Energy Efficiency Property Tax Exemption

Local Market
Energy Efficiency
Next-Generation Manufacturing

Challenge: In many states, current property tax exemption for alternative energy systems allows manufacturers to install renewable generation capacity to their facilities without increasing their property tax liability. However, eligible projects exclude installation of equipment that increases energy efficiency, such as building energy management and Industrial Internet of Things technologies. Thus, manufacturers could see their property taxes increase as a result of installing energy efficiency products to their facilities.

Solution: State policymakers could amend their existing property tax exemption to include building upgrades or equipment that increases onsite or upstream energy efficiency. Alternatively, the exemption could specify technologies known to reduce lifecycle energy consumption, such as additive manufacturing, as eligible.

Examples: First enacted in 2002, Ohio’s Air Quality Improvement Tax Incentives exempt qualified technologies and businesses from the property tax, corporate franchise tax, and sales and use tax. These incentives encourage the use of technologies to reduce harmful pollutants before they are emitted into the atmosphere. Eligible projects include any device, property, or equipment that contributes to more efficient electricity utilization. Between 2002 and 2015, Ohio’s statewide energy intensity declined by 13 percent, a larger decrease over the same time period than that of neighboring states.

In 2009, Arizona’s legislature expanded its solar energy property tax exemption to include energy-efficient building components. Under this provision, qualifying renewable energy systems and energy efficiency upgrades are considered to add no value to a property’s assessed value, allowing manufacturers to install energy-efficient technology without worrying about an increased tax burden. In the six years following enactment, Arizona’s energy consumption per unit of output declined by five percent, and between 2009 and 2017, Arizona rose from twenty-ninth to seventeenth in the American Council for an Energy Efficient Economy’s state energy efficiency rankings.