BILL ANALYSIS �
AB 15 X1
Page 1
ASSEMBLY THIRD READING
AB 15 X1 (Hill)
As Amended March 22, 2011
2/3 vote. Urgency
REVENUE & TAXATION 7-0
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|Ayes:|Perea, Donnelly, Beall, | | |
| |Fuentes, Gordon, Harkey, | | |
| |Nestande | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
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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 may also be eligible for federal tax
benefits. 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 such a transaction
receive an exclusion;
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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
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.
FISCAL EFFECT : The State Board of Equalization (BOE) has not
yet provided a fiscal estimate for this bill.
COMMENTS : 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
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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. �AB 15
X1] 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 �AB 15 X1]
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."
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 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.
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.
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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.
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.
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 or 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.
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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 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.
This bill 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.
Analysis Prepared by : Oksana G. Jaffe / REV. & TAX. / (916)
319-2098
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0000121