BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Michael Machado, Chair
AB 1099 - Leno
Amended: May 26, 2005
Hearing: June 22, 2005 Tax Levy Fiscal: YES
SUBJECT: Property Tax: Extends until 2010 the sunset on
the exemption from "new construction"
reassessment for active solar energy systems
EXISTING LAW (Proposition 13) requires property to be
reassessed to current market value when it changes
ownership or when new construction occurs. In the case of
new construction, the market value of the new construction,
to the extent that it enhances the value of an existing
structure, is added to the Proposition 13 adjusted base
year value of the existing structure.
There are a number of exceptions to the rule that
value of new construction must be added to assessed value,
including reconstruction after a disaster, seismic safety
retrofits, disabled access, and in cases of environmental
contamination. In 1980, an exception was enacted to prevent
the value of an active solar energy system from being added
to assessed value, operative for 1981-82 through 1985-86.
Since that time the exception for active solar systems has
been extended three times, most recently by AB 1755,
Keeley, which extended the exception through 2004-05.
THIS BILL would further extend the exception for
active solar systems until 2008-09.
FISCAL EFFECT:
Board of Equalization, based on discussions with
county assessors, believes that extending the new
AB 1099 - Leno
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construction exception for active solar energy systems
would cause a "minimal" property tax revenue effect. This
is because at the present time, and into the near future at
least, such systems are not economically cost effective,
and thus actually do NOT enhance the overall value of the
property to which they are added. BOE staff believe that
these systems are added to structures "primarily for
environmental commitment, and not for financial reasons."
Although it's undeniable that these systems are very
socially and environmentally desirable, they appear not to
actually enhance the potential resale value of a structure
and thus don't affect the property assessment.
COMMENTS:
A. Purpose of the bill
The author states, "Solar energy use diversifies
California's energy portfolio with zero-emission renewable
energy while reducing the overall demand, and therefore
price, of natural gas and electricity." The author asserts
that incentives such as the property tax exemption
encourage consumers to use solar energy systems, which in
turn will help California's environment and reduce reliance
by the state on out-of-state energy resources.
B. A free tax incentive?
This would appear to be a case where a special tax
provision is perceived to have an incentive value, while at
the same time it apparently causes no reduction in state or
local revenue. If it really does have an incentive value,
in terms of helping persuade homeowners and businesses to
install these systems, then that is all for the good. It is
to be hoped that the more systems are installed, the
cost/benefit ratio will improve over time, and that at some
point in the future the presence of these systems will
actually be seen in the housing market as economically
desirable, rather than just socially responsible.
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Support and Opposition
Support:PV Manufacturers Alliance
` California Solar Energy Industries Association
SMUD
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Consultant: Martin Helmke