Missouri has long been attractive to solar electricity developers due to ample sunshine and supportive policies, including Section 137.100(10) of the state’s tax code (which granted a property tax break to eligible solar energy facilities). Solar companies relied on that tax relief for nearly a decade to offset high development and operations costs. But in August of 2022, the Missouri Supreme Court bucked the state’s solar-friendly trend in Johnson v. Springfield Solar 1, LLC, 648 S.W.3d 101 (Mo. 2022), unanimously finding the exemption for “solar energy systems not held for resale” under Section 137.100(10) unconstitutional. The Court’s decision means developers who installed solar equipment in Missouri since 2013 will not be able to claim the tax credit they had anticipated under the tax code (and which had likely been a material part of their project underwriting). In the wake of the Springfield Solar 1, LLC decision, Missouri solar developers are searching for new incentives (including Chapter 100 incentives) to meet the need once filed by the statutory property tax break.
Chapter 100 Incentives
Missouri Revised Statutes Chapter 100 authorizes cities, counties, incorporated towns, and incorporated villages (defined by statute as a “municipality”)[1] in Missouri to issue bonds to finance the acquisition, construction, and equipping of various types of solar projects. Typically, the incentive is awarded through a sale lease-back structure coupled with revenue bonds that are not backed by the full faith and credit of the local government, the proceeds of which are used to finance the solar project. Chapter 100 financing incentives include real and/or personal property tax abatement, sales tax exemption on construction materials, and a sales tax exemption on tangible personal property. Developers can ask for one of the available incentives, or all the incentives, depending on the needs of the project.
Tax Abatement on Real and/or Personal Property
One of the main benefits of Chapter 100 incentives is the real property tax abatement and the personal property tax abatement. If granted, an abatement allows solar companies to enjoy a temporary exemption from taxes on new construction or improvements to existing facilities. The Chapter 100 tax abatements, which cover real and personal property, are particularly appealing to solar developers as they wait on state guidance regarding how solar facility property will be classified for taxation purposes. The term and percentage of the abatement must be negotiated with the municipality.
Sales Tax Exemption
Chapter 100 also allows solar developers to apply for a sales tax exemption on construction materials and tangible personal property if the municipality allows the company to use its sale tax exempt status to acquire necessary materials or real property improvements for the project. The municipality tax exempt status applies to state and local sales and uses taxes.
Chapter 100 Incentive Application Process
To obtain a Chapter 100 incentive, a solar developer must first submit an application to the municipality in the location where the investment will be made. The application process and eligibility requirements vary, but typically, the application must include a detailed description of the proposed solar project, including its location, size, and expected economic impact on the surrounding community. Municipalities can set additional perimeters to be eligible for Chapter 100 incentives. For instance, the City of Kansas City requires that the proposed project be in a location with a blight finding.
The municipality will then review the application and determine if the solar project meets the criteria for the Chapter 100 incentives. If the project is approved and an abatement is granted, the municipality will issue bonds to finance the project, which are then purchased by the solar developer. In a typical Chapter 100 revenue bond transaction, the solar developer conveys fee simple title of the project site to the municipality, together with all improvements (i.e., solar panels). The municipality then leases the project site, together with all improvements, back to the developer pursuant to a lease agreement. To achieve a tax abatement, the developer will then be responsible for repaying the bonds over the course of the abatement period. These payments are referred to as PILOTs (“payments in lieu of taxes”), and they are equal to the difference between the abatement amount and the taxes otherwise due.
Throughout the abatement period, the company must also comply with certain reporting requirements set by the municipality to ensure that the project is meeting its intended economic impact. This includes providing regular updates on job creation, investment levels, and other relevant metrics to the municipality.
Overall, the process of obtaining a Chapter 100 bond in Missouri requires careful planning and preparation but can provide significant benefits for solar developer looking to invest in new or existing projects in the state.
[1]§ 100.010(4) RSMo