As the renewable energy industry continues to grow and alternative forms of clean energy (wind, solar, hydro, geothermal, biomass, etc.) proliferate nationwide, state lawmakers are more-than-ever discussing comprehensive approaches to energy policy. Indeed, states across the country are rapidly reconsidering the diverse array of laws that impact energy developers / public utilities, including those related to the tax treatment of renewable energy facilities. This article in particular focuses on Ohio's property tax laws as applied to commercial-scale renewable energy projects.
On July 18, 2019, in HB 166 (State Operating Budget), the Ohio General Assembly extended by two years the option for counties to offer renewable energy projects a "payment in lieu of taxes" ("PILOT"). The law now sunsets at the end of 2022.
Ohio's PILOT Statute: In 2010, the Ohio General Assembly passed Senate Bill 232 to ensure a reasonable, predictable tax climate for owners of renewable energy generation facilities. The permissive legislation created a new choice for counties to determine how to tax renewable energy projects. Under the PILOT statute, renewable energy developers remit to the county a fixed annual amount per megawatt payment in lieu of real and personal property tax. This payment in lieu of taxes enables developers whose projects meet certain conditions to avoid excessive property tax liability. Without the PILOT, building capital intensive (but fuel-free) large scale wind or solar facilities had proven to be cost-prohibitive.
Under the PILOT statute,1 wind developers pay $6,000 – $8,000 per MW annually, depending on the percentage of Ohioans employed during construction—which must be at least 50%. (The higher the ratio of Ohio-domiciled employees, the lower a project's tax liability). For solar projects, developers pay $7,000 per MW but must employ at least 80% Ohio residents. County commissioners may negotiate additional service payments, not to exceed $9,000 per MW in total when combined with the PILOT. Originally passed with a sunset, the law has been extended several times and in HB 166, the state legislature extended the PILOT option two more years—through 2022.2
Additionally, project developers receiving the PILOT must meet the following requirements:3
1. Road Repair: Developers must repair all roads, bridges, and culverts affected by construction and restore them to their preconstruction condition—as determined by the county engineer in consultation with the applicable local jurisdiction.
- If the county engineer deems any road inadequate to support the construction / decommissioning of the facility, the road must be rebuilt or reinforced based on the county engineer's specifications.
- Developers must post a bond (in an amount established by the county) to ensure funding for all roads affected during construction and decommissioning.
2. Fire / EMS Training: Developers must provide training for fire and emergency personnel to respond to emergencies related to the project. In addition, developers must provide the fire/emergency responders with proper equipment.
3. Industry Training / Apprenticeships: Projects must establish a relationship with a state institution of higher education4 to educate and train individuals for careers in the wind or solar energy industry. The relationship may include endowments, cooperative programs, internships, apprenticeships, research and development projects, and curriculum development.
Tax Liability without PILOT: Without the PILOT, a wind or solar project's equipment / real property would be taxed based on rates established by the jurisdiction in which the facility is located. But prior to applying the local tax rate, the state sets the "taxable value" of the property and considers asset depreciation. The process is described below.
1. Taxable Value: Under Ohio law,5 the taxable value for a facility's "taxable production equipment" is 24% of its true value. Taxable production equipment includes all taxable renewable resource equipment used to generate electricity, but excludes "energy conversion equipment." Energy conversion equipment is defined as "tangible personal property connected to a wind turbine tower . . . or connected to any other property used to generate electricity from an energy resource, through which electricity is transferred to controls, transformers, or power electronics and to the transmission interconnection point." The state categorizes this type of equipment as "other taxable property." The taxable value for "other taxable property" is 85% of true value.
2. Depreciation: After assessing the property's taxable value, the state considers asset depreciation. Ohio utilizes a 30-year depreciation schedule for all different types of energy equipment. Under the schedule, the year 1 tax value for production/transmission equipment would be 98.3%; year 2 would be 95%; and year 3 would be 91.7%.6
3. Tax Liability: Once the state determines the taxable value of all the project's property/equipment after depreciation, the applicable county will apply its local tax rate to determine the project's overall tax liability. The local tax rate is typically between 6% – 8%.
All things considered, Ohio's PILOT program reduces property tax liability for owners of commercial scale renewable energy generation facilities. However, the annual tax revenue generated under the PILOT for one wind project is typically between $500,000 and $1,000,000, all of which flows to schools and other local government entities. This has undoubtedly contributed to multiple Ohio localities deciding to utilize the PILOT, including Paulding and Hardin counties.
1 Ohio Rev. Code § 5727.75.
2 To be eligible for the PILOT, the law now requires that the project owner submit an application for a PUCO construction permit by December 31, 2022.
3 See R.C. 5727.75(F).
4 Developers may also establish a relationship with apprenticeship programs registered with the employment and training administration within the U.S. department of labor.
5 See R.C. 5727.111(H).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.