Real Property Tax Law § 575-b Held Unconstitutional by New York Trial Court: What This Means for Assessment of Renewable Energy Projects

In a decision and order filed March 4, 2025, Albany County Supreme Court held that Real Property Tax Law (“RPTL”) § 575-b is unconstitutional (the “Decision”).  The suit, Airey, et al. v. State of New York, et al., Index No. 903991-24, was brought by a number of town supervisors in their individual and official capacities against New York State.  They sought to overturn RPTL § 575-b.  This is the statute that provides for the discounted cash flow model (the “Model”) created by the New York State Department of Taxation and Finance (“DOTF”) in consultation with the New York State Assessors Association (“NYSAA”) and New York State Energy Research and Development Authority (“NYSERDA”).

The Court disposed of preliminary threshold matters related to the statutory vehicle the plaintiffs used to challenge the statute and whether they had standing—that is whether they demonstrated a real, tangible injury.  The Court found that the plaintiffs had stated a sufficient injury and found they had standing to bring the suit.  The basis for the Court’s determination was, in its view, the approximately $3.3 million alleged loss in tax revenue based on a solar project in the Town of Sharon.  The loss was based on differing assessment values, one under the Model and the other based on an appraisal from the Town of Sharon.  The discrepancies in value leading to the alleged loss were, according to the Court, sufficient to confer standing.  As the Court noted, none of the other towns have any projects affected by the Model.[1] 

The crux of the Court’s holding related to the contention that the Legislature delegated its authority to an agency—the DOTF.  The plaintiffs argued that the Legislature failed to provide sufficient guidance to DOTF when it enacted RPTL § 575-b essentially leaving DOTF unfettered discretion to determine what revenue streams would be included and excluded in the Model.[2]  Though RPTL § 575-b provides for a number of guideposts, including the methodology to be employed, which projects are included, the economic factors and costs characteristics of each geographic region, and that NYSAA and NYSERDA must be consulted, among other things, the Court did not find these to be adequate.  Though the Legislature has great flexibility to delegate its authority, the Court held that the enactment of RPTL § 575-b exceeded the Legislature’s powers.  The Court found the absence of any directive about, among other things, the treatment of renewable energy credits (RECs) and investment tax credits (ITCs) and whether to include or exclude them in the Model, problematic. 

Hodgson Russ Insights

Absent explicit action by the Appellate Division, we anticipate the Attorney General will take the position that the appeal stays the Decision pending the outcome of the appeal.[3]   This is crucial given that we are less than two months away from when most jurisdictions publish the tentative assessment rolls on May 1.  But, because of this uncertainty, and that the appeal will not be resolved before May 1, renewable energy developers need to closely scrutinize tentative assessment rolls because assessors, relying on the Decision, may not implement the Model despite the stay afforded to the State.  Many assessors are likely to rely simply on the Decision and value renewable projects using a method of their choosing.  The State may obtain confirmation from the Appellate Division as to the nature of the stay so that assessors can be directed to use the Model while the appeal is being perfected. 

Uncertainty Abound

On the merits, the Decision creates continued uncertainty over how to value and assess renewable energy projects.  Now, there is increased risk and exposure to both renewable energy developers, who may have higher assessments and higher real property taxes for their projects, and local taxing jurisdictions who will be forced to expend legal fees defending assessment challenges.  This was what RPTL § 575-b intended to avoid, especially because the growth of renewable energy projects are part of state policy under the Climate Leadership Community Protection Act. 

Tax Revenue

Though the Court held the plaintiffs had standing, recall that only one of the towns—the Town of Sharon—has a renewable energy project.  The concept that there is a loss of tax revenue is flawed for several reasons.  First, for the particular project used as an example, there is no true reduction in value of the project as 2024 was the first year the project appeared on the assessment roll, according to the supporting affidavit of an assessor.  So there is neither a reduction in taxes nor the tax base as there had been no prior assessed value for the project.  Instead, this is new assessed value being added to the tax base—and new taxes.

Second, loss of tax base does not mean loss of tax revenue; it simply deals with the allocation of the tax levy among taxpayers.  The tax levy is set by taxing jurisdictions in accordance with state law; the amount of the annual levy is unchanged by a particular property’s assessed value.  Yet the arguments raised conflate a lower tax base with lower revenue.

Finally, the argument assumes the municipality’s appraised value would hold water absent the Model, when it is likely that it would be challenged.  Even if there were a situation where the project had already been on the roll and then was reduced in value (like in the case where there is a reduction in an assessment following a legal challenge), the cost of the reduction is shared by all other taxpayers.  There is no loss. 

Other Instances Where the Legislature Directed Tax Methodology

The Legislature has dictated the manner of assessments for other types of properties.  For example, special franchise property, which requires the use of the cost method.[4]    So, too, telecommunication ceilings.[5]  These values are prepared by DOTF and reported to assessors who then rely on these values for their assessment rolls.[6]  The same is true for oil and gas economic units.[7]  The Model is not the first time the Legislature has dictated the methodology of valuation of certain property. 

Tax Credits are Intangibles that Cannot be Valued for Property Tax Purposes

The Court spent time discussing whether or not it was permissible to include or exclude certain credits in the Model.  The Court held that RECs and ITCs are part of the revenue stream “inextricably tied to the real property upon which these solar and wind energy systems are situated and cannot exist without [them].”[8]  Though earlier the Court recognized that the New York State Constitution prohibits ad valorem taxation on intangibles.[9]  The inclusion of RECs and ITCs would, as the testimony bore out, increase the value output of the Model.  But they were excluded because DOTF counsel’s office determined they were intangible assets that could not be valued by law.  Appraisers often exclude RECs and ITCs (or include them only for illustration and not valuation purposes) for this very reason. 

New York courts have held that intangible assets are not to be included in the value of real property assessments, including cases specifically dealing with energy-generating facilities.  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.)).

If you have any questions about the Decision or the Model, or valuing renewable projects generally, please contact Daniel 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, please visit us at: https://forms.hodgsonruss.net/subscription-center-hr.html.

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This client alert is a form of attorney advertising. Hodgson Russ LLP provides this information as a service to its clients and other readers for educational purposes only. Nothing in this client alert should be construed as, or relied upon, as legal advice or as creating a lawyer-client relationship.

[1]             Decision at 6. 

[2]             Decision at 17. 

[3]             See Civil Practice Law and Rules § 5519(a)(1). 

[4]             See RPTL § 600 (DOTF Commissioner establishes special franchise values); 20 NYCRR § 8197 (DOTF regulations on reporting of costs).

[5]             See RPTL §§ 499-kkkk, 499-llll.

[6]             See id. 

[7]             See RPTL §§ 594(1), (2). 

[8]             Decision at 21. 

[9]             Id. at 11 fn. 2.