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In a Decision and Order rendered March 4, 2025, Albany County Supreme Court struck down as unconstitutional Section 575-b of the Real Property Tax Law, in the matter of Airey, et al. v. State of New York, et al. (Index No. 903991-2024).
A recurring topic in this space, the State Legislature enacted Section 575-b in 2020 which mandated that solar and wind projects of at least one megawatt must be uniformly assessed for real property tax values under the Discounted Cash Flow (DCF) methodology, using a model appraisal formula (the “Model”) and discounted rates promulgated by the Department of Taxation and Finance (DTF). Earlier Tax Trackers covering RPTL §575-b, the DTF Appraisal Model, and related ligation including the Airey v. State matter can be found here: Real Property Taxation of Solar and Wind Energy Systems in New York State: Update – Farrell Fritz; and here: Real Property Taxation of Solar and Wind Energy Systems In New York State: Methodology for Projects – Farrell Fritz
In Airey, two Schoharie County residents joined a group of Capital Region Town Supervisors and brought suit against the State for a judgment declaring Section 575-b unconstitutional. The Court agreed, finding that by enacting Section 575-b, the Legislature abdicated its constitutional responsibility by unlawfully delegating the taxing power to an administrative agency in violation of the NYS Constitution.
The Airey plaintiffs demonstrated a tangible, imminent loss of $3.3 million in tax revenue resulting from the application of the DTF Model to assess a new solar facility in the Town of Sharon. The basis for this finding is the exclusion of federal and state tax credits from the Discounted Cash Flow formula developed by DTF’s Appraisal Model, resulting in significantly decreased revenue causing the solar facility to be undervalued by approximately $77 million.
Discounted Cash Flow (DCF) is a valuation method used to estimate the value of an investment based on its expected future cash flows. The analysis projects how much money an investment will generate in the future by examining all known and anticipated revenues and expenses, and then discounts that cash flow to arrive at an estimated current value of the investment. The DTF Model has been criticized by valuation experts for its failure to account for certain federal subsidies, grants or other funding being provided to solar and wind developers to build new facilities. Specifically not included in the DTF Model are renewable energy credits (“RECs”) granted by the State, and investment tax credits (“ITCs”) granted by the Internal Revenue Code, which are excluded as intangible assets not considered in the valuation of real property for tax assessment purposes.
In Airey, the Court rejected DTF’s treatment of RECs and ITCs as intangible assets and, instead, held that these credits are part of the revenue stream and “inextricably tied to the real property upon which these solar and wind energy systems are situated and cannot exist without it.” As such, the Court found the DTF Model flawed where it includes all expenses, including decommissioning expenses that will not occur until the facility is no longer producing electricity, but fails to include the incentives and credits that enabled the developer to build the subject solar plant in the first instance.
The Court held the Legislature failed to enact reasonable safeguards and standards in directing the assessment of solar and wind facilities using a discounted cash flow approach and, in doing so, incompetently left it for DTF to determine what revenue, income and expenses to include or exclude from the DCF formula, dramatically impacting the assessed value of solar and wind systems and thereby determining what would and would not be taxed. As such, the Court declared Section 575-b unconstitutional in that it is for the Legislature, not DTF, to determine whether RECs and ITCs should be taxed and included as part of the DCF formula in the Appraisal Model.
The State appealed, which effectively stays the Decision and Order and so, for now, Section 575-b remains in effect pending a final adjudication of the appeal. Read more about the DTF Model here: Appraisal methodology for solar and wind energy projects
For more on the New York State’s efforts to encourage renewable project development through Section 575-b and other initiatives, you can reference this Michael P. Guerriero article published in the Nassau Lawyer: Real Property Taxation of Solar and Wind Energy Systems in New York State – Farrell Fritz
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