Assessing renewable energy devices in Illinois

By James W. Chipman

Wind energy devices have proliferated across the central Illinois landscape in recent years. Get wind of how the assessment process works by talking to a property tax attorney.

Illinois is home to both the Windy City and a very flat, windy prairie. When the state’s first wind turbine went online in rural Lee County in 2003, no one could have guessed that 15 years later over 2,600 of these devices would be operational and account for 6.2% of all in-state electrical production.*

Wind turbines convert the wind’s kinetic energy into electrical energy for commercial sale. Most turbines are located in rural settings where land is rented from the property owner, usually a farmer. The company that installed the turbine pays the taxes, and the farmer receives an annual royalty. One individual “wind farm” typically occupies about an acre of land.

TWISTING IN THE WIND

Because wind turbines have both real and personal property components, assessment criteria varied from county to county based on a jurisdiction’s treatment of classifying property prior to 1979. (Real and personal property classification is still unsettled law.) Inconsistent and confusing assessments were frequently the subject of appeals before boards of review and the state’s Property Tax Appeal Board.** Eventually, it became clear that the wind farm valuation process needed a legislative solution.

WINDS OF CHANGE

A 2007 change in Illinois law made the state even more attractive to wind developers when a uniform system of tax assessment was finally adopted.*** The “market value” of a turbine is $360,000 per megawatt of capacity adjusted annually for inflation by a trending factor. An amount for physical depreciation is then deducted from the “trended real property cost” to determine the assessed value [($360,000 x trending factor) – depreciation = assessed value]. Wind turbine operators must have a surveyor prepare a plat that includes a metes and bounds description of the area surrounding the turbine over which the owner exercises exclusive control.

Although wind turbine assessments are now computed annually under the state formula, assessments can be challenged if the turbine is affected by what appraisers call “functional and external obsolescence.” These two forms of depreciation differ from physical depreciation, which is deterioration of property due to age and wear. Functional obsolescence occurs when conditions exist within the property—such as an outdated design feature—that cannot be easily changed, as opposed to external or economic obsolescence, which is due to negative influences outside the property and are usually not fixable.

Don’t throw caution to the wind. If you have questions about a wind farm assessment, call a property tax attorney for answers.

Learn more about wind farm assessments by contacting Jim at JWChipman@GCTSpringfield.law or 217.391.6858.

Sources:
*“Wind Energy in Illinois” U.S. Wind Energy State Facts. American Wind Energy Association (2017)
**Property Tax Appeal Board decision (#06-2736.001-C-2: Pike Co.), Feb. 23, 2010
***35 ILCS 200/10-600 et seq.

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