California Legislature Passes Solar Property Tax Exclusion Bill

The California legislature passed S.B. 1340, which extends the property tax exclusion for newly constructed solar energy systems. The exclusion prevents the construction or addition of any “active solar energy system” from triggering a property value reassessment under Proposition 13.

The Proposition 13 Exemption for Solar

California property tax law classifies solar projects as real property. Under Proposition 13, the state constitution limits real property taxes to 1% of a property’s “full cash value” and limits annual property valuation increases to the lesser of inflation or 2% of its base year value. New construction or a change in property ownership, however, triggers a property value reassessment.

Section 73 of the California Revenue and Taxation Code excludes the construction or addition of any “active solar energy system” from the definition of “newly constructed” through the 2023-24 fiscal year. An active solar energy system that qualifies for the exclusion before January 1, 2025 will continue to receive the exclusion until there is a subsequent change in ownership. S.B. 1340 would extend the exclusion through the 2025–26 fiscal year.

Solar Energy System

The law defines an “active solar energy system” as a system that is built as part of a new property, or the addition of a system to an existing property. The system must use solar line devices that 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. The system may be used for a domestic, recreational, or therapeutic uses, or for water heating, space conditioning, electricity production, process heat, or solar mechanical energy. The definition excludes swimming pool heaters or hot tub heaters.

Provisions on Local Reimbursements

The bill would also exclude the extension from requirements that any bill extending an existing tax expenditure contain specified goals, purposes, and objectives that the tax expenditure will achieve, detailed performance indicators, and data collection requirements.

The bill would also provide that if the Commission on State Mandates determines that the bill contains costs mandated by the state, the state would be required to reimburse local agencies and school districts according to the required procedures.

The bill would also provide that no appropriation is made and the state shall not reimburse local agencies for property tax revenues lost by them pursuant to the bill.