Solar Energy Systems Will Continue to Be Excluded from Full Cash Value of Real Property
A new law extending the exclusion of solar energy systems from affecting the full cash value of real property for taxation purposes was signed by Gov. Jerry Brown last week. The bill (SB 871) is effectively immediately as a tax levy. Wind and geothermal energy producers, who do not benefit from similar property tax exemptions, have criticized the legislation as providing an unfair cost advantage to solar energy. While the exclusion of solar energy systems is not entirely new, SB 871 is noteworthy because it guarantees exclusion for another eight years, pushing the repeal date from Jan. 1, 2017 to Jan. 1, 2025. Further, SB 871 envisions local programs to administer reimbursements to local agencies and school districts and carves out an exception to section 2229 of the Revenue and Taxation Code that will disallow reimbursement claims related to solar energy systems.
This extension means that solar energy systems will continue to be excepted from consideration as part of a property’s full cash value. That is, installing a solar energy system will not impact the value of property for tax purposes.
The California Constitution limits ad valorem taxes (taxes based on the value of real property) to 1 percent of full cash value of the property. Full cash value, in turn, is defined as the appraisal value of property when it is purchased, newly constructed or when there is a change in ownership. Usually, newly constructed structures alter the value of property, e.g., adding a swimming pool to your backyard. But California excludes the addition of solar energy systems from raising the value of property for tax purposes. Whereas merely adding a solar energy system to property will not trigger revaluation, selling or changing ownership of the property will.
Section 2229 generally requires that local agencies and school districts be reimbursed for lost property tax revenues related to any exemption or classification of property for purposes of ad valorem property taxation. However, SB 871 disallows local agencies and school districts from recovering lost property tax revenues because of the exclusion of solar energy systems.