Several Virginia Localities Exempt Solar Facilities From Local Taxation
The high cost of solar installations serve as a barrier to the widespread adoption of solar energy.
Virginia state law allows localities to exempt solar facilities from taxation, thereby incentivizing investment in solar energy.
In conjunction with local tax exemptions, the federal solar tax credit can ease the financial burden of adopting solar energy.
While solar energy can help take thousands of dollars off electric bills over time, the initial cost of solar installations remains high. In Virginia, the average cost of a 5 kW solar installation is around $14,500, which isn’t exactly pocket change. Research conducted by the Yale Center for Business and the Environment found that the up-front costs associated with solar installations remains a barrier for both consumers and businesses looking to take advantage of all the benefits renewables have to offer.
In an effort to reduce this economic barrier to clean energy and to incentivize the use of solar energy in Virginia, state law permits localities to offer tax exemptions for solar facilities. The law authorizes localities to treat solar energy equipment, facilities and devices as a unique type of property that doesn’t need to be taxed like real or personal property. Localities can exempt solar facilities from local taxation by passing an ordinance specifying whether installations will be fully or partially exempt.
Encouraging private investment in solar energy and promoting the state’s carbon neutralization efforts, a number of localities throughout Virginia have taken advantage of this provision of state law. However, accessing information about implementing solar energy at the local level can be difficult. The Energy Transition Initiative at the University of Virginia not only researches clean energy and sustainability practices, but also develops tools to help localities understand the benefits of clean energy technologies and what it takes to implement renewables close to home. One of the tools provided by the ETI catalogs the various tax exemptions for solar energy equipment and facilities that exist at the local level throughout Virginia. With links to relevant ordinances as well as the forms necessary to take advantage of tax exemptions, the resource is useful for any Virginian looking to go solar.
The tool is useful in checking whether your locality offers solar installation incentives. The City of Charlottesville, for example, provides full tax exemption for solar installations, crediting the cost of purchase and installation for solar facilities, equipment and devices. The City of Alexandria is another locality fully exempting solar facilities from local taxation, though the exemption only lasts for the first five years of a facility’s usage. Particularly notable is the City of Harrisonburg, which fully exempts solar facilities from taxation for the first 20 years of use.
Some localities don’t go so far as to fully exempt solar facilities from taxation, but provide partial exemptions nonetheless. In Lynchburg, solar facilities are taxed at 85% of the value of the facility. Owners of solar facilities in Hanover and Pulaski counties pay local taxes equal to 50% of the facility’s value. While these tax exemptions are less of an incentive than full exemptions, they are still useful in helping to bring solar energy to every part of the state.
While not a local tax exemption, Virginians looking to install solar panels should note that the federal government also offers a tax credit for new solar installations. The federal solar tax credit provides a 26% credit on federal income taxes for systems installed between 2020 and 2022. For systems installed in 2023, the incentive will provide a 23% credit. Unless Congress renews it, the tax credit is set to expire in 2024.
While installation costs remain a barrier to renewable energy implementation, policy at the local level — in conjunction with a federal tax credit — can significantly lower the cost of a solar installation. These policies incentivize renewable energy developments, which in turn make energy cheaper for consumers while bringing Virginia closer to a clean energy future.