The solar energy industry in California, eager to hold on to a valuable tax break, wants to be carved out of a commercial property tax hike that voters will consider in November. Opponents say a proposed deal with lawmakers, however, is an unconstitutional bailout for special interests.
The debate comes to a head Monday when a bill crafted by the solar industry, introduced in June, is heard in the Assembly Revenue and Taxation Committee. Without the bill, the property tax exclusion will end if voters approve the ballot measure and commercial solar systems would be assessed each year starting in 2022.
Solar industry representatives say higher tax bills would make current and future projects too expensive and threaten the state’s ability to meet its goal of 60% renewable energy by 2030. California is just over halfway toward that goal so far.
“If this exclusion is eliminated retroactively for existing and planned projects, it will undermine their economics and put many of these projects at risk of default,” Rick Umoff, California senior director and counsel for the Solar Energy Industries Association, told Bloomberg Tax.
The majority of commercial solar generation—utility-scale projects generating 19,000 megawatts and installations on commercial buildings generating another 4,700 megawatts—is at risk because financing assumes the property tax exclusion applies, Umoff said.
The exclusion also is assumed for planned projects that would generate another 7,500 megawatts.
The Board of Equalization, which oversees the state’s property tax system, said in an analysis of the bill that it wasn’t able to determine how much tax revenue is at stake.
Solar groups struck a deal with proponents of Proposition 15, the statewide measure that would tax commercial property based on annual market-value assessments but preserve a 42-year-old cap on annual tax for residential property at 1% of the purchase price. They crafted the bill after realizing the ballot measure inadvertently left out the existing tax exclusion for newly constructed solar systems.
“This is a bill that retains the status quo should the initiative pass,” Shannon Eddy, executive director of the Large-scale Solar Association told Bloomberg Tax.
$12 Billion a Year
“Our intent was never to harm the solar industry,” Alex Stack, spokesman for the initiative campaign called Schools and Communities First, told Bloomberg Tax.
The group, representing labor, health care, education, and community organizations, says the initiative will increase property tax revenue up to $12 billion a year by ending a loophole that benefits large commercial property owners.
Environmental groups including the Natural Resources Defense Council and the Coalition for Clean Air also support the solar bill, saying in a letter to lawmakers it is crucial to maintaining the state’s progress toward clean energy.
Those backing the bill now will need to defend it later in court, California Business Roundtable President Robert C. Lapsley told Bloomberg Tax. The nonpartisan group, which represents executives from major companies in the state, opposes both the solar bill and the ballot measure. The bill is “a special interest bailout and unconstitutional,” the roundtable said in a letter to lawmakers.
The roundtable and the California Assessors’ Association question the Legislature’s authority to declare solar systems as personal property and then say if voters reject the ballot measure it remains real property.
“Either it is or it isn’t,” assessors association President Don H. Gaekle told Bloomberg Tax.
The roundtable and assessors are also concerned the bill will spur other special interest groups to ask lawmakers to give them the same break. The assessors’ association is weighing whether to challenge the measure’s constitutionality in court if it becomes law.
The solar industry’s argument hinges on an exclusion created through a 1980 ballot measure that says solar systems are real property but excluded from property tax for the owner who installs it. Once the property is sold, the solar system is included in the value and the new owner must pay property tax on it.
Lawmakers have renewed the exclusion several times to encourage development of solar energy and it’s set to expire in 2025.
The bill redefines commercial solar systems as personal business property rather than real property, then excludes the personal property from tax for the owner who constructs or installs it.
If the bill becomes law but voters don’t approve Proposition 15, the bill won’t take effect and the solar systems would still be defined as real property. For residential property, the solar systems would still be defined as real property that is excluded from tax until a property is sold after installation whether or not the ballot measure passes.