RPTL § 575-b is Back (Again) As Legislation Addressing Treatment of Certain Income and Expenses — and Excluding Incentives — in Assessment Model is Signed Into Law
New York Governor Kathy Hochul signed legislation resolving the latest attack on the solar and wind real property tax assessment model. The legislation, Senate Bill S.8012 (Assembly Bill A.8332) (the “Legislation”), is in direct response to the Airey, et al. v. State of New York, et al., Index No. 903991-24, case in Albany County Supreme Court (the “Challenge”). The Court in Airey held the assessment model under Real Property Tax Law (“RPTL”) § 575-b (the “Model”) unconstitutional (the “Decision”). We previously reported on the Decision in our alert on March 5, 2025.
Background of the Challenge
The key aspects of the Challenge related to whether the State unconstitutionally delegated its authority to the DOTF concerning the creation of the Model and whether the Model improperly included or excluded certain income and expenses, namely, renewable energy credits (“RECs”) and investment tax credits (“ITCs”). The trial court found the absence of any directive regarding, among other things, the treatment of RECs and ITCs, and whether to include or exclude them in the Model, to be problematic. The Decision is currently on appeal in the Third Department under Docket No. CV-25-0607.
The Purpose of the Legislation
The Legislation amends RPTL § 575-b in several key ways. Section 1 adds subsections (d) and (e). Subsection (d) directs that expenses associated with certain host community benefits, the decommissioning of solar and wind energy systems, and community solar subscriber management costs associated with solar energy systems shall be included as expenses. Subsection (e) describes that federal investment and production tax credits granted by the Internal Revenue Code and environmental values, including but not limited to renewable energy credits, shall be deemed intangible assets and not included as revenue streams.
Section 2 adds the new subdivision 5, which clarifies that no costs will be imposed against any assessing unit’s established valuations on the basis of the Model. Such costs would have been allowable under RPTL § 722 in certain circumstances. The Legislation takes effect immediately per Section 3.
Hodgson Russ Insights
With the passage of the Legislation, the Airey case, now on appeal, is largely moot. If the appeal remains, it will likely focus solely on the 2024 and 2025 tax years at issue when the challenge was commenced and will ultimately affect only those who brought timely challenges concerning their assessments during those time periods against communities that did not employ the Model. Since the Third Department issued a stay pending a decision on the merits, the Model was to be followed per the stay order. If the appeal were to nonetheless proceed, the Legislation eliminates the risk of uncertainty moving forward. Now the Model will have to properly take into account income and expenses and include project-specific expenses not default values.
The State had argued that the RECs and ITCs were properly excluded because intangible assets are tax-exempt under the State Constitution. The Legislation ends any uncertainty on the point, and adds additional confirmation that decommissioning costs and host community agreements should also be counted as expenses. The Legislation confirms the original purpose of RPTL § 575-b of bringing real property tax assessments of wind and solar systems in line with the considerations that system buyers and sellers employ in determining fair market value, and recognizing that only the real property income and expense values, not intangible or goodwill values, are taxable for real property tax purposes.
The Legislation also codifies case law on this point. See, e.g., Mirant New York, Inc. v. Town of Stony Point Assessor, 13 Misc.3d 1204(A), 824 N.Y.S.2d 756 (Sup. Ct., Rockland Cnty., 2006) (“Intangible assets and working capital were quantified and deducted to arrive at the value attributable to the real property”). This is because the goal of real property assessment is to reflect “the value of real estate alone, while business income is a measure of the real property, personal property, and the intangible assets of the business.” Miriam Osborn Mem’l Home Ass’n v. Assessor of City of Rye, 80 A.D.3d 118, 142-43 (2d Dep’t 2010) (citing 13 Warren’s Weed, New York Real Property, Incomes Compared § 132.10 (5th ed.) and Appraisal of Real Estate, at 29 (Appraisal Institute 13th ed.)).
Now, DOTF will have to create a new Model that reflects the guideposts set forth by the Legislation. The Model’s discounted cash flow method must now accurately reflect expenses that include host community benefits, decommissioning costs, and community solar subscriber management costs. Similarly, Federal investment and production tax credits granted by the Internal Revenue Code, as well as environmental values, including but not limited to renewable energy credits, will remain excluded from consideration.
The adjustment of the treatment of income and expenses will more accurately reflect project costs. Previously, income and expenses were largely (but for lease expenses) pre-determined and cookie-cutter. As such, project valuations have not been entirely based on actual income and expense costs, but instead have been cookie-cutter in nature. Market fluctuations impact income and expenses annually, and each project should be valued based on its own financial pro forma, rather than a generic expectation of what is or is not appropriate.
As of the date of this alert, DOTF has not reported on the Legislation. DOTF published the draft of the last iteration of the Model in mid-January of this year. We expect the rollout of a new Model consistent with the Legislation will occur later. It is important, however, that DOTF act with sufficient time to allow for the 60-day comment period before finalizing the Model for us during the 2026 tax year. RPTL § 575-b(1)(b). The new Model would need to be published in time for use by local assessors for the May 1 tentative assessment roll publication date in most communities.
The Legislature has now resolved two separate legal challenges to the Model by the same individuals. See our prior alert on the 2023 action by the Legislature. These actions confirm the State’s policy and treatment of renewable energy projects under the Climate Leadership Community Protection Act. Key to this is the predictability of assessments for renewable energy projects. That was the basis for the Model in the first place. This predictability avoids time-consuming and expensive assessment challenges and related appraisal costs. As these projects continue to grow around the state, developers need to understand the potential tax implications with clarity as they consider buying, selling, and developing projects. All of these efforts are aimed at strengthening our energy grid as electricity usage increases. Predictable taxation also allows local communities to budget properly, without the risk of significant decreases following successful assessment litigation.
Hodgson Russ attorneys played a key role in drafting the Legislation, and comments to the DOTF were part of the expert testimony submitted by the state as part of the trial evidence.
If you have any questions about the Legislation or the Model, or valuing renewable projects generally, please contact Dan Spitzer, Amy D’Ambrogio, or Henry Zomerfeld. If you received this alert from a third party or from visiting our website, and would like to be added to our renewable energy mailing lists or any other of our mailing lists, sign up here.
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