The California legislature may shield nonresidential solar projects from a property tax increase that is on the state ballot this November.

The legislative maneuver is controversial and may end up in court.

Californians will vote this November on a “split-roll” ballot initiative — called Proposition 15 — that would increase property taxes on business property by essentially splitting the property tax roll between residential and business property.

The California constitution limits property taxes on real property currently to 1% of the “full cash value,” defined as the amount the owner paid to acquire the property or have it newly constructed. The assessed value can go up by inflation, but not by more than 2% a year. Otherwise, the property cannot be reassessed until there is a change in control.

Newly constructed active solar systems completed before 2025 get a pass on property taxes altogether until there is future a change in control. 

If the split-roll initiative passes, nonresidential solar projects will become subject to property taxes and annual reassessments at full value beginning in 2022. (For more details, see “California split-roll initiative upsets solar developers” in the June 2020 NewsWire.)

Advocates of Proposition 15 say the effect of the initiative on solar was inadvertent. They support a bill that solar companies are trying to put through the state legislature that would reclassify nonresidential active solar systems as “personal property” and then exclude them from tax as long as they remain property of the original owner. The legislature has limited authority under the state constitution to exempt real property from property taxes, but it can exempt personal property by at least a two-thirds vote in both houses.

The bill, SB 364, passed the state assembly in early August by a 56-12 vote. It must also pass the Senate before the current legislative session ends at the end of August, and the governor would have to sign it.

The California Assessors’ Association and various business groups oppose the bill and say they may challenge its constitutionality in court.

The bill has a sunset clause. It would be automatically repealed as of January 1, 2021 if the ballot initiative fails in November.