              IN THE COURT OF APPEALS OF NORTH CAROLINA

                                  No. COA14-1399

                               Filed: 5 January 2016

Property Tax Commission, No. 12 PTC 581

IN THE MATTER OF: THE APPEAL OF: FLS OWNER II, LLC from the decision of
the Randolph County Board of Equalization and Review regarding the valuation of
certain property for tax year 2011.


      Appeal by FLS Owner II, LLC from final decision entered 15 September 2014

by the North Carolina Property Tax Commission. Heard in the Court of Appeals

6 May 2015.


      Turrentine Law Firm, PLLC, by S.C. Kitchen, for Taxpayer-Appellant.

      Shelley T. Eason, for Randolph County-Appellee.


      CALABRIA, Judge.


      Taxpayer, FLS Owner II, LLC (“FLS”), appeals from a final decision of the

North Carolina Property Tax Commission (“the Commission”) affirming the appraisal

of FLS’s solar heating system by Randolph County (“the County”) for ad valorem tax

purposes. We reverse the decision of the Commission and remand.

                                  I. Background

      FLS purchased an industrial solar heating system (“the system”) for

$1,700,000 from its parent company, FLS Energy, Inc., on 15 August 2010. FLS then

leased the system for use in a manufacturing facility (“the facility”) in Asheboro. The

system was designed specifically for, and was installed directly onto, the facility. It
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consists of two hundred solar panels, two heat exchangers, piping inside and outside

of the facility, and two 10,000-gallon storage tanks, as well as “sleeves, bracers, and

connectors associated with the system.” The system produces hot water solely for the

facility’s industrial manufacturing processes.

      According to stipulations by both parties, the County discovered the system in

2011 and initially appraised it at “a value of $571,000 based on [ ] an original cost of

$635,000 [as] shown on the building permit.” “The [C]ounty amended [its appraisal]

in November of 2011 to show a value of $1,056,917 based on a press release from the

North Carolina Governor’s Office showing the original cost for the [system] to be

$1,174,352.”

      FLS contested the County’s appraisal, and a hearing was held before the

Commission on 13 May 2014 (“the hearing”). During the hearing, Howard Blair

Kincer (“Mr. Kincer”) testified for FLS as an expert in the “appraisal of solar energy

equipment and systems.” Mr. Kincer testified, in part, that under a “cost comparison

approach[,]” the value of the system was $56,000, because that was how much it

would cost to replace the system with an equivalent conventional heating system. As

a result, the County’s appraisal of the system almost nineteen times larger than Mr.

Kincer’s appraisal. The County maintained that it correctly appraised the system

based on the cost of replacing it with another solar heating system. At the close of

FLS’s evidence, the County moved to dismiss the case. On 15 September 2014, the



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Commission entered a final decision (“the decision”) which dismissed the case and

affirmed the County’s valuation of the system at $1,056,917. FLS appeals.

                             II. Standard of Review

      The North Carolina Supreme Court has outlined the standard of review for

appeals from final decisions of the Commission as follows:

             We review decisions of the Commission pursuant to [N.C.
             Gen. Stat.] § 105-345.2 [(2013)]. Questions of law receive
             de novo review, while issues such as sufficiency of the
             evidence to support the Commission’s decision are
             reviewed under the whole-record test. Under a de novo
             review, the court considers the matter anew and freely
             substitutes its own judgment for that of the Commission.
             Under the whole-record test, however, the reviewing court
             merely determines whether an administrative decision has
             a rational basis in the evidence.

In re Appeal of Greens of Pine Glen Ltd., 356 N.C. 642, 646–47, 576 S.E.2d 316, 319

(2003) (citations and internal quotation marks omitted).        Because this appeal

presents a dispositive issue of statutory construction, we conduct a de novo review.

                                  III. Analysis

      FLS challenges the decision of the Commission to affirm the County’s appraisal

of the system for ad valorem tax purposes.          “Ad valorem tax assessments are

presumed to be correct.” Id. at 647, 576 S.E.2d at 319.

             However, a taxpayer may rebut this presumption if it
             produces competent, material and substantial evidence
             establishing that: (1) Either the county tax supervisor
             used an arbitrary method of valuation; or (2) the county tax
             supervisor used an illegal method of valuation; AND (3) the


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             assessment substantially exceeded the true value in money
             of the property.

Id.   This is a “two-prong test[.]”        Id.   However, “[i]n attempting to rebut the

presumption of correctness, the burden upon the aggrieved taxpayer is one of

production and not persuasion.” In re Blue Ridge Mall LLC, 214 N.C. App. 263, 267,

713 S.E.2d 779, 782 (2011) (emphasis added) (citation and internal quotation marks

omitted). “Once a taxpayer produces sufficient evidence to rebut the presumption,

the burden shifts to the taxing authority to show that its methods [do] in fact produce

true values[.]” In re IBM Credit Corp., 201 N.C. App. 343, 345, 689 S.E.2d 487, 489

(2009) (citation and internal quotation marks omitted).

                             A. Classification of Property

       As a preliminary matter, we note that the County appraised FLS’s system as

“personal property” under N.C. Gen. Stat. § 105-317.1 (2013). Neither party disputes

this classification. Since FLS’s appeal turns almost entirely on determining the

correct “replacement cost” of the system, the County would have had to consider this

“replacement cost” while conducting its appraisal, regardless of whether the system

was properly classified as real or personal property. See N.C. Gen. Stat. §§ 105-

317(a)(2), -317.1(a) (respectively).

                    B. Application of N.C. Gen. Stat. § 105-277(g)

       FLS contends the County used an arbitrary or illegal method to appraise the

value of the system and that this appraised value “substantially exceeded” the


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system’s “true value” as defined by North Carolina’s Tax Code. See N.C. Gen. Stat.

§§ 105-277(g) (requiring that buildings equipped with solar heating or cooling

systems be “assessed for taxation in accordance with each county’s schedule of values

for buildings equipped with conventional heating or cooling systems”) 283 (2013)

(stating that all property must be “valued at its true value in money”). Specifically,

FLS argues the County erred by appraising the system based upon the “reproduction

cost” of the system. Under this method, the County reached it appraisal by

determining the “replacement cost” of constructing another, identical solar heating

system. FLS contends subsection 105-277(g) required the County to appraise the

system based on the “replacement cost” of an equivalent conventional heating system.

FLS also argues the Commission erred by concluding as a matter of law that

subsection 105-277(g) was not applicable to the present case in affirming the County’s

appraisal. The interpretation of subsection 105-277(g) is a matter of first impression

for this Court, and we agree with FLS.

      Subsection 105-277(g) provides that

             [b]uildings equipped with a solar energy heating or cooling
             system, or both, are hereby designated a special class of
             property under authority of Article V, Sec. 2(2) of the North
             Carolina Constitution. Such buildings shall be assessed for
             taxation in accordance with each county's schedules of
             value for buildings equipped with conventional heating or
             cooling systems and no additional value shall be assigned
             for the difference in cost between a solar energy heating or
             cooling system and a conventional system typically found
             in the county. As used in this classification, the term


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             “system” includes all controls, tanks, pumps, heat
             exchangers and other equipment used directly and
             exclusively for the conversion of solar energy for heating or
             cooling. The term “system” does not include any land or
             structural elements of the building such as walls and roofs
             nor other equipment ordinarily contained in the structure.

N.C. Gen. Stat. § 105-277(g) (emphasis added). It is well settled that

             [t]he principal goal of statutory construction is to
             accomplish the legislative intent. The intent of the General
             Assembly may be found first from the plain language of the
             statute, then from the legislative history, the spirit of the
             act and what the act seeks to accomplish. If the language
             of a statute is clear, the court must implement the statute
             according to the plain meaning of its terms so long as it is
             reasonable to do so. When the statute under consideration
             is one concerning taxation, special canons of statutory
             construction apply. If a taxing statute is susceptible to two
             constructions, any uncertainty in the statute or legislative
             intent should be resolved in favor of the taxpayer.

Lenox, Inc. v. Tolson, 353 N.C. 659, 664, 548 S.E.2d 513, 517 (2001) (citations and

internal quotation marks omitted). For the following reasons, we conclude the statute

is susceptible to competing reasonable constructions.

      Subsection 105-277(g) specifically provides that “[b]uildings equipped with a

solar energy heating or cooling system . . . are hereby designated a special class of

property” and sets forth the manner in which “[s]uch buildings shall be assessed for

taxation[.]” N.C. Gen. Stat. § 105-277(g) (emphasis added). According to the County,

this language necessarily means that “the statute’s financial benefit goes to the

building, not to the solar heating and cooling system itself[.]” The essence of this

argument is that subsection 105-277(g) serves a very limited purpose: installation of

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(usually very expensive) solar equipment increases the value of the building to which

it is attached. This increase in value subjects the building’s owner to greater ad

valorem tax liability. The County contends when a building is equipped with a solar

heating or cooling system, it must be assessed for taxation without regard to the

increased value of the real property due to the installation of such a system.

      Even so, as FLS argues in its brief, the remainder of subsection 105-277(g)

defines solar energy heating and cooling systems as entirely distinct from the

buildings to which they are attached. See N.C. Gen. Stat. § 105-277(g) (“[T]he term

‘system’ includes all controls, tanks, pumps, heat exchangers and other equipment

used directly and exclusively for the conversion of solar energy for heating or cooling

. . . [and] does not include any land or structural elements of the building such as walls

and roofs nor other equipment ordinarily contained in the structure.” (emphasis

added)).

      The explicit mention of system components provides one explanation of the

legislation’s scope. In particular, the specific identification of these components

categorizes what hardware qualifies for subsection 105-277(g)’s tax benefit, and the

language excluding “structural elements of the building” categorizes what hardware

is not within the legislation’s reach. See John H. Minan & William H. Lawrence,

State Tax Incentives to Promote the Use of Solar Energy, 56 Tex. L. Rev. 835, 842

(1978) (“Specific identification of system components that qualify for tax relief aids



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the precision and clarity of [solar tax relief] legislation. Including ‘all controls, tanks,

pumps, heat exchangers, and other hardware necessary to effect installation’ within

the reach of the tax incentive is an illustration of this approach. A corollary approach

is to specify investments outside the ambit of the legislation. An example of this

technique is the specific exclusion of walls and roofs unless they are integral parts of

the system, specially designed to provide additional heating or cooling.”).

         Yet the statute also provides that “no additional value shall be assigned for the

difference in cost between a solar energy heating or cooling system and a conventional

system[,]” N.C. Gen. Stat. § 105-277(g) (emphasis added), which FLS argues is a value

that effectively has nothing to do with a building as a distinct property.

Consequently, subsection 105-277(g) could be interpreted to mean that the General

Assembly intended for this subsection to apply specifically to the appraisal of solar

heating and cooling systems that are attached to buildings, and not to buildings

alone.

         This interpretation is bolstered by the Act’s title. When, as here, “the meaning

of a statute is in doubt, reference may be made to the title and context of an act to

determine the legislative purpose.” Preston v. Thompson, 53 N.C. App. 290, 292, 280

S.E.2d 780, 782 (1981); see also Sykes v. Clayton, 274 N.C. 398, 406, 163 S.E.2d 775,

781 (1968) (title of a bill is “a legislative declaration of the tenor and object of the

act”). 1977 Sess. Laws ch, 965, which enacted subsection 105-277(g), was specifically



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entitled “An Act to Classify Solar Energy Systems for Ad Valorem Tax Purposes.”

(emphasis added). The Act’s title, when read in conjunction with subsection 105-

277(g)’s language, clearly shows that solar energy systems are, at least in part, a

discrete class of property at which the legislation is aimed.

      All told, we do not believe the General Assembly intended to preclude

subsection 105-277(g) from applying in the instant case. As noted above, to the extent

that subsection 105-277(g) “is susceptible to two constructions, any uncertainty in the

statute or legislative intent should be resolved in favor of” FLS. Lenox, 353 N.C. at

664, 548 S.E.2d at 517. We are also unable to resolve the practical ramifications of

the County’s position on appeal. Specifically, the County argues that FLS should not

benefit from the appraisal restrictions in subsection 105-277(g) because “[t]he

statute’s financial benefit goes to the building, not to the solar heating and cooling

equipment itself[.]”

      This interpretation of subsection 105-277(g) would allow functionally identical

properties to be taxed at radically different rates, depending on whether the building

and the solar heating system were owned by the same individual. According to the

County’s position, the owner of a solar heating system located on a plot of land it did

not own would be unable to benefit from subsection 105-277(g)’s appraisal

restrictions. Thus, if “[t]he statute’s financial benefit [really did go] to the building,”

a building-owner who did not own the building’s solar heating system would recoup



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a windfall tax break for property it did not own. Yet the owner of the solar heating

unit would have to pay taxes on its system as if it were nineteen times more valuable

than an identical system next door, which happened to be owned by the same

individual who owns the building.

      The County’s argument regarding subsection 105-277(g)’s application to this

case turns on the ownership of either the system or the facility—if FLS owned the

facility, or if the facility owned the system, we would not be here. We do not believe

the General Assembly intended such a disparate, disjointed application of the State’s

Tax Code, which requires that there be “[u]niform appraisal standards” for assessing

ad valorem taxes within a given class of properties. N.C. Gen. Stat. § 105-283.

Indeed, the “application of two distinct valuation methodologies to properties in the

same class which results in systematic discrimination against one group of property

owners is a clear violation of uniformity.” In re Appeal of Winston-Salem Joint

Venture, 144 N.C. App. 706, 713–14, 551 S.E.2d 450, 455 (2001) (citing Allegheny

Pitts. v. Webster County, 488 U.S. 336, 345, 102 L.Ed.2d 688, 698 (1989)). As the

County aptly points out in its brief, “statutes such as [subsection 105-277(g)] describe

a particular class of property for [partial] exclusion from the tax base rather than

providing an exemption for its owner.” (emphasis added).          See In re Appeal of

Springmoor, Inc., 348 N.C. 1, 9, 498 S.E.2d 177, 182 (1998) (“[Tax exemption statutes]

must bear a substantial relation to the object of the legislation, so that all persons



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similarly circumstanced shall be treated alike.” (citations and internal quotation

marks omitted)). Accordingly, for the purpose of assessing ad valorem taxes under

North Carolina’s Tax Code, N.C. Gen. Stat. §§ 105-317(a)(2), -317.1(a), solar heating

and cooling systems are to be appraised with “no additional value . . . assigned for

the difference in cost between a solar energy heating or cooling system and a

conventional system typically found in the county.” N.C. Gen. Stat. § 105-277(g).1

         Here, the County appraised FLS’s system as business personal property.

Section 105-317.1 sets forth specific factors the County was required to use in its

appraisal of the system. The County failed to employ any of these factors, but instead

relied on a press release from then-Governor Beverly Perdue’s website which listed

the property at $1,174,352. Significantly, the record does not reveal the origin of this

value.

         After applying trending schedules promulgated by the North Carolina

Department of Revenue, the County arrived at its valuation figure of $1,056,917.




         1 The County also seems to imply in its brief that FLS’s solar heating system is not a “solar
energy heating or cooling system” for the purposes of subsection 105-277(g) because FLS’s solar
heating system creates hot water for industrial processes and “does not provide heating or cooling for
[the facility’s] employees or officers in bathrooms, kitchens, or other interior areas of the [f]acility.”
We find no basis for this distinction in the language of subsection 105-277(g), and we note that other
parts of North Carolina’s Tax Code take an expansive view of what constitutes a solar heating or
cooling system. See N.C. Gen. Stat. § 105-129.15 (2013) (“Solar energy equipment [is equipment] that
uses solar radiation as a substitute for traditional energy for water heating, active space heating and
cooling, passive heating, daylighting, generating electricity, distillation, desalination, detoxification,
or the production of industrial or commercial process heat. The term also includes related devices
necessary for collecting, storing, exchanging, conditioning, or converting solar energy to other useful
forms of energy.” (emphasis added)).

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This Court has previously rejected the use of historical cost in conjunction with

trending tables to value specialty equipment for purposes of property tax. See IBM

Credit Corp., 201 N.C. App. at 351-52, 689 S.E.2d at 493 (reasoning that using

historical cost and applying trending factors to computer equipment misses “a critical

step in the appraisal analysis, particularly when technological improvements in the

equipment being trended . . . may have all the utility of the machine being appraised

but sell for less money than the subject machine cost several years previous”).

      The County’s valuation of the property also failed to consider the tax credits

for the system, which were “used up” once the system was constructed. As a result,

the County’s valuation taxed FLS for a value that was no longer present in the

system.

                                 IV. Conclusion

      In sum, the County used a press release from Governor Perdue’s website to

determine the system’s value, failed to follow statutory guidelines for appraisal, and

did not “consider the obsolescence of the equipment due to the equipment being

overbuilt, the income produced by the equipment, and [the] transfer of tax credits

prior to valuation[.]” FLS has therefore met its burden of production by producing

evidence that the County used an arbitrary or illegal method of appraising the value

of the solar heating system. See Greens of Pine Glen, 356 N.C. at 647, 576 S.E.2d at

319. And since expert testimony established that the County’s appraised value of the

solar heating system was approximately nineteen times greater than the value of an

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equivalent conventional heating system, FLS has also met its burden of production

by producing evidence that the County’s appraisal “substantially exceeded the true

value in money of the property,” id., as that value is defined by North Carolina’s Tax

Code. See N.C. Gen. Stat. §§ 105-277(g), -283. Accordingly, we reverse the final

decision of the Commission and remand for further proceedings consistent with this

opinion. Given our disposition of this case, we need not consider the other arguments

raised by FLS on appeal.

      REVERSED AND REMANDED.

      Judges STROUD and TYSON concur.




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