Solarcity Corp. v. Ariz. Dep't of Revenue, CV-17-0231-PR

• Decision Date: 16 March 2018
• Docket Number: No. CV-17-0231-PR,CV-17-0231-PR
• Parties: SOLARCITY CORPORATION, et al., Plaintiffs/Appellants, v. ARIZONA DEPARTMENT OF REVENUE, Defendant/Appellee. SolarCity Corporation, et al., Plaintiffs/Appellees, v. Arizona Department of Revenue, Defendant/Appellant.
• Court: Arizona Supreme Court

413 P.3d 678

SOLARCITY CORPORATION, et al., Plaintiffs/Appellants,

v.ARIZONA DEPARTMENT OF REVENUE, Defendant/Appellee.

SolarCity Corporation, et al., Plaintiffs/Appellees,

v.Arizona Department of Revenue, Defendant/Appellant.

No. CV-17-0231-PR

Supreme Court of Arizona.

Filed March 16, 2018

Mark Brnovich, Arizona Attorney General, Dominic E. Draye, Solicitor General, Kenneth J. Love, Jerry A. Fries (argued), Macaen F. Mahoney, Assistant Attorneys General, Phoenix, Attorneys for Arizona Department of Revenue

Paul J. Mooney (argued), Bart S. Wilhoit, Mooney, Wright & Moore, PLLC, Mesa; Mark S. Davies, Rachel G. Shalev, Orrick, Herrington & Sutcliffe, LLP, Washington DC; Paul D. Meyer, Orrick, Herrington & Sutcliffe, San Francisco, CA, Pro Hac Vice Attorneys for Solarcity Corporation; Court S. Rich, Logan V. Elia, Rose Law Group, PC, Scottsdale, Attorneys for Sunrun, Inc.

Roberta S. Livesay, Joshua W. Carden, Helm, Livesay, Worthington, LTD, Tempe, Attorneys for Amicus Curiae Arizona Association of Counties

Jason Pistiner, Singer Pistiner, P.C., Scottsdale; Michael S. Dicke, Casey O'Neill and Nair Diana Chang, Fenwick & West LLP, San Francisco, CA, Pro Hac Vice Attorneys for Amicus Curiae Arizona Solar Energy Industries Association

Douglas S. John, Frazer Ryan Goldberg & Arnold, LLP, Phoenix, Attorneys for Amicus Curiae NRG Energy, Inc.

Maureen Beyers, Beyers Farrell PLLC, Phoenix, Attorneys for Amicus Curiae Jewish Community Campus, LLC

JUSTICE TIMMER authored the opinion of the Court, in which CHIEF JUSTICE BALES, VICE CHIEF JUSTICE BRUTINEL, and JUSTICES PELANDER, BOLICK, GOULD, and LOPEZ joined.

JUSTICE TIMMER, opinion of the Court:

¶ 1 With exceptions, all property in Arizona is "subject to taxation to be ascertained as provided by law." Ariz. Const. art. 9, § 2 (13); A.R.S. § 42–11002.¹ Property is valued for tax purposes either "centrally" by the Arizona Department of Revenue ("ADOR") or "locally" by county assessors. See A.R.S. §§ 42–13002 to –13501; 42–14001 to –14503. Valuation is based on the "full cash value" of the property as directed by statute. Id . § 42– 11001(6). Unless a statute prescribes otherwise, full cash value corresponds to market value, determined by applying standard appraisal methods and techniques set by ADOR. Id . §§ 42–11001(6), –11054(A)(1).

¶ 2 The issues here are whether ADOR or county assessors are authorized to value solar panels owned by SolarCity Corporation and Sunrun, Inc. (collectively, "Taxpayers") and leased to residential and commercial property owners; what valuation methodology applies; and, assuming a zero-value provision in § 42–11054(C)(2) applies, whether it violates the Arizona Constitution's Exemptions Clause or Uniformity Clause. See Ariz. Const. art. 9, §§ 1 – 2. We hold that ADOR is not authorized to value the leased solar panels. We remand to the tax court to decide the remaining issues.

BACKGROUND

¶ 3 Taxpayers lease solar panels to homeowners and commercial property owners. The panels are installed on or around a building (e.g., on a rooftop) to capture solar energy, convert it to electricity in a self-contained "inverter," and use it to power the property. Although the panels operate "behind the ... meter"—meaning they operate independently of a utility company's power grid—they transfer any excess energy to the utility company through the grid for others' use. The utility company gives the lessee property owner credit for the retail value of the excess energy. See Ariz. Admin. Code R14–2–2306(D).

¶ 4 For years, Taxpayers' leased solar panels were neither valued nor taxed. That changed when ADOR issued a "notice of value" for tax year 2015, which notified Taxpayers that their panels had been assigned full cash values, and taxes would be assessed. Taxpayers responded by filing this lawsuit. They sought a declaratory judgment that (1) the panels are "considered to have no value" pursuant to § 42–11054(C)(2) and therefore are not subject to valuation or assessment for property tax purposes, and (2) the panels are not subject to valuation under §§ 42–14151 and –14155, which authorize ADOR to value "renewable energy equipment" used by taxpayers in the operation of an "electric generation facility." ADOR responded that it properly valued the panels under those statutes. It alternately asserted that applying § 42–11054(C)(2)'s "zero value" provision to the panels would violate the Exemptions Clause and the Uniformity Clause of the Arizona Constitution. See Ariz. Const. art. 9, §§ 1 – 2.

¶ 5 On cross-motions for summary judgment, the tax court agreed in part with each party. The court agreed with Taxpayers that §§ 42–14151 and –14155 do not authorize ADOR to value leased solar panels. Instead, the court ruled that the panels are "general property" that must be valued by county assessors pursuant to § 42–13051(A), which concerns real property valuation. On the other hand, the court agreed with ADOR that the zero-value provision of § 42–11054(C)(2) violates both the Exemptions Clause and the Uniformity Clause of the Arizona Constitution. The tax court therefore ruled that county assessors must value Taxpayers' leased solar panels and, in doing so, cannot assign a zero value.

¶ 6 The court of appeals affirmed in part and reversed in part. SolarCity Corp. v. Ariz. Dep't of Revenue , 242 Ariz. 395, 399 ¶ 4, 396 P.3d 631, 635 (App. 2017). It agreed with the tax court that §§ 42–14151 and –14155 do not authorize ADOR to value Taxpayers' panels. Id . But it found that § 42–11054(A)'s directive that ADOR prescribe appraisal guidelines, together with § 42–11054(C)(2)'s zero-value provision, authorizes ADOR, not the counties, to value the solar panels. Id . at 408 ¶ 40, 396 P.3d at 644. Finally, the court concluded that § 42–11054(C)(2) violates neither the Exemptions Clause nor the Uniformity Clause. Id . at 405–07 ¶¶ 29–39, 396 P.3d at 641–43. The court of appeals thus decided that ADOR must value Taxpayers' solar panels but give them a zero value.

¶ 7 We granted review to determine whether ADOR is authorized to value Taxpayers' leased solar panels for taxation purposes, a recurring issue of statewide importance. We have jurisdiction pursuant to article 6, section 5(3), of the Arizona Constitution and A.R.S. § 12–120.24.

DISCUSSION

I. ADOR's authority to value the solar panels

¶ 8 We review de novo the tax court's grant of summary judgment and its interpretation of Arizona's tax statutes. See Delgado v. Manor Care of Tucson AZ, LLC , 242 Ariz. 309, 312 ¶ 10, 395 P.3d 698, 701(2017). Our goal in statutory interpretation is to effectuate the legislature's intent. State ex rel. DES v. Pandola , 243 Ariz. 418, 419 ¶ 6, 408 P.3d 1254, 1255 (2018). The best indicator of that intent is the statute's plain language, which we read in context with other statutes relating to the same subject or having the same general purpose, and when that language is unambiguous, we apply it without resorting to secondary statutory interpretation principles. See id .

A. A.R.S. §§ 42–14151, –14155

¶ 9 Section 42–14151(A) broadly authorizes ADOR to value property owned or leased by gas, water, electric, sewer, and wastewater utilities, including "all property, owned or leased, and used by taxpayers in the following businesses ... (4) [o]peration of an electric generation facility." ADOR is required to annually determine the full cash values of these properties in each taxing district and transmit the valuations to the respective county assessor. A.R.S. § 42–14153. The legislature prescribed valuation methods for the utilities described in § 42–14151(A). See A.R.S. §§ 42–14154 to –14159. As relevant here, § 42–14155 provides the method for determining the "full cash value of taxable renewable energy equipment," which includes "electric generation facilities" used to generate, store, transmit, or distribute solar energy "not intended for self-consumption." Id . § 42–14155(A), (C)(3).

¶ 10 ADOR argues that Taxpayers use their solar panels to operate an "electric generation facility," and § 42–14151(A)(4) therefore authorizes ADOR to value the solar panels. And because Taxpayers do not use the solar energy generated from the panels for "self-consumption," the panels must be valued using the method prescribed by § 42–14155(A) for "renewable energy equipment."

¶ 11 ADOR's authority to value Taxpayers' solar panels depends on whether Taxpayers operate electric generation facilities under § 42–14151(A). A facility generates electricity if it "tak[es] a source of energy ... and convert[s] the energy into electricity to be delivered to customers through a transmission and distribution system." See A.R.S. § 42–14151(B) (defining "generation of electricity"); see also id . § 42–14156(B)(1) (defining "electric generation facility" for use in applying valuation methodologies as "all land, buildings and personal property ... used or useful for the generation of electric power"). ADOR argues that because Taxpayers' solar panels convert solar energy into electricity, and excess energy is transmitted on a utility's power grid for use by the utility's customers, § 42–14151(A)(4) applies. We disagree.

¶ 12 ADOR ignores that § 42–14151(A)(4) applies to businesses that operate an electric generation facility. Taxpayers are in the business of leasing solar panels. They themselves do not operate a facility to convert solar energy into electricity. See id . § 42–14151(B). Nor do they deliver electricity to their customers "through a transmission and distribution system." See id . Instead, they lease panels to customers to enable those customers to generate electricity for self-use. Although utilities take excess electricity to transmit it to their customers, Taxpayers have no part in these transmissions and receive no benefit from them.

¶ 13 Because Taxpayers do not operate electric generation facilities, ADOR lacks authority under § 42–14151(A) to value the solar panels. And because § 42–14151(A) does not apply, the valuation method set...