State Assembly members have approved a solar industry exemption from the Proposition 15 property tax increase if voters approve that ballot measure in November.
Under SB 364, which passed the full Assembly on Aug. 3, classification of nonresidential solar energy systems would change from real property to personal property and be exempt from the fair-market value assessment contained in Proposition 15.
SB 364, sponsored by Sen. Holly Mitchell, D - Los Angeles, is supported by the Large-scale Solar Association and other solar industry organizations and opposed by the California Assessors’ Association (CAA).
“It’s an end run around the Constitution as we see it,” Don Gaekle, Stanislaus County Assessor and president of the CAA, told the Northern California Record.
“These types of installations have always been considered fixtures on real property, and the Legislature doesn’t have authority to exempt classes of real property without a Constitutional amendment. That’s why they’re trying to reclassify it as personal property instead of real property, because they can exclude personal property,” Gaekle said.
“And this would establish a bad precedent for perhaps other types of property that the Legislature may want to reclassify,” Gaekle said. “The courts don’t look kindly on that sort of effort, and we think it is unconstitutional.”
It's not out of the question other enterprises could seek similar benefits.
“The fact that the solar industry requested this exemption reinforces an argument made by Proposition 15 opponents, i.e. that the tax hike will hurt businesses. And, by damaging businesses, the tax increase will cost jobs,” Marc Joffe, senior policy analyst with the Reason Foundation, told the Record by email. “One wonders why just one industry – one that already receives preferential tax treatment – is more entitled than others to a property tax break than others.”
The Proposition 15 ballot initiative, “The California Schools and Local Communities Funding Act of 2020,” if approved by voters Nov. 3, would go live Jan. 1, 2022.
The amount it would raise is in dispute.
“The revenue estimate of $12 billion is no longer realistic due to the collapse in commercial property values triggered by COVID-19,” Joffe said. “And the complexity of this bill amplifies the concern county assessors have raised about the challenges of implementing the split roll.”
The term split roll refers to residential properties on the tax roll being assessed one way, and commercial properties another.
Gaekle noted that much of the cost would be carried by tenants who lease on a triple net basis, and concerns persist about the reassessment impact on barns and other agricultural structures.
As the Nov. 3 vote draws near, more issues are likely to be raised.
“Looking at the language of SB 364, I see that it excludes ‘Nonresidential active solar energy systems” from reassessment but the definition of these systems ‘does not include solar swimming pool heaters or hot tub heaters,’ Joffe said. “What if a hotel installs a solar energy system that both provides power for the lobby and heats the swimming pool? Is that system included, excluded or partially included based on the percentage of total energy used for the pool?”
“This sort of wrinkle will make assessments harder to complete and could result in more appeals,” Joffe added.
The CAA has said 500 more assessors would need to be hired in Los Angeles County alone if Proposition 15 passes.
The CAA Executive Committee on July 22 wrote to Autumn Burke, chair of the Assembly Committee on Revenue and Taxation, to present its position on SB 364. “If adopted, SB 364 would establish the principle that any interest group with enough political influence could get a complete exemption of their real property, simply by a legislative action that changes its classification to personal property and then exempts it. The long-term effect of this principle is not only a reduction of revenue for schools and local government, but also a shift in the property tax burden from businesses to homeowners, a trend we presume the proponents of the Schools and Communities First Initiative would oppose.”
The SB 364 Assembly vote was 56 to 12, with 11 NVR (no votes recorded). It’s expected to be voted on by the Senate before the legislative session concludes on Aug. 31.