not connected to the electrical grid.

G.L. c. 59, §2, cl. 45, provides that “Solar or wind powered system or device which is being utilized as a primary or auxiliary power system for the purpose of heating or otherwise supplying the energy needs of property taxable under this chapter; provided, however, that the exemption under this clause shall be allowed only for a period of twenty years from the date of the installation of such system or device.”

The Appellate Tax Board concluded FEI conformed to the requirements of Clause 45 and was entitled to a tax abatement on the Milk Street property. Specifically, the board found the Solar PV System was:

a solar-powered system within the meaning of Clause 45;

used as a primary or auxiliary energy source for Forrestall’s Westborough properties; and

generating power used in its entirety by the Westborough properties, which received 100 percent of the credit for the energy produced.

The board’s Forrestall decision rejected the town’s interpretation, which mirrored that of the commonwealth’s Department of Revenue, that the Clause 45 tax exemption was germane only to solar facilities located on the same or contiguous parcel being powered and was intended for residential properties.

It’s too soon to gauge the impact the Forrestall ruling will have on solar developers in the commonwealth that sell net metering credits to third parties. Green energy developers may see the ruling as a green light to pursue tax exemptions under Clause 45, but the unique circumstances of the Forrestall case – a single shareholder owning the Solar PV System and the subject properties – may invite a more measured, case-by-case analysis. Municipalities, meanwhile, are likely to pressure Massachusetts lawmakers to close the “loophole” afforded by Clause 45 so that the long-established practice of local officials hashing out tax agreements with developers that are then approved at town meeting may continue.

The Forrestall decision may also prompt the reintroduction in the legislature of a bill akin to one passed by the House and Senate in 2012 before stalling that would, instead of assessing personal or real property taxes, require solar and wind systems to pay host municipalities a percentage of the system’s gross electricity sales for the preceding calendar year.

One thing is clear – the Forrestall decision marks the beginning, not the end, of litigation on this issue.