As renewable energy assets become more prevalent in commercial real estate portfolios – especially among industrial and data center users – property owners face a critical challenge: ensuring that intangible assets are not mistakenly included in the taxable value of real and personal property.

Wind farms, solar installations, battery energy storage systems and nuclear facilities often involve complex ownership structures and revenue models. While these facilities are physically tangible, much of their value derives from intangible elements such as power purchase agreements, state and federal tax incentives including investment tax credits and production tax credits, software and regulatory rights. Misclassifying these intangibles as taxable property can result in inflated assessments and unfair tax burdens.

Most state property tax systems are designed to assess only tangible property, namely land, buildings and physical equipment. Intangible assets, such as contractual rights or intellectual property, are generally exempt. However, in practice, the line between tangible and intangible value can blur, especially when assessors rely on valuation methods that do not clearly separate the two.

For example, values calculated using the cost approach may include development premiums or acquisition expenses that reflect intangible value. Add to that federal tax incentives that can provide up to a 30% credit for development costs. When assessors fail to exclude any or all of these elements from transaction comparisons or a final assessments, their conclusions will skew high and produce inflated values. Similarly, the income approach will capture revenue streams tied to intangible assets, unless carefully adjusted.

In reviewing assessments on renewable energy projects, taxpayers should be on the lookout for any intangible components contributing to the assessor's valuation. Power purchase agreements, for example, are contracts that guarantee future revenue but are financial instruments, not physical assets.

Other examples include interconnection rights, because the ability to connect to the grid is often secured through regulatory approvals or agreements, not through tangible infrastructure. Likewise, software and control systems including proprietary algorithms and digital platforms used to manage energy production and storage are intangible.

Intangibles common to many commercial properties include cost of capital, as well as brand and developer reputation. Market trust and recognition may influence value but are not taxable property.

To ensure fair assessments, owners should adopt valuation strategies that clearly separate intangible value. Here are essential steps to include:

Disaggregate costs when using the cost approach. Break down construction costs from development premiums and intangible acquisition expenses.

Adjust for risk. In finance, the term "risk" refers to the ability to forecast the cash flows accurately. Both wind and solar cash flows are riskier than those of the electricity generating companies upon which assessors, and the appraisers they hire to defend their assessments, tend to rely to estimate a discount rate.

Review depreciation tables. Many assessor tables fail to reflect the rapid technological obsolescence of renewable assets or the non-depreciable nature of intangibles.

Identify economic or external obsolescence, which is something external to the property that limits its value. The most compelling evidence of economic obsolescence is insufficient income to justify the cost. The historical cost says little about what a property is worth today.

Adjust income models when applying the income approach to isolate the portion of net operating income attributable to tangible assets. This may involve modeling scenarios that exclude intangible inputs.

Document intangibles by providing contracts, licenses, regulatory filings or other clear evidence that demonstrates the presence and value of intangible property.

In many jurisdictions, statutes or case law explicitly prohibit the taxation of intangible property. Even where the law is less defined, taxpayers can often succeed by showing that assessors have included intangible value in their assessments.

Key strategies include arguing for valuation based on actual use rather than theoretical capacity, especially in underutilized facilities. Does the project use pollution controls? Identify exemptions or reduced assessments for equipment that mitigates environmental impact.

And finally, challenge the assessor's inclusion of any intangibles. Appeal assessments that include tax incentives, goodwill, assembled workforce, software or contractual rights as part of the taxable base.

As data centers and other high-demand users increasingly rely upon onsite renewable energy, understanding how to separate intangible value becomes essential. Accurate valuation not only ensures compliance with tax law but also protects property owners from excessive taxation.

Moreover, as renewable technologies evolve, so, too, must the appraisal methodologies used to assess them. Taxpayers must stay informed, adaptable and vigilant in distinguishing between what is taxable and what is not.

The rise of renewable energy in commercial real estate brings new complexity to property tax valuation. By applying disciplined appraisal techniques and understanding the legal boundaries of taxable property, owners can ensure fair assessments that reflect only the value of tangible assets. This approach supports both fiscal equity and the continued growth of sustainable infrastructure.