BILL ANALYSIS �
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Date of Hearing: March 17, 2011
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 15 x1 (Hill) - As Introduced: March 14, 2011
2/3 vote. Urgency.
SUBJECT : Property tax: exclusion from newly constructed:
active solar energy system
SUMMARY : Revises the definition of "active solar energy
systems" and declares the legislative intent to extend the
current exclusion from property tax reassessment for purchases
of new "active solar energy systems" to active solar energy
systems that are sold in sale-leaseback arrangements.
Specifically, this bill :
1)Contains legislative findings noting that:
a) Revenue and Taxation Code (R&TC) Section 73 was enacted
to encourage the development of active solar energy systems
by providing an exclusion from classification as newly
constructed for the construction for addition of active
solar energy systems. In 2008, R&TC Section 73 was amended
to provide that this exclusion would apply to the initial
purchaser from an owner-builder that incorporated an active
solar energy system in the initial construction of the new
building that the owner-builder did not intend to occupy or
use, under specified circumstances;
b) Newly constructed active solar energy systems are often
sold in sale-leaseback arrangements or others transactions
to purchasers who can utilize federal tax attributes. As
long as the active solar energy system is newly constructed
or added and another taxpayer has not received an exclusion
for the same active solar energy system, it is the
Legislature's intent that the purchaser of the active solar
energy system in the transaction described above receive an
exclusion;
c) Newly constructed active solar energy systems that are
constructed as freestanding or parking lot canopies, or
that are constructed as installations on existing buildings
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qualify for the exclusion from classification as newly
constructed, including active solar energy systems sold in
sale-leaseback transactions; and,
d) The amendments made to R&TC Section 73 by this bill do
not constitute a change in but are declaratory of existing
law.
2)Revises the definition of "active solar energy system" to
clarify that it means a system that, upon completion of the
construction of a system as part of a new property or the
addition of a system to an existing property, uses solar
devices, as specified.
3)Clarifies that the active solar energy system exclusion
remains in effect only until there is a subsequent change in
ownership.
4)Specifies that active energy solar systems that qualify for an
exclusion prior to January 1, 2017, shall continue to be
excluded on and after January 1, 2017, until there is a
subsequent change in ownership.
5)States that the provisions of this measure are declaratory of
existing law.
6)States that it addresses the fiscal emergency declared and
reaffirmed by Governor Brown by proclamation issued on January
20, 2011, pursuant to the California Constitution.
7)Takes effect immediately as an urgency statute.
EXISTING LAW :
1)Limits, generally, ad valorem taxes on real property to 1% of
the full cash value of that property. For purposes of this
limitation, "full cash value" means the assessor's valuation
as shown on the 1975-76 tax bill or, thereafter, the appraised
value of the property when purchased, newly constructed, or
when a change in ownership has occurred.
2)Excludes, pursuant to an authorization in the California
Constitution, the construction or addition of an "active solar
energy system" from classification as "newly constructed."
Proposition 7 was approved by the voters on the November 1980
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statewide ballot authorizing the Legislature to provide that
active solar energy systems shall be excluded from
reassessment as "new construction."
3)Defines an "active solar energy system" as a system that uses
solar devices, which are thermally isolated from living space
or any other area where the energy is used, to provide for the
collection, storage, or distribution of solar energy.
FISCAL EFFECT : The State Board of Equalization (BOE) has not
yet provided a fiscal estimate for this bill.
COMMENTS :
1)The Author's Statement . The author states that, "This bill is
necessary to ensure that thousands of existing and future
solar installation projects throughout the state can continue
to utilize tax exclusions and financing mechanisms authorized
by Revenue and Taxation Code Section 73. It has come to the
author's attention that there may be questions about whether
the Legislature intended to grant authority under Section 73
to permit new active solar energy system projects to be
financed. Such financing takes many forms, including loans,
sale-leaseback arrangements and similar transactions. ABX1 15
is declarative of the Legislature's intent in enacting and
periodically amending Revenue and Taxation Code Section 73
that financing mechanisms are permitted under Revenue and
Taxation Code Section 73 and Proposition 7. The provisions in
ABX1 15 are declaratory of existing law in order to remove any
questions or ambiguity that may have arisen regarding Revenue
and Taxation Code 73 in implementing Proposition 7.
"The clarification provided in this bill was placed in the
special session and contains an urgency clause to ensure that
California can continue to retain and recruit thousands of
green-jobs related to solar installation and maintenance which
will benefit the economy and help address the state's budget
deficit."
2)The Benefits of Solar Power . Solar energy provides
significant benefits both to the environment and the economy.
Solar energy is pollution-free, so investments made to
generate solar energy mean that less energy from fossil fuel
sources is necessary, thereby reducing exposure to greenhouse
gasses and pollutants. Solar energy helps electricity
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grid reliability and assuages electricity prices during
periods of peak demand because it is most plentiful when
temperatures are highest. Solar energy is most suitable for
remote areas that are not connected to energy grids. Finally,
some proponents of the solar energy industry argue that it
represents a sector for growth in potential skilled and
unskilled jobs. All in all, solar energy is a valuable
resource that needs to be further developed and improved.
3)The Tax Benefits to the Solar Power Industry . Both the
federal government and the State of California offer numerous
incentives for individuals to install solar energy systems,
including $2.167 billion of California Solar Initiative
rebates, net-metering (where ratepayers sell excess solar
electricity back into the grid and pay bills based on net
energy usage), accelerated depreciation for commercial
purposes under federal law, low-interest loans for solar
panels on low-income housing, the possibility of renewable
energy credit sales, and time-of-use electricity pricing.
Furthermore, federal law allows a renewable electricity income
tax credit for the production of electricity from qualified
energy resources at qualified facilities, including solar
energy. In addition to the renewable electricity production
tax credit, a taxpayer is allowed to claim a federal tax
credit for the investment in certain property, including fuel
cell and solar property or receive a grant. The grant
proceeds are exempt from both the federal and state income
taxes. Finally, new solar energy systems and solar energy
systems incorporated into a new building are eligible for a
property tax exclusion under California's tax laws.
4)Property Tax Exclusion for Solar Energy Systems . Existing law
imposes an annual property tax on the assessed value of real
property. Under Article XIII A of the California
Constitution, real property is reassessed for property tax
purposes only upon a change in ownership of the property, or
when "new construction" occurs on the property. "Newly
constructed" or "new construction" includes additions to the
real property, or the alteration of the real property that
amounts to a rehabilitation or conversion of the property to a
different use since the preceding lien date. The assessor
must determine the value of the new construction and add that
amount to the assessed value of the property.
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R&TC Section 73 excludes the construction or addition of an
active solar energy system from the definition of "new
construction," which means that a property owner could
construct an active solar energy system on his/her property
and the construction would not trigger a reassessment of the
property. Furthermore, an active solar energy system
constructed as part of a new building is also excluded from
the definition of "newly constructed." This exclusion allows
a purchaser of a new building that incorporates an active
solar energy system to file a claim with the county assessor
to exclude the value of the solar system from the assessment
value of the building, subject to certain restrictions. The
extension of the exclusion from an owner-builder, who never
intended to occupy the new building, to the initial purchaser
puts the owner that purchased from a builder's inventory in
the same position (with respect to the active solar energy
system) as a property owner that hired the same builder to
construct a building with an active solar energy system on
land already owned.
5)Sale-Leaseback Financing Programs . Frequently, active solar
system projects are financed in the form of a sale-leaseback
transaction. For example, in June 2009, Wells Fargo and
SunPower Corporation completed financing for a one megawatt
solar power system on the campus of the University of
California, Merced. SunPower and Wells Fargo financed the
system through a $100 million sale-leaseback program. As
explained by Renewable Energy World of North America Magazine,
the financing program is structured as follows: SunPower
enters into power purchase agreements with qualified customers
and Wells Fargo finances the solar power systems that Sunpower
designs, builds, operates and maintains. (David Wagman,
SunPower Taps a $100 Million Sale-Leaseback Financing Program,
www.renewableenergy.com). The customers buy electricity from
SunPower at prices that are lower than retail rates, which
"provides them with a long-term hedge against rising power
prices along with the ability to take advantage of solar
power's environmental and financial benefits with no initial
capital investment." (Ibid.).
Arguably, a sale-leaseback transaction may be considered a sale
that results in a change of ownership and that triggers
reassessment of property for tax purposes. The existing
exclusion for an active solar energy system is terminated with
a change in ownership of the property in which it was
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installed. In other words, when the property owner that
originally purchased or installed the solar energy system
sells that property, the entire property, including the solar
system, will be reassessed to its current market value. It is
unclear whether the existing exclusion for active energy solar
systems would continue to apply under the sale-leaseback
circumstances. ABx1 15 would clarify the existing law by
expressly stating that the purchaser of a newly constructed
active solar energy system, including freestanding or parking
lot canopies and installations on existing buildings, sold in
a sale-leaseback arrangement or other transaction is eligible
to receive the active solar energy system tax benefit. This
bill specifies that "newly constructed active solar energy
systems are often sold in sale-leaseback arrangements or other
transactions to purchasers who can also utilize federal tax
attributes," without defining the phrase "federal tax
attributes." In this regard, the question also arises as to
whether only purchasers who could utilize "federal tax
attributes" are eligible for the exclusion. The Committee may
consider an amendment to ABx1 15 to clarify the eligibility
requirements for the purchasers of newly constructed active
solar energy systems in a sale-leaseback transaction or other
arrangements.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
None on file
Analysis Prepared by : Oksana G. Jaffe / REV. & TAX. / (916)
319-2098