This blog post is the second part of a series on incentives available to Missouri solar developers in the wake of Johnson v. Springfield Solar 1, LLC, 648 S.W.3d 101 (Mo. 2022). For part one on Missouri Chapter 100 bond abatements and the Springfield Solar 1, LLC decision, click here.
Enhanced Enterprise Zones (EEZs)
Local governments establish Enhanced Enterprise Zones as an economic development tool to attract new businesses to the area or to incentivize existing businesses to expand. For a list of all EEZs and their locations in the state, click here.
Unlike Chapter 100 incentives, in which the developer and municipality must negotiate the abatement amount and duration, qualifying solar projects within an EEZ that allows for such projects are entitled to receive at least a 50% percent abatement of real property tax for 10 years. Depending on the level of incentives the municipality includes in its ordinance and when the EEZ is established, an abatement can be as much as 100% for the remaining life of the EEZ. At maximum, an EEZ can be in existence for 25 years. During the ten years prior to the expiration of an EEZ, a developer can, at most, receive a ten year abatement.
Current Status of Tax Guidance
Historically, in Missouri, wind developers have used EEZs as the primary tax abatement mechanism for wind projects. Legislation passed in August 2021 sets the market value of all wind energy projects as 37.5% of cost, without regard to any depreciation, effective Jan. 1, 2022. The wind tax legislation explicitly notes that, notwithstanding the flat real property tax imposed by the statute, wind projects are still able to seek real property tax abatement if located in an EEZ. On the same date, the Missouri Tax Commission updated the Assessors Manual to address taxation of wind energy facilities and recommend that wind generators (the primary infrastructure of wind energy projects) be classified as real property. This guidance from the Missouri Tax Commission provided certainty to wind energy developers as to how the projects would be taxed, with most of the infrastructure being taxed as real property, and thus able to be abated under an EEZ.
For solar projects, there is less certainty of how the projects should be taxed. After the Supreme Court decision in Springfield Solar 1, LLC, the Missouri Tax Commission published guidance in the form of questions and answers that address different scenarios and provide limited guidance on how assessors may classify and assess solar installations, while giving broad discretion to the assessors. In the case of a ground-mounted solar installation on agricultural land, where the land and solar facility are owned by the same party and the energy generated by the solar facility is used on site, the Commission noted that the panels and mounting equipment could be assessed as either personal or real property. In the scenario where a private company leases commercial land from another private company, installs the solar infrastructure pursuant to the lease agreement, and sells the power to the utility, the Commission noted that the solar panels and aluminum poles could be classified as business personal property. Absent legislation addressing the tax rate, and on-point guidance from the Missouri Tax Commission, solar developers are left working closely with county assessors and consultants to determine the best way to tax solar projects, and the best mechanism to abate such taxation.
EEZ Creation and Eligibility
EEZs are created by local governments, typically the county or city, and are certified by the Missouri Department of Economic Development (DED). Missouri law requires an area to meet certain economic and census eligibility requirements to qualify as an EEZ. The area must be blighted (a specific legal term with requirements to establish such a finding), have pervasive poverty, high unemployment rates, and “general distress.” In addition, the population of the area must be at least 500 but not more than 100,000 at the time of designation if the EEZ lies within a metropolitan statistical area, or if the area does not lie within a metropolitan statistical area, the population of the area at the time of designation must be at least 500 but not more than 40,000 inhabitants.
Missouri law specifically provides for another type of zone, called a “renewable energy generation zone”, but to date very few municipalities have established such zones. A standard EEZ can be broad enough to include renewable energy project development and is instead the path that most municipalities have pursued.
To be eligible for EEZ incentives, a solar project must (1) be pre-approved by the DED; (2) have a qualifying North American Industry Classification System (NAICS) code, as determined by the local governing authority; (3) be located within the boundaries of the EEZ; (4) generate a minimum of two new employees; and (5) have a minimum new capital investment of $100,000.00. The solar developer’s investment costs can include the original cost of machinery, equipment, furniture, fixtures, land and buildings if owned by the solar developer, or eight times the annual rental rate paid for the same if leased by the solar developer.
EEZ Application Process for Tax Abatement
If the solar developer is pursuing a solar project located within an existing EEZ, the process for receiving an abatement begins with the solar developer submitting an application to the applicable Enhanced Enterprise Zone Advisory Board prior to any improvements being made within the zone. A typical application requires a solar developer to provide a construction timeline, legal descriptions of the real property, the number of new employees, the new employees’ salaries and benefits, a list of proposed solar improvements and the corresponding amount of investment for the improvements. Once the application is received, the Enhanced Enterprise Zone Board will review the application to determine if the solar project meets the statutory requirements and may make recommendations as to the level of abatement. If all requirements are met, the application will be sent to the local governing authority for a public hearing. The public hearing allows those who will be affected by the solar project’s potential property abatement to voice their opinions and suggestions. After the public hearing, an authorizing resolution specifying the percent abatement granted, the duration of the exemption, and any other agreed-to terms or conditions is sent to the governing authority. Once the resolution is approved, the development company is entitled to the tax abatement on its installation.
If a solar project is not within a pre-established EEZ, the municipality will first need to establish an EEZ. The local governing authority will identify a qualifying zone, hold a public hearing to designate the zone, select a seven-member EEZ Advisory Board, pass necessary resolutions or ordinances, and submit an application to the DED stating the intent of certifying a new EEZ.
Benefits and Limitations Using EEZs for Solar Projects
EEZs provide solar developers more than a reduction in operating costs, they provide certainty as to how much real property tax will be abated for the project during the applicable period. The approval resolution will clearly state the percentage of tax abatement and the abatement period for the project. Knowing the guaranteed amount of tax savings allows solar developers to better model project costs and obtain financing.
The drawback to using EEZs as a tax abatement mechanism for utility-scale solar projects in Missouri is that there is currently uncertainty about how the majority of the infrastructure for such projects will classified and taxed. The legislature may pass a law addressing taxation of solar projects or the Tax Commission may issue further guidance, either of which could be counter to the assumptions made for the EEZ abatement. Missouri law provides broad discretion to assessors, using their professional discretion and the facts known to them at the time of assessment, to determine the appropriate classifications and rates applicable to particular improvements, however without additional guidance, many assessors may be uncomfortable making a determination that the large majority of solar equipment should be classified as real property and therefore subject to abatement under an EEZ.
If you have questions about EEZs or other tax abatement mechanisms in Missouri, please reach out to Lizzy McEntire and Anna Kimbrell.
R.S.Mo. § 135.950 – 135.973.
Id. at § 135.963(4).
Id. at § 135.963(4).
R.S.Mo. § 137.123
Chapter 7.7 “Assessment of Wind Energy Facilities”, State Tax Commission of Missouri Assessors Manual, Revision Date: August 28, 2021.
Chapter 7.11 “Assessment of Solar Property”, State Tax Commission of Missouri Assessors Manual, Revision Date: March 8, 2023.
Id. § 135.953(1).
Id. § 135.953(1)(3).
A “renewable energy zone” may be designated as an EEZ by establishing a slightly different standard of “blight” and “which contains land, improvements, or a lock and dam site which is unutilized or underutilized for the production, generation, conversion, and conveyance of electrical energy from a renewable energy resource.” Id. § 135.950(25).
The statute defines ‘employee’ as “a person employed by the enhanced business enterprise that is scheduled to work an average of at least one thousand hours per year, and such person at all times has health insurance offered to him or her, which is partially paid for by the employer.” Id. § 135.950(8).
Id. § 135.967(3).
Id. § 135.950(19).
R.S.Mo. at § 135.963(3).
Id. at § 135.963(2).