Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

if they are used for other purposes.

Current FIRs (in HTML & Adobe PDF formats) are a vailable on the NM Legislative Website (legis.state.nm.us).

Adobe PDF versions include all attachments, whereas HTML versions may not. Previously issued FIRs and

attachments may be obtained from the LFC in Suite 101 of the State Capitol Building North.

F I S C A L I M P A C T R E P O R T

SPONSOR Stewart

ORIGINAL DATE

LAST UPDATED

2/22/07

3/07/07 HB 995/aHTRC

SHORT TITLE Solar Energy As Property Tax Improvements

SB

ANALYST Francis

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

Indeterminate

Recurring

Local

Governments

*See Narrative

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

Department of Finance and Administration (DFA)

Energy Minerals and Natural Resource Department (EMNRD)

SUMMARY

Synopsis of HTRC Amendment

The House Taxation and Revenue Committee amended House Bill 995 clarifying that eligible

installations are those installed after July 1, 2007. TRD has identified some potential

constitutional issues regarding equity with this amendment (See “Technical Issues").

Synopsis of Original Bill

House Bill 995 amends the property tax code to exclude solar installations from the calculation

of increases in property value. Current law would include solar installations as “physical

improvements" when calculating increases in valuation, which are limited to 3 percent. Solar

installation includes solar panels, dark colored water tanks exposed to sunlight and non-vented

trombe wall. According to Wikipedia, an online minimally edited encyclopedia, a trombe wall is

“a sun-facing wall built from material that can act as a thermal mass (such as stone, concrete,

adobe or water tanks), combined with an air space, insulated glazing and vents to form a large

solar thermal collector."

House Bill 995/aHTRC – Page

2

The effective date is for property tax years beginning January 1, 2007.

FISCAL IMPLICATIONS

According to the Taxation and Revenue Department (TRD), there were about $2.7 million in

claims for the solar system installation tax credit. However, it is uncertain how much solar

installations affect property valuation done by county assessors, who look for new construction

and changes of ownership before improvements. The HTRC amendment clarifies this so that

assessors do not have to value installations prior to July 1, 2007.

Assuming $3 million as the total additional value, the property tax valuation, one-third of

valuation, would be $1 million. The way property taxes are administered this could mean a

decrease statewide of $25 to $50 thousand dollars in property tax revenue or a shift of this much

to other taxpayers.

SIGNIFICANT ISSUES

Department of Finance and Administration reports that this may end up increasing tax rates on

those households that cannot afford expensive solar installations since their property tax rates

would likely go up as assessed value goes down.

Energy Minerals and Natural Resources Department (EMNRD):

HB 995 would provide a benefit to residential solar system owners by not including

added solar systems as a physical improvement for purposes of property tax valuations.

The action of offsetting a home’s fossil fuel energy consumption, reducing pollution, and

reducing greenhouse gas emissions would not be met with increased property taxes.

Due to the high capital cost and visual presence of solar systems on a home, solar

systems have often been singled out as physical improvements to the home warranting an

increase in its property taxes. However, from the homeowner perspective, the solar

system provides an alternative source for heating or electricity

The forms of energy identified---space heat, hot water, electricity---can be provided by

the eligible solar systems implied in HB 995: solar thermal systems, photovoltaic, and

passive solar architecture (trombe wall only). Windows (direct gain) and greenhouses

(sunspace) would not be eligible. One solar thermal system type is singled out as

eligible: batch water heaters.

PERFORMANCE IMPLICATIONS

EMNRD:

New Mexico taxpayers supported solar development in 2006 with an investment of $2.7

million, through the Solar Market Development Tax Credit. It is not clear if this large

group of “early adopter" taxpayers will be included in the benefits of HB 995 or if they

will pay increased property taxes. With the effective date being 1-1-07, taxpayers now

becoming eligible for the new state solar tax credit for a 2006 solar installation might

face property tax increases in 2007 or later. It is not known if other timeframes in 7-36-

21.2 NMSA 1978 provide protection from property tax increases. This benefit should

apply to all residential properties now being evaluated for property taxes.

House Bill 995/aHTRC – Page

3

OTHER SUBSTANTIVE ISSUES

TRD points out that this may set a precedent that could be used to justify other exemptions from

the property tax valuation.

TRD:

Article VIII, Section 1, Constitution of New Mexico states that:

A. Except as provided in Subsection B of this section, taxes levied upon tangible

property shall be in proportion to the value thereof, and taxes shall be equal and

uniform upon subjects of taxation of the same class. Different methods may be

provided by law to determine value of different kinds of property, but the

percentage of value against which tax rates are assessed shall not exceed thirty-three

and one-third percent.

B. The legislature shall provide by law for the valuation of residential property for

property taxation purposes in a manner that limits annual valuation increases in

valuation of residential property. The limitation may be applied to classes of

residential property taxpayers based on owner-occupancy age or income. . . ."

The proposed measure would allow solar-energy improvements added to properties on July

1, 2007, but not to solar equipment added prior to July 1, 2007. Owners who installed solar

equipment in, for example, June, 2007, may complain that the proposed measure is unfair,

and that it violates provisions of Article VIII of the Constitution.

OTHER ISSUES

TRD reports that “exempting solar systems from property taxation may set a precedent for

exempting other types of improvements from property taxation. In addition to adding complexity

to the already complex process of property valuation, this raises concerns about the fairness of

the system."

ALTERNATIVES

EMNRD reports that this should also be applied to commercial property to encourage adoption

of solar improvements by large buildings.

The problem of increased property taxes due to solar physical improvements is

preventing the implementation of significant commercial systems in New Mexico.

Companies offering large rooftop solar photovoltaic systems are going to other states,

even though New Mexico has the advantage of a better solar resource.

HB 995 does not include small wind turbines or geothermal heat pump systems, which

also provide clean energy and offset fossil-fuel consumption, as eligible systems. It

appears that the eligible systems are those that can be incorporated with a home’s existing

architecture

.

NF/nt:csd