Sunnier Days Ahead? Missouri's Outlook After Missouri Supreme Court Finds Solar Panel Property Tax Unconstitutional.

• Author: Corrigan, Maura

1. INTRODUCTION

   Many are aware of the inherent power that a constitution holds. Whether it be the timeless federal document signed in 1787, or a state constitution adopted decades later, a "constitution" in the United States comes with an authoritative voice that instructs the very principles and values the government has long established. constitutions, by nature, stand the test of time; they create guidelines, structure, and, above all, a sense of justice that lies in the backdrop of every legal argument presented and every court decision rendered.

   As the governing document in Missouri, the Missouri constitution has the power to establish rights and ensure freedoms. It is intended to promote the general welfare of Missourians, instructing that all persons have a natural right to life, liberty, the pursuit of happiness, and the enjoyment of the gains of their own industry. (1) Like the United States Constitution, the Missouri Constitution creates a separation of powers: the Missouri General Assembly makes the laws, and the Supreme court of Missouri examines the laws' constitutional soundness. (2)

   Under the Missouri Constitution, Missourians are entitled to personal property tax exemptions. (3) Personal property taxes have a large economic impact on Missouri counties, which rely on these taxes for important infrastructural needs. (4) Section 137.100(10) of the Missouri Revised Statutes granted an exemption for "solar panels not held for resale." (5) In an exercise of its power of judicial review, the Missouri Supreme Court recently analyzed the constitutionality of section 137.100(10). (6) In Johnson v. Springfield Solar, the court held that solar systems not held for resale should not be exempt from personal property taxes and struck down section 137.100(10). (7)

   This Note explores the constitutional, legislative, and economic impact of Springfield Solar on the world of solar development and beyond. Part II summarizes the facts and procedural background of Springfield Solar's claim that the Missouri General Assembly had the authority to enact a tax exemption for solar equipment not held for resale. Part III explains the Missouri Constitution's organization of personal property tax exemptions and how personal property taxes impact the economic health of Missouri counties. Part IV details the Missouri Supreme Court's unanimous ruling, which held that section 137.100(10) is unconstitutional. And finally, Part V discusses the resounding impact of the court's decision on the interpretation of future personal property tax exemptions, the economic structure of Missouri counties, and solar developers and rural communities at large.

2. FACTS AND HOLDING

   Springfield Solar owns a solar energy system (the "Equipment") (8) located on property owned by City Utilities of Springfield ("City Utilities"). (9) Springfield Solar and City Utilities entered into an agreement, giving City Utilities the option to purchase the Equipment at the end of (1) the seventh contract year, (2) any subsequent contract year, or (3) the term of the agreement. (10) The agreement also required that City Utilities purchase all energy the Equipment generated during the term of the contract. (11)

   In 2017, the Greene County Assessor began assessing the Equipment for personal property taxes. (12) The Assessor denied Springfield Solar's requested exemption under section 137.100(10), because he believed that the Equipment fell outside the scope of section 137.100(10) and, even if the statute did cover the Equipment, the statute's language itself did not clearly and unambiguously apply to a valuation Springfield Solar's Equipment. (13) Springfield Solar appealed the Equipment's assessment to the Missouri State Tax Commission (the "Commission"), challenging the Equipment's classification and valuation. (14)

   Both the Assessor and Springfield Solar filed cross-motions for summary judgment on the issue of whether the Equipment was tax-exempt under the statute. (15) Springfield Solar argued that the Equipment was exempt from taxation as a "solar energy system not held for resale," pursuant to section 137.100(10), whereas the Assessor contended the section 137.100(10) was unconstitutional and void pursuant to article X, section 6 of the Missouri Constitution. (16) The senior hearing officer granted Springfield Solar's motion for summary judgment and denied the Assessor's motion for summary judgment. (17) While the senior hearing officer ruled that the Equipment was exempt from taxation pursuant to section 137.100(10), she also noted that she lacked the authority to decide the constitutional question, as the scope of that question lies entirely within the purview of the Missouri courts. (18)

   The Assessor appealed the senior hearing officer's Decision and order to the Commission. (19) The Commission affirmed the senior hearing officer's decision. (20) The Assessor filed his petition for judicial review of the Commission's decision with the Greene County Circuit Court. (21) Both Springfield Solar and the Assessor filed motions for summary judgment. (22) Finding no genuine issue of material fact, the trial court determined that summary judgment was appropriate and granted Springfield Solar's motion. (23) The court denied the Assessor's motion for summary judgment and held that section 137.100(10) was not unconstitutional and, even if it was, the Assessor lacked the authority to ignore the exemption unless and until a court declared the statute unconstitutional. (24)

   The Assessor appealed the trial court's judgment directly to the Missouri Supreme Court, as the Missouri Supreme Court has exclusive jurisdiction over the issue, being a matter of Missouri statute and constitutional provision. (25) The issue before the court was whether section 137.100(10) was constitutionally valid. (26) The court ultimately held that the tax exemption was unconstitutional because the Missouri Constitution does not grant the General Assembly the power to exempt from taxation "solar energy systems not held for resale." (27) As a result, the court vacated the circuit court's judgment and declined to address the Assessor's other claims. (28)

3. LEGAL BACKGROUND

   Personal property tax is a levy based on the value of taxable personal property. (29) Personal property consists of all property that is not real property, or not real estate. (30) On the first day of January, every individual who holds taxable personal property in Missouri becomes liable for property taxes during the same calendar year. (31) On January 1, a tax assessor determines the market value of the personal property and then calculates a percentage of that value to arrive at the assessed value. (32) The percentage is based on the classification of the property, which is determined by the type of property or how it is used. (33) Classifications of personal property include manufactured homes, farm machinery, historic cars or planes, crops, vehicles, and more. (34) Business personal property receives the same tax treatment as individual personal property. (35) After the assessed value is calculated, the tax rate is applied to determine the total amount of personal property tax liability. (36)

   Missouri counties utilize most of the tax revenue collected from personal property taxes to fund various avenues of public service throughout the state. (37) The tax revenue goes toward the maintenance and improvement of schools, fire districts, dispatch, libraries, and critical infrastructure. (38) Personal property tax rates vary from county to county in Missouri. (39) For policy reasons, such as easing the burden on certain nonprofit, religious, and government properties, the Missouri Constitution and the Missouri General Assembly created property tax exemptions to assist individuals or organizations with lowering or eliminating property taxes. (40) It is through these personal property tax exemptions that individuals and organizations can install, build, and maintain personal property in a more economically feasible way. (41)

   1. Personal Property Taxes in the Missouri Constitution

      The Missouri Constitution sets forth the universe of personal property that the Missouri General Assembly may exempt from taxation. (42) It expresses the people's intent that only certain personal property may receive an exemption. (43) Section 137.100, which tracks with article X, section 6 of the Missouri Constitution, controls such personal property tax exemptions within the state. (44)

      Article X, section 6 of the Missouri Constitution specifically exempts the following property from taxation:

      All property, real and personal, of the state, counties and other political subdivisions, and nonprofit cemeteries, and all real property used as a homestead as defined by law of any citizen of this state... shall be exempt from taxation; all personal property held as industrial inventories, including raw materials, work in progress and finished work on hand, by manufacturers and refiners, and all personal property held as goods, wares, merchandise, stock in trade or inventory for resale by distributors, wholesalers, or retail merchants or establishments shall be exempt from taxation.... (45) In addition to this exempted property, article X, section 6 permits the Missouri General Assembly to exempt certain other property. (46) Specifically, it includes a catchall for the Missouri legislature by providing that "... [personal property] may be exempted from taxation by general law." (47) Through the legislature's use of this provision, the list of personal property exempted from taxation expanded in 1972, 1982, and 2010. (48)

      Article X incudes additional provisions that, after interpretation, allow the legislature to establish tax exemptions beyond those listed in section 6. (49) For example, section 4(c) allows the Missouri General Assembly to substitute "another form of tax, probably an excise tax," for the property tax on bank shares and "constitutes an...