Under Ohio tax law, a "public utility" includes any person that is an electric company. R.C. 5727.01(A). An "electric company" includes any entity engaged in the business of generating, transmitting, or distributing electricity in Ohio for use by others. R.C. 5727.01(D)(3).
Since a wind farm, solar field, or anaerobic digester can generate electricity in Ohio for use "by others" (under a power purchase agreement, for example), under these circumstances it is considered a public utility for tax purposes (though not necessarily other regulatory purposes). The tangible personal property of an electric company is assessed at 85% of true (depreciated) value, in the case of transmission and general plant property; and at 24% of true (depreciated) value, in the case of generating property. This value is multiplied by the full local property tax rate to determine the annual property tax liability for the taxpayer.
According to the Ohio Department of Taxation, real and personal property taxes, plus application of the state commercial activity tax, result in a taxation rate on a wind farm of $31,030.90 to $42,228.30 per megawatt1 in Ohio counties with the greatest wind resource.
The solar industry estimates the statewide average taxation rate in Ohio to be $115,010 per megawatt for a 100 kilowatt system and $101,740.00 for larger ground-mounted systems of 1 megawatt.
Wind and solar industry representatives have expressed concern that these tax rates are significantly higher than the national and regional averages, and that taxing wind and solar installations as if they were "public utility" property makes Ohio's marketplace for these forms of energy unattractive.
Last fall, we reported that the Ohio General Assembly took up the issue when it introduced House Bill 218. The bill would reduce the assessment rate from 24% to 12% of book cost for the generation personal property tax of wind farms, solar arrays, and other generators of electricity from renewable resources. The bill also eliminates depreciation deductions when computing the true value for property that generates electricity from a renewable resource.
This bill has failed to make any headway in the House.
This spring, two competing bills have been introduced, S.B. 232 and H.B. 464. S.B. 232
S.B. 232 applies to any renewable energy facility and includes exemption from both real and tangible personal property taxes. The developer must file an application with the Ohio Air Quality Development Authority. The developer must place the project in service by December 31, 2010; and must create and maintain the number of jobs projected by NREL job and economic development impact model. The developer also must offer RECs or power to Ohio utilities that have issued RFPs; must repair all roads affected by construction; and must provide or facilitate training for local first responders.
In exchange for the exemption, the developer must make annual service payments of $6,000 per MW, or $5,000 per MW if the facility is owned by one or more public utility companies. These payments are distributed to local government in the same proportion as personal property taxes would be distributed.
The exemption lasts for the life of the project.
H.B. 464 applies only to wind and solar projects. The application is filed with the department of development by September 30, 2010. In addition, the developer must obtain approvals from the Power Siting Board and local authorities, and start construction, by December 31, 2010, and the project must be placed in service by December 31, 2012.
The developer must do the following:
- Pay prevailing wage for construction on wind projects
- Establish 5% procurement goal with minority suppliers
- Establish 10% minority workforce goal
- Establish education and training program with various approved parties if the nameplate capacity of the facility is 2 MW or greater
- Repair road affected by construction
- Provide training for local first responders
- First offer RECs or power to Ohio utilities that have issued RFPs.
The exemption lasts for 20 years. In exchange for the exemption, the developer must make annual service payments of $6,000 to $8,000, depending upon the percentage of jobs created that are filled by residents of Ohio. At a minimum, at least 50% of all newly-created jobs must be filled by residents of Ohio. Starting in 2012, the annual payments increase by 2% over the level of the prior year.