Is Virginia’s Solar Taxation Model Right for Maryland? Conduit Street – Conduit Street

This article is part of MACos Deep Dive series, where expert analysts explore and explain the top county issues of the day. A new article is added each week read all of MACos Deep Dives.

As Maryland races to meet its goal of 100 percent renewable energy by 2035 and achieving net-zero greenhouse gas emissions across the states economy by 2045, there is mounting pressure to ramp up clean energy production.

Maryland has quadrupled its solar energy capacity from 258 to 1,000 megawatts (MW), and there is significant pressure to increase solar energy generation even further. In addition, counties face tremendous pressure on land use issues, from solar development to affordable housing to new and evolving agriculture.

While there are several renewable energy sources including sunlight, wind, biomass, geothermal heat, and more Marylands Renewable Portfolio Standard (RPS) requires that renewable sources generate specified percentages of Marylands electricity supply each year, including a solar carve-out at 14.5 percent by 2028.

And as much as solar power has popped up in suburban neighborhoods rooftop by rooftop in recent years, the real growth in solar worldwide has been in larger farms where electricity is generated and sold to utilities. This formula may help promote renewable energy, but its not always the best land use.

This year, the Maryland General Assembly established the Task Force to Study Solar Incentives to study and recommend tax policies to ramp up solar development across the state. The Task Force, staffed by the Maryland Energy Administration, includes three MACo representatives representing rural, suburban, and urban counties.

As the Task Force works to finalize its recommendations before its December reporting timeline, much of the discussion centers around adopting a Virginia-like tax model to incentivize solar development on rooftops, brownfields, and other already developed or degraded land rather than agricultural land.

Still, meeting Marylands RPS goal for solar energy will require more than 12,000 acres of land (over 7,000 acres of farmland) and an additional 130,000 homes with rooftop solar panels.

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First, take a look at Marylands solar tax incentives.

Maryland Solar Tax Incentives The Current Landscape

While Marylands local governments have the authority to impose personal property taxes on solar photovoltaic property, Maryland offers many incentives for solar development.

Maryland Solar System Sales Tax Exemption

All taxpayers in Maryland are exempt from paying sales tax on solar equipment. Solar energy equipment may include equipment that uses solar energy to heat or cool a structure, generate electricity for use in a structure, or provide hot water for use in a structure.

Maryland Renewable Energy System Property Tax Exemption

While most home improvement projects like an inground pool would raise a homeowners annual property taxes, Maryland residents do not have to pay taxes on the value added to their property due to a solar or wind renewable energy system.

Local Property Tax Credits and Incentives

Several counties offer property tax credits and other incentives for homeowners who use solar energy for heating and cooling, water heating, and electricity generation.

Community Solar Property Tax Exemption

Specified community solar energy systems are exempt from personal property taxes.

Community solar is used in at least 20 states to allow households unable to install solar panels on their roofs to participate in solar energy. These projects are small- to mid-scale solar facilities typically located on private land, commercial rooftops, landfills, industrial sites, and other preferred areas near the utility customers theyre intended to serve.

Maryland law exempts eligible community solar systems from the county or municipal personal property tax for each taxable year in which the property continues to meet eligibility requirements. A county or municipality may not accept an application for the exemption after December 31, 2025.

Utility-Scale Solar

As the demand for solar energy increases, large utility-scale operations threatening farmland and forests are being proposed across the state. Under current law, Maryland preempts local land use decisions for solar projects over 2MW. While Marylands Public Service Commission must give due consideration to local planning and zoning, local governments have no say over the siting of utility-scale solar projects.

Local governments can impose personal property taxes on utility-scale solar photovoltaic property or negotiate payment in lieu of taxes (PILOT) agreements with solar developers to compensate for some or all of the property tax revenue lost due to tax abatement.

The Virginia Model

In Virginia, localities are authorized to impose a machinery and tools tax (similar to Marylands business personal property tax) on solar photovoltaic property.

Local concerns that financial incentives offered to solar developers, like a reduction in local M&T tax payments, were building the states solar portfolio at the expense of local government revenues have led to legislation enacted in recent years that aims to make large-scale solar projects more attractive to local governments. The legislation creates multiple pathways for local governments to ensure fair taxation/revenue sharing for solar projects.

Revenue Share / Local Option by Ordinance for Solar Projects

Virginia offers local governments the option to adopt an energy revenue share ordinance to assess a revenue share of up to $1,400 per megawatt capacity (with a multi-year escalator to keep up with inflation). It includes energy storage systems (typically large-scale chemical battery installations) equipment per MW of storage capacity. This model is meant to provide solar developers and local governments with consistency and predictability in tax policy.

For example, in 2026, the $1,400 could be adjusted to $1,540 per MW and similarly in subsequent 5-year intervals.

The escalator addresses the diminishing value of the dollar due to inflation, thereby providing an added incentive to adopt the energy tax rather than M&T.

If a locality adopts a revenue share ordinance, regulated solar projects greater than 5 megawatts are entitled to a 100 percent machinery and tools tax exemption (as opposed to the 80 percent exemption that is currently available). In addition, no ordinance may apply retroactively to any project for which an application was filed on or before July 1, 2020, except by agreement.

Extension of M&T Exemption for Solar Projects

For local governments wishing to keep the current machinery and tools tax on solar equipment, Virginia extends the 80 percent exemption for solar projects from machinery and tools tax assessments from January 1, 2024, until June 30, 2030.

The statute also changes the date the exemption is triggered to the date the application is filed with the locality. In addition, it creates a step-down schedule that decreases the 80 percent exemption to 60 percent for solar projects for which an interconnection request was filed after January 1, 2019.

Siting Agreements for Solar Projects or Energy Storage Projects

This provision allows local governments to negotiate siting agreements with solar developers that can include incentives related to broadband or other projects in the local budget or capital improvement plans. For example, it allows them to negotiate siting agreements that can benefit the community through revenue sharing.

A Maryland Twist on the Virginia Model?

While solar tax incentives are beneficial, it remains unclear whether more subsidies would outweigh regulatory hurdles in ensuring Maryland meets its goals for solar energy generation, as delays in the interconnection process are hindering the timely approval and implementation of renewable energy projects.

Still, one idea emerging from the Task Force to Study Solar Incentives is exempting all rooftop solar from local business personal property taxes. In exchange, the State would guarantee local revenue from utility-scale projects through a predictable and stable revenue-sharing model. This policy proposal aims to incentivize more rooftop solar (thereby protecting more farmland and forests from solar development) while protecting local revenue sources for large-scale ground-mounted solar projects.

If the Task Force approves the proposal, it will likely be included in legislation during the 2024 legislative session. Accordingly, MACo will review such legislation and its impact on Marylands counties. If appropriate, MACos Legislative Committee, which includes local elected officials from every jurisdiction, will take a position on the proposal and its potential impact on local revenues.

The Bottom Line

County governments will continue working with policymakers and stakeholders to balance the need to reach clean energy targets while protecting local revenues and ensuring local input on large solar projects so communities can help guide their historical, agricultural, and residential character.

Useful Links

Previous Conduit Street Coverage: Sowing Seeds for SolarAre Taxes An Essential Element?

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Is Virginia's Solar Taxation Model Right for Maryland? Conduit Street - Conduit Street