The Assessment of Solar Heating and Cooling Systems and Business Personal Property Generally

An array of solar panels

Every now and then the North Carolina Court of Appeals gets to consider an issue for the very first time. It had an opportunity to do that recently in FLS Owner II, LLC, when it was tasked with interpreting N.C. Gen. Stat. Section 105-277(g). That statute, in relevant part, provides:

[b]uildings equipped with a solar energy heating or cooling system, or both...shall be assessed...[in the same manner as] buildings equipped with conventional heating or cooling systems and no additional value shall be assigned for the difference in cost between [the solar energy system and a traditional system]. As used in this classification, the term "system" includes used directly and exclusively for the conversion of solar energy for heating or cooling [and excludes] land or structural elements of the building such as walls and roofs....

FLS Owner II, LLC owned an industrial solar water heating system and leased it to the owner of a manufacturing facility in Asheboro. The system's original cost far exceeded the cost of a traditional system built to serve the same function. FLS reported the system as business personal property and Randolph County assessed it as such. As is common in North Carolina, Randolph County developed its assessment by applying what it determined to be the original cost of the system to trending and depreciation tables developed by the North Carolina Department of Revenue. 

FLS' appeal of the resulting assessed value contended that Randolph County violated NCGS 105-277(g) by assessing its property in excess of the cost of a comparable traditional system designed to serve the same function. Randolph County disagreed, arguing that the statute applies only to buildings — not business personal property. Since the County did not increase the assessment of the building to which the system was attached, the statute was not violated. 

Thus, the Court was asked to decide whether 1NCGS 105-277(g) applied to solar heating and cooling systems themselves or instead only to the buildings to which such systems are attached. After application of the rules of statutory interpretation, the Court held the statute as applying to the systems themselves. 

There are two significant implications here:

  1. Solar heating and cooling systems should now be assessed at the same values as their conventional counterparts, regardless of the fact that they typically cost more to buy and install. To the extent that there are solar heating and cooling systems in North Carolina which have not been given such treatment, their owners should consider appealing such assessments.
  2. In reaching this decision, the Court discussed IBM II, in which the Court rejected the valuation method universally used by North Carolina’s 100 counties to value business personal property, i.e., the application of original cost to trending schedules promulgated by the North Carolina Department of Revenue. The Court’s reference to IBM II as one reason the County’s resulting assessment is improper is, in effect, an affirmation that the long-used county method of valuing business personal property in North Carolina may no longer be acceptable.

The first implication is quite narrow. The second is quite broad. If you own significant business personal property in North Carolina, your property is almost certainly being assessed in a way that the Court has at least twice rejected. 

Image by Alex Lang. Licenced under Creative Commons Attribution-ShareAlike 2.0 Generic (CC BY-SA 2.0). Image has not been modified.