Although the debate continues over whether the exclusion from reassessment for active solar energy systems should apply to utility-scale solar power facilities, the California State Board of Equalization (“BOE”), on November 15, 2012, adopted Guidelines for Active Solar Energy Systems New Construction Exclusion, which concludes that the exemption set forth in section 73 of the Revenue and Taxation Code includes commercial, industrial, and utility-scale systems if they are locally assessed.

In 1980, California’s voters approved Proposition 7, which amended the state constitution to allow the Legislature to exclude the construction or addition of any active solar energy system from the phrase “newly constructed” for purposes of reassessment. So, the Legislature added section 73 to the Revenue and Taxation Code, which provided a property tax incentive for the installation of an active solar energy system in the form of an exclusion from reassessable new construction. Thus, the installation of a qualifying solar energy system will not result in either an increase or a decrease in the assessment of the existing property. (The exclusion, however, is not an exemption. It only remains in effect until there is a change in ownership of the system.)

Notwithstanding the enactment of Section 73, at least two of California’s counties strongly believe the exclusion provided by Proposition 7 was never intended to apply to utility-scale systems. According to both Inyo and Riverside Counties, the election materials for Proposition 7 made clear that California voters intended the phrase “active solar energy system” to include only those systems which could be purchased by consumers of energy to reduce their consumption of energy produced off-site, and that nothing in the election materials suggested that the exclusion was to apply also to utility-scale solar power plants. The counties further argue that because permitting for such power plants is controlled by the Public Utilities Commission ("PUC"), the local communities have no means to mitigate the financial burdens incurred when such plants are constructed. Thus, the counties contend that extending the property tax incentive to utility-scale solar power facilities is not only beyond what was intended when the voters passed Proposition 7, but also fundamentally unfair to the communities that bear the burden for providing services to these plants (e.g., police and roads) while receiving only little of the benefits therefrom.

In its hearing on this issue, the BOE noted that the exclusion would only limit property taxes until the subject property changed ownership, and it therefore does not apply in perpetuity. The BOE also suggested that the counties should address their financial concerns to the PUC, which may be in a better position to impose fees and/or other measures to deal with burdens placed on the local communities by such facilities. The BOE then unanimously adopted its guideline, which presumes Section 73 applies to qualified locally assessed commercial, industrial, and utility-scale systems.

Though the BOE has finally taken a position on this issue, utility-scale solar power providers in Riverside and Inyo Counties should note that the BOE’s position is not binding on the local assessors, and these counties appear intent on pursuing the matter fully.