Active Solar Energy System Exclusion

Description

New Construction Exclusion

The property tax incentive for the installation of an active solar energy system is in the form of a new construction exclusion. It is not an exemption. Therefore, 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.

Generally, when something of value is physically added to real property, the addition is assessed at current market value and this value is added to the existing base year value of the real property. When an active solar energy system is installed, it is not assessed, meaning that the existing assessment will not increase.

Some active solar energy properties may be eligible for exclusion from reassessment.

Effective June 20, 2014, the sunset date for the active solar energy system new construction exclusion was extended through the 2023-24 fiscal year. The statue is now scheduled to sunset on January 1, 2025.

Active Solar Energy Systems

An active solar energy system is a system that uses solar devices, which 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.

An active solar energy system may be used for any of the following:

  • Domestic, recreational, therapeutic, or service water heating
  • Space conditioning
  • Production of electricity
  • Process heat
  • Solar mechanical energy

An active solar energy system does not include:

  • solar swimming pool heaters
  • hot tub heaters
  • passive energy systems
  • wind energy systems

Guidelines

Guidelines for Active Solar Energy Systems New Construction Exclusion were approved by the Members of the State Board of Equalization on November 15, 2012 following an extensive process involving interaction of Board staff with government officials and the public. Please visit the Guidelines for Active Solar Energy Systems New Construction Exclusion project page for more information about the implementation process.

The objective of the guidelines is to provide assessors' staff, assessment appeals board members, taxpayer representatives, and others interested in the administration of property taxes in California with information regarding the new construction exclusion for active solar energy systems, including:

  • Definitions
  • Assessment responsibility
  • First buyer exclusion
  • Construction completion
  • Leases
  • Legal entities
  • Decline in value
  • Types of uses for active solar energy systems

Resources

The following resources provide information and guidance on active solar energy systems and the active solar energy systems new construction exclusion, which is incorporated in section 73 of the Revenue and Taxation Code.

Letters To Assessors (LTAs)

LTAs provide an ongoing advisory service for county assessors and others interested in the property tax system in California. The letters present Board staff's interpretation of rules, laws, and court decisions on property tax assessment. The following LTAs pertain to assessment or procedural issues involving active solar energy systems:

Title Letter to Assessor
New Construction/Solar Exemption 80/182
Solar Energy System 81/10
Solar Energy Exemption and Windmills 81/71
Assembly Bill 375, Active Solar Energy System 81/94
Sunset of Solar Exclusion from New Construction 90/79
Active Solar Energy Systems, Exclusion of Certain New Construction from Assessment 91/51
Sunset Date of Active Solar Energy Systems 95/04
Solar Energy New Construction Exclusion 2004/051
Extension of Solar Energy New Construction Exclusion 2005/056
Solar Energy Property Tax Incentive 2008/037
Solar Energy System Exclusion Form 2008/071
Solar Energy Property Tax Incentive – Recent Legislation 2011/030
Solar Energy Systems on Nonprofit Properties 2013/063
Solar Energy Systems: Construction in Progress and the Sunset Date 2013/042
Active Solar Energy System New Construction Exclusion: Sunset Date Extension 2014/037
Active Solar Energy System Exclusion and Section 69.5. Base Year Value Transfer Claims 2015/007

Annotated Legal Opinions

Annotated legal opinions are summaries of the conclusions reached in selected legal rulings of California State Board of Equalization counsel. The following legal opinions pertain to questions involving active solar energy systems:

Title Annotated Legal Opinion
Solar Energy System Exclusion 610.0085
Solar Energy System Exclusion 610.0087
Solar Energy System Exclusion 610.0088
Solar Energy System Exclusion 610.0089
Solar Energy System Exclusion 610.0090
Solar Energy System Exclusion 610.0091
Solar Energy System Exclusion 610.0092
Solar Power Taxable Possessory Interests 660.0270

Forms

A property owner who adds an active solar energy system to an existing structure does not have to file for the exclusion. The exclusion should be automatically granted when the assessor receives a copy of the building permit.

However, if a developer installs an active solar energy system while constructing a new building, the initial purchaser of that building may receive the exclusion if:

  • The building was completed on or after January 1, 2008
  • The developer/builder did not receive the exclusion, and
  • The purchaser files a form with the assessor.

The claim form, BOE-64-SES, Initial Purchaser Claim for Solar Energy System New Construction Exclusion, is available from the assessor of the county where the property is located. After the assessor receives this form, the new base year value of the building may be reduced by the value of the active solar energy system, less any rebates or tax credits received. The developer will be able to provide the initial purchaser with the value of the system and any rebates or tax credits that they received.

Form Title
BOE-64-SES Initial Purchaser Claim for Solar Energy System New Construction Exclusion

This sample form is for information purposes only. To obtain a form, please contact your local county assessor's office.)

FAQs

General Information

  1. I just installed solar heating panels on my roof to heat my swimming pool water. Is this excluded from new construction assessment because it is an active solar energy system?

    No. Revenue and Taxation Code section 73(b)(2) specifically states that "active solar energy system" does not include solar swimming pool heaters or hot tub heaters. An active solar energy system must be a system that uses solar devices to provide for the collection, storage, or distribution of solar energy (for example, produces electricity or heats a hot water heater).
  2. How does the new construction exclusion for solar energy systems work?

    Generally, when something of value is physically added to real property, the addition is assessed at current market value and this value is added to the existing base year value of the real property. When an active solar energy system is installed, it is not assessed, meaning that the existing assessment will not increase.

Leases and Ownership

  1. A homeowner installed an active solar energy system last year and financed it with a capital lease. The leasing company was advised to report the system as machinery and equipment on their annual BOE-571-L, Business Property Statement, and the homeowner subsequently received a tax bill. Is this correct?

    No. The system is excluded whether it is leased or owned. The real property appraiser in the assessor's office should coordinate information with the business property auditor-appraiser when a permit for construction is issued. Contact the assessor's office for more information.
  2. If an active solar energy system is installed on an existing structure (store, shopping mall, parking structure, office building, etc.) and the ownership of the active solar energy system is vested in a multi-member LLC, is the new construction exclusion still applicable for this installation, or is the active solar energy system considered to be assessable business property to the LLC? Does it matter if the active solar energy system will be powering general business occupancy requirements or specialized fixtures?

    The active solar energy system would be classified as a fixture (real property) if it meets the tests of Property Tax Rule 122.5, and would be excluded from the definition of new construction if it meets the definitions of Revenue and Taxation Code section 73. In which case, it would not be considered assessable business property. Ownership of the system is not a condition of exclusion. Further, there are no specific use requirements for the energy produced by the system in order to qualify for the exclusion.

Residency Requirement

  1. The corporate headquarters of a company is in New Jersey, but the corporation owns a building in Los Angeles upon which was installed an active solar energy system. Is the new construction exclusion limited to California residents or entities?

    No. There are no residency provisions for the owner of a solar energy system.

Initial Purchaser

  1. In February 2008, I purchased a recently constructed home that had an integrated solar energy system. The completion of construction was July 3, 2007. Can I claim an exclusion as the initial purchaser?

    No. Only qualifying improvements completed on or after January 1, 2008 are eligible for the exclusion.
  2. If a builder is fully assessed for a newly constructed home on the lien date (January 1) following the date of completion of new construction and the initial purchaser buys the property after the lien date, is the initial purchaser eligible for the active solar energy new construction exclusion?

    No. Since the builder was assessed on the lien date following the date of completion of the new construction, the subsequent purchaser is not eligible for the solar energy system new construction exclusion.

    Example: A home with an active solar energy system is completed on November 15, 2009, and the new construction of the home is 100 percent complete on the lien date for purposes of determining the assessed value of the property for the 2010-2011 regular roll. If the home sold on or before December 31, 2009, the initial purchaser would be eligible for the new construction exclusion for the solar energy system. If the home did not sell until after the lien date, for example January 2, 2010, the initial purchaser would not be eligible for the new construction exclusion for the solar energy system because the builder would receive the exclusion as of the lien date.

Solar Facilities

  1. There is a solar facility which is not operating and which is still in a construction phase when the developer sells the facility. Could the new buyer claim a new construction exclusion?

    The "first buyer exclusion" allows the solar exclusion to be conveyed to the first buyer of a building incorporating an active solar energy system, so long as the owner-builder doesn't intend to occupy the property and hasn't received the solar exclusion, and so long as the buyer purchases the building prior to it becoming subject to assessment and files the appropriate claim form. The owner-builder may also receive an exclusion for construction in progress (CIP), which does not preclude the availability of the exclusion to the first buyer. To receive the "builder's exclusion" from the initial supplemental assessment for the completion of new construction, the builder must meet the requirements of Revenue and Taxation Code section 75.12, including notifying the assessor, prior to or within 30 days of the commencement of construction, that she does not intend to occupy or use the property.
  2. What if, in the above scenario, the facility is owned by a legal entity and that legal entity sells its controlling interest?

    If a controlling interest of a legal entity owning solar property is sold prior to completion of construction, the buyer of the legal entity interests has control under Revenue and Taxation Code section 64(c), and thus the property owned by the entity changes ownership. As the property is still CIP, the buyer is eligible to claim the solar exclusion for CIP. Once construction is complete, the property is assessed at its fair market value, and the buyer is eligible to receive the solar exclusion.
  3. If a solar facility comes online in 7/2016 and the developer sells its controlling interest in 11/2016, can the new buyer claim a new construction exclusion for all the assets placed in service for the 1/1/2017 lien date?

    The solar exclusion would be available to the buyer who purchases the developer's controlling interest in a legal entity owning solar property, if the builder's exclusion is in place (if the developer notified the assessor timely that she doesn't intend to occupy/use the property or if the property meets the criteria applicable to the development of residential subdivisions).

Filing

  1. Recently I added an active solar energy system to a home that I have owned for 10 years. Do I need to complete any form or notify the assessor that I have installed an active solar energy system to receive the exclusion?

    No. There is no form or filing required to receive the exclusion. The assessor usually discovers the installation of the active solar energy system by means of the building permit that was taken out. If you think you have been assessed for the installation of an active solar energy system, you should contact your county assessor. You may find your assessor's contact information by visiting the Listing of County Assessors page.
  2. Last year I purchased a new home from a builder that included an active solar energy system. Now the developer has sent me a form called the "Initial Purchaser Claim for Solar Energy System New Construction Exclusion." What is the purpose of this form and where do I send it?

    The completed form should be mailed to your county assessor. A list of county assessors is posted on our website. Under certain circumstances, as the initial purchaser of a new building, your new base year value may be reduced by the value of the active solar energy system, less any rebates or tax credits received. Your builder will be able to provide you with the value of the system and any rebates or tax credits that they received.