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Nebraska Department of Revenue’s Directive 24-3 Clarifies Taxation Updates for Renewable Energy Developers

on Tuesday, 8 October 2024 in Dirt Alert: David C. Levy, Editor

Section 77-201 of the Nebraska Revised Statutes directs county assessors to assess all real property in Nebraska at its actual value for taxation purposes.  Section 77-1359 carved an exception into that language, directing county assessors to assess agricultural land at seventy-five percent of its market value.  This drove down the property tax bill for agricultural land owners.

On September 30, 2024, the Nebraska Department of Revenue issued Directive 24-3 Assessment of Renewable Energy Generation Facilities (“Directive 24-3”). Directive 24-3 responds to Legislative Bill 1317 (2024), which the Nebraska Legislature passed earlier this year.

Before LB 1317, Nebraska law classified the land a renewable energy facility sat on as agricultural.  In turn, renewable energy developers enjoyed that same land assessment at seventy-five percent of market value.  This was key, because under most renewable energy land leases, the developer is responsible for paying for any change in the underlying tax assessment.

LB 1317 made one important adjustment to section 77-1359 by adding subsection (1)(b).  Section 77-1359 now states that land underlying a renewable energy facility is no longer classified as agricultural.  This has potentially serious tax ramifications for renewable energy developers.

In Directive 24-3, the Nebraska Department of Revenue recognizes that LB 1317 created a conflict between two statutes.  Section 77-1359(1)(b) effectively states land used for a renewable energy facility should be assessed at one hundred percent of market value.  However, existing section 77-6203(4) (part of the nameplate capacity tax statutes) states the presence of a renewable energy facility or supporting infrastructure will not be a factor in the assessment.  When two statutes conflict, courts typically enforce the more specific provision over the general.  Here, section 77-6203(4) should control, keeping the status quo in place.

The Department of Revenue also appears to resolve the conflict in favor of section 77-6203(4), though a court could interpret the statutes the opposite way and hold that section 77-1359(1)(b) controls.  If so, renewable energy developers should be aware of two potential ramifications.  

Because Nebraska law previously allowed county assessors to assess the land underlying renewable energy facilities as agricultural, developers enjoyed a tax assessment at seventy-five percent.  If a court interpreted section 77-1359(1)(b) to control, renewable energy facility developers would pay property taxes at one hundred percent of the land’s value instead.  This would mean a higher tax bill for renewable energy developers in the state. 

On top of this change, an interpretation in favor of section 77-1359(1)(b) would eliminate the agricultural land real property tax credit for renewable energy facilities.  Before, the Property Tax Credit Act granted owners of renewable energy facilities a tax credit of $133.55 per $100,000 of land valuation.  This kept them in line with agricultural land.  With this adjustment, renewable energy facilities would no longer enjoy that credit. 

If a court did interpret section 77-1359(1)(b) to control, renewable energy developers should expect to pay higher property tax bills moving forward.  The Department of Revenue appears to solve the conflict in favor of section 77-6203(4).  But renewable energy developers should be aware that an interpretation in favor of section 77‑1359(1)(b) is possible, along with those previously described ramifications.

Attorneys at Baird Holm specialize in various subject matter areas including renewable energy, land use and taxation.  Please do not hesitate to contact us if you have any questions regarding real property taxation, renewable energy or any other matter.

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