BILL ANALYSIS �
AB15 X1
Page 1
( Without Reference to File )
CONCURRENCE IN SENATE AMENDMENTS
AB 15 X1 (Hill)
As Amended June 2, 2011
2/3 vote. Urgency
-----------------------------------------------------------------
|ASSEMBLY: |73-0 |(March 25, |SENATE: |31-0 |(June 27, |
| | |2011) | | |2011) |
-----------------------------------------------------------------
Original Committee Reference: REV. & TAX.
SUMMARY : Revises the definition of "active solar energy
systems" and declares the legislative intent to extend the
current exclusion from property tax reassessment for purchases
of new "active solar energy systems" to active solar energy
systems that are sold in sale-leaseback arrangements.
The Senate amendments clarify legislative findings and
declarations relating to the types of sale-leaseback
arrangements, partnership flip structures and other transactions
in which active solar energy systems are often sold or
transferred.
AS PASSED BY THE ASSEMBLY , this bill:
1)Contained legislative findings noting that:
a) Revenue and Taxation Code (R&TC) Section 73 was enacted
to encourage the development of active solar energy systems
by providing an exclusion from classification as newly
constructed for the construction for addition of active
solar energy systems. In 2008, R&TC Section 73 was amended
to provide that this exclusion would apply to the initial
purchaser from an owner-builder that incorporated an active
solar energy system in the initial construction of the new
building that the owner-builder did not intend to occupy or
use, under specified circumstances;
b) Newly constructed active solar energy systems are often
sold in sale-leaseback arrangements or others transactions
to purchasers who may also be eligible for federal tax
benefits. As long as the active solar energy system is
AB15 X1
Page 2
newly constructed or added and another taxpayer has not
received an exclusion for the same active solar energy
system, it is the Legislature's intent that the purchaser
of the active solar energy system in such a transaction
receive an exclusion;
c) Newly constructed active solar energy systems that are
constructed as freestanding or parking lot canopies, or
that are constructed as installations on existing buildings
qualify for the exclusion from classification as newly
constructed, including active solar energy systems sold in
sale-leaseback transactions; and,
d) The amendments made to R&TC Section 73 by this bill do
not constitute a change in but are declaratory of existing
law.
2)Revised the definition of "active solar energy system" to
clarify to mean a system that, upon completion of the
construction of a system as part of a new property or the
addition of a system to an existing property, used solar
devices, as specified.
3)Clarified that the active solar energy system exclusion
remained in effect only until there was a subsequent change in
ownership.
4)Specified that active energy solar systems that qualify for an
exclusion prior to January 1, 2017, shall continue to be
excluded on and after January 1, 2017, until there was a
subsequent change in ownership.
5)Stated that the provisions of this measure are declaratory of
existing law.
6)Stated that it addresses the fiscal emergency declared and
reaffirmed by Governor Brown by proclamation issued on January
20, 2011, pursuant to the California Constitution.
7)Stated that the bill would take effect immediately as an
urgency statute.
FISCAL EFFECT : Unknown, but county assessors indicate that this
bill would not change the manner in which solar projects are
currently assessed.
AB15 X1
Page 3
COMMENTS : The author states that, "This bill is necessary to
ensure that thousands of existing and future solar installation
projects throughout the state can continue to utilize tax
exclusions and financing mechanisms authorized by Revenue and
Taxation Code Section 73. It has come to the author's attention
that there may be questions about whether the Legislature
intended to grant authority under Section 73 to permit new
active solar energy system projects to be financed. Such
financing takes many forms, including loans, sale-leaseback
arrangements and similar transactions. �AB 15 X1] is
declarative of the Legislature's intent in enacting and
periodically amending Revenue and Taxation Code Section 73 that
financing mechanisms are permitted under Revenue and Taxation
Code Section 73 and Proposition 7. The provisions in �AB 15 X1]
are declaratory of existing law in order to remove any questions
or ambiguity that may have arisen regarding Revenue and Taxation
Code 73 in implementing Proposition 7.
"The clarification provided in this bill was placed in the
special session and contains an urgency clause to ensure that
California can continue to retain and recruit thousands of
green-jobs related to solar installation and maintenance which
will benefit the economy and help address the state's budget
deficit."
Property Tax Exclusion for Solar Energy Systems. Existing law
imposes an annual property tax on the assessed value of real
property. Under Article XIII A of the California Constitution,
real property is reassessed for property tax purposes only upon
a change in ownership of the property, or when "new
construction" occurs on the property. "Newly constructed" or
"new construction" includes additions to the real property, or
the alteration of the real property that amounts to a
rehabilitation or conversion of the property to a different use
since the preceding lien date. The assessor must determine the
value of the new construction and add that amount to the
assessed value of the property.
R&TC Section 73 excludes the construction or addition of an
active solar energy system from the definition of "new
construction," which means that a property owner could construct
an active solar energy system on his or her property and the
construction would not trigger a reassessment of the property.
Furthermore, an active solar energy system constructed as part
AB15 X1
Page 4
of a new building is also excluded from the definition of "newly
constructed." This exclusion allows a purchaser of a new
building that incorporates an active solar energy system to file
a claim with the county assessor to exclude the value of the
solar system from the assessment value of the building, subject
to certain restrictions. The extension of the exclusion from an
owner-builder, who never intended to occupy the new building, to
the initial purchaser puts the owner that purchased from a
builder's inventory in the same position (with respect to the
active solar energy system) as a property owner that hired the
same builder to construct a building with an active solar energy
system on land already owned.
Solar Financing Transactions. Several solar energy firms have
developed sophisticated financing transactions to make solar
energy systems more affordable. According to the Senate
Governance and Finance Committee analysis of this bill, "The
sponsor of this bill, SunEdison structures sale-leaseback
transactions to help financing entities comply with state and
federal tax incentives, property owners to avoid reassessment,
and to make solar power more affordable compared to buying
electricity from the grid.
"While other firms structure transactions differently, according
to SunEdison, its transaction works as follows:
1)SunEdison assesses a property owner's energy demand and the
solar production capability of the property.
2)If a property owner decides to install solar, SunEdison
designs a solar energy system accordingly, and handles all
development work required to construct, certify, operate and
maintain the system at no cost to the property owner.
SunEdison procures all necessary permits and rebates relating
to the system.
3)The property owner must contract with SunEdison for the power
generated by the system. The power is provided at a
predictable cost, typically over a 20-year period.
4)After certification, SunEdison sells the system to a third
party buyer. The buyer claims the federal renewable income
tax credits and depreciation as the system owner. SunEdison
insures the third-party against any property tax liability, so
if any of its projects becomes taxable to the tax investor,
AB15 X1
Page 5
SunEdison must reimburse the tax investor.
5)The property owner, who never owns the solar system, relies on
Section 73 to avoid a reassessment of its property.
6)SunEdison leases the system back from the buyer and agrees to
maintain and operate the system.
7)As the operator, SunEdison sells the electricity to the
property owner pursuant to a power purchase agreement.
SunEdison can also sell unused electricity (if applicable)
back to a utility through "net-metering," pursuant to an
interconnection agreement between SunEdison and the utility.
8)SunEdison maintains an option to purchase the system from the
buyer that if exercised triggers a property reassessment.
"Other firms structure transactions known as "Partnership Flip
Structures," which allocate revenues and tax benefits from one
or more solar energy systems to one or more investors.
1)The solar energy system developer assesses a property owner's
energy demand and the solar production capability of the
property.
2)If a property owner decides to install solar, the solar energy
system developer designs a solar energy system accordingly,
and handles all development work required to construct,
certify, operate and maintain the system at no cost to the
property owner. The solar energy system developer procures
all necessary permits and rebates relating to the system.
3)Either before or after project completion, the solar energy
system developer forms a partnership agreement with one or
more tax investors to contribute capital in exchange for an
ownership interest in the system, or purchases an ownership
interest in the partnership that owns the system or systems.
4)The tax investor or investors typically owns 99% of the equity
and economic interest in the partnership. The tax investor or
investors claim almost all of the federal renewable income tax
credits and depreciation as the owner of the system.
5)After the partnership distributes a specific amount of cash to
its equity owners that yield the tax investor or investors a
AB15 X1
Page 6
pre-determined internal rate of return, the terms of the
partnership agreement 'flip' the ownership to the solar energy
system developer according to the terms of the partnership.
Some partnership agreements are structured in tranches, with
some investors have more senior claims to the cash and tax
benefits from several solar energy systems, which then pass to
junior investors after more senior investors have achieved
specified cash returns.
6)The partnership operates the solar energy system and sells the
electricity to the property owner pursuant to a power purchase
agreement similar to SunEdison's.
"SunEdison states that existing law doesn't clearly address the
transactions detailed above for purposes of the exclusion. The
transactions could trigger reassessments as changes of ownership
or be assessable to system owners as foreign improvements. The
firm wants the Legislature to clarify the law to ensure that the
exclusion applies to sale-leaseback transactions and partnership
flip structures."
Analysis Prepared by : Oksana G. Jaffe / REV. & TAX. / (916)
319-2098
FN:
0001376