New York Supreme Court Bolsters Viewpoint That Green Energy Initiatives Are Not Taxable as Land Improvements

The court was faced with the decision of whether a privately owned photovoltaic solar array located on land owned by Cornell University would be treated as a land improvement subject to associated real property taxes, or as personal property, exempt from such real property taxes. Cornell University v. Board of Assessment Review and Shana Jo Hilton as Assessor of Town of Seneca, New York, Index Number 114235-2016 (Ark, John J.). The court held that the solar array was to be treated as personal property, exempt from real property taxes. The court proceeded to determine that the city, county, and school district taxes levied on the parcel were invalidated. As an alternative basis for the solar array’s real property tax exemption, the court held that the solar array would be exempt from real property taxes under New York Real Property Law’s exemption for such education institutions.

In making its decision that the solar array was personal property exempt from real property taxation, the court was particularly persuaded by the provision in the power purchase agreement between Cornell and the solar array owner that required the removal and restoration of the solar array upon expiration of the agreement. The court also cited testimony from an engineer for the company that owned the solar array stating that the solar arrays were designed to be removed, including the concrete pads and anchors affixing the array to the ground. The court was not persuaded that the sheer quantity of the concrete (“three hundred thousand pounds of reinforced concrete,” per the Town of Seneca’s Zoning and Code Enforcement Office), changed the status of the solar array from personal property to real property.

The Cornell decision is important because it confirms that New York follows the rapidly spreading view that green initiative energy-producing equipment, including, but not necessarily limited to solar panels and wind turbines, shall be treated as tangible personal property, not real property, for tax and other purposes. For instance, in 2016, the Illinois Appellate Court held in a landmark ruling that a subcontractor who worked on the foundation and tower for a wind development could not assert lien rights under the Illinois Mechanic’s lien act because the development consisted not of improvements to real property, but rather trade fixtures that were removable from the land, even if removal would be at great cost. AUI Construction Group, LLC v. Louis J. Vaessen, et al., 2016 IL App (2d) 160009.  By way of another example, the Arizona Supreme Court recently confirmed that solar panels leased by the tax payers to homeowners could not be assessed as real property, as the panels remain personal property. SolarCity Corp. v. Ariz. Dep't of Revenue, 243 Ariz. 477, 413 P.3d 678 (2018).

The focus of many decisions addressing the property classification of green initiative energy equipment, including Cornell and AUI above, is on the parties’ intentions that the equipment is to be removable from the property at the equipment owner’s expense. This also is a key factor under the common law three-part test for differentiating between real and personal property that many states use, including New York, which requires actual annexation to real property, adaptation to the premises, and an intention to be part of the realty. See, e.g., Metromedia, Inc. v. Tax Com., 60 N.Y.2d 85, 90 (N.Y. Ct. App. 1983). The third-prong on the intentions of the parties becomes much clearer when the governing agreement specifically contemplates that the equipment is to be removed by the owner and the property returned to its previous state. It is therefore of paramount importance for companies in the green energy equipment space seeking to ensure that energy-producing equipment will be treated as personal property to be clear in any underling contracts that the energy-producing equipment is to be removed and the property restored upon expiration of the agreement.

The Cornell decision, although not a precedential appellate court decision, indicates that New York will continue to view even extensive renewable energy projects as personal property, exempt from real property taxes. For New York companies considering expanding their reliance on third-party owned renewable energy equipment affixed to their property, the Cornell decision spells a major victory for ensuring the equipment does not also increase the value of the underlying land and expose the property owner to increased property taxes due to the clean energy investment.

Paul F. Stibbe is an associate with Greenberg Traurig in Chicago, Illinois.

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