In June 2011, Governor Brown approved Assembly Bill X1 15, which revised the definition of “active solar energy systems” in California Revenue and Taxation Code Section 73 and declared legislative intent to extend the current exclusion to active solar energy systems that are sold or transferred in sale-leaseback arrangements, special partnership structures, or other transactions to purchasers that may also be eligible for federal tax benefits.
The California Constitution provides that property tax reassessment of real property may only take place when property is newly constructed or changes ownership. Revenue and Taxation Code Section 73, however, states that “‘newly constructed,’ does not include the construction or addition of any active solar energy system.” (Cal. Rev. & Tax. Code § 73(a).)
Assembly Bill X1 15 contains express legislative intent that active solar energy systems financed using sale-leaseback arrangements, special partnership structures, or other transactions that may also be eligible for federal tax benefits should receive the property tax exclusion even in situations where a reassessment would normally be recognized. This issue is important to both energy developers and financers of active solar energy systems. The legislative intent recognizes the fact that energy systems are often financed using sale-leaseback arrangements, special partnership structures, or other transactions, and that the result of these financing methods should not imperil the property tax exclusion.
Recently, in an August 12, 2011 Letter to Assessors, the State Board of Equalization announced that the Board’s County-Assessed Properties Division is currently developing Guidelines for Application of the New Construction Exclusion to Active Solar Energy Systems, which will be published in the near future. With many unanswered questions regarding interpretation and application of Assembly Bill X1 15, taxpayers may anticipate these new guidelines for clarification and guidance, particularly with respect to sale-leaseback transactions.