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SB-1059 Property taxation: active solar energy systems: partnership flip transactions.(2019-2020)

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Date Published: 05/21/2020 09:00 PM
SB1059:v98#DOCUMENT

Amended  IN  Senate  May 21, 2020

CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Senate Bill
No. 1059


Introduced by Senator Hill

February 18, 2020


An act to amend Section 73 of add Section 64.1 to the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.


LEGISLATIVE COUNSEL'S DIGEST


SB 1059, as amended, Hill. Property taxation: new construction: active solar energy systems. systems: partnership flip transactions.
The California Constitution generally limits the maximum rate of ad valorem tax on real property to 1% of the full cash value of the property and defines “full cash value” for these purposes as the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment. Pursuant to constitutional authorization, existing property tax law excludes from the definition of “newly constructed” for these purposes the construction or addition of any active solar energy system, as defined, through the 2023–24 fiscal year. Under existing property tax law, this exclusion remains in effect only until there is a subsequent change in ownership, but an active solar energy system that qualifies for the exclusion before January 1, 2025, will continue to receive the exclusion until there is a subsequent change in ownership.
This bill would provide that a subsequent change in ownership for these purposes does not include a change in ownership of the real property of a corporation, partnership, limited liability company, or other legal entity in which another corporation, partnership, limited liability company, other legal entity, or any other person obtains a controlling interest, as specified. for a legal entity that owns an active solar energy system pursuant to a partnership flip transaction, as defined, neither an initial transfer of a capital and profits interest in the legal entity, nor any subsequent change in the allocation of the capital and profits of the legal entity among the members, shall be deemed to constitute a transfer of control of, or of a majority interest in, the legal entity. The bill would make related findings and declarations. By adding to the duties of county assessors in applying this exclusion, the bill would impose a state-mandated local program.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.
Existing law requires the state to reimburse local agencies annually for certain property tax revenues lost as a result of any exemption or classification of property for purposes of ad valorem property taxation.
This bill would provide that, notwithstanding those provisions, no appropriation is made and the state shall not reimburse local agencies for property tax revenues lost by them pursuant to the bill.
This bill would take effect immediately as a tax levy.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: YES  

The people of the State of California do enact as follows:


SECTION 1.Section 73 of the Revenue and Taxation Code is amended to read:
73.

(a)Pursuant to the authority granted to the Legislature pursuant to paragraph (1) of subdivision (c) of Section 2 of Article XIII A of the California Constitution, the term “newly constructed,” as used in subdivision (a) of Section 2 of Article XIII A of the California Constitution, does not include the construction or addition of any active solar energy system, as defined in subdivision (b).

(b)(1)“Active solar energy system” means 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, 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.

(2)“Active solar energy system” does not include solar swimming pool heaters or hot tub heaters.

(3)Active solar energy systems may be used for any of the following:

(A)Domestic, recreational, therapeutic, or service water heating.

(B)Space conditioning.

(C)Production of electricity.

(D)Process heat.

(E)Solar mechanical energy.

(c)For purposes of this section, “occupy or use” has the same meaning as defined in Section 75.12.

(d)(1)(A)The Legislature finds and declares that the definition of spare parts in this paragraph is declarative of the intent of the Legislature, in prior statutory enactments of this section that excluded active solar energy systems from the term “newly constructed,” as used in the California Constitution, thereby creating a tax appraisal exclusion.

(B)An active solar energy system that uses solar energy in the production of electricity includes storage devices, power conditioning equipment, transfer equipment, and parts related to the functioning of those items. In general, the use of solar energy in the production of electricity involves the transformation of sunlight into electricity through the use of devices such as solar cells or other solar collecting equipment. However, an active solar energy system used in the production of electricity includes only equipment used up to, but not including, the stage of conveyance or use of the electricity. For the purpose of this paragraph, the term “parts” includes spare parts that are owned by the owner of, or the maintenance contractor for, an active solar energy system that uses solar energy in the production of electricity and which spare parts were specifically purchased, designed, or fabricated by or for that owner or maintenance contractor for installation in an active solar energy system that uses solar energy in the production of electricity, thereby including those parts in the tax appraisal exclusion created by this section.

(2)An active solar energy system that uses solar energy in the production of electricity also includes pipes and ducts that are used exclusively to carry energy derived from solar energy. Pipes and ducts that are used to carry both energy derived from solar energy and from energy derived from other sources are active solar energy system property only to the extent of 75 percent of their full cash value.

(3)An active solar energy system that uses solar energy in the production of electricity does not include auxiliary equipment, such as furnaces and hot water heaters, that use a source of power other than solar energy to provide usable energy. An active solar energy system that uses solar energy in the production of electricity does include equipment, such as ducts and hot water tanks, that is utilized by both auxiliary equipment and solar energy equipment, that is, dual use equipment. That equipment is active solar energy system property only to the extent of 75 percent of its full cash value.

(e)(1)Notwithstanding any other law, for purposes of this section, “the construction or addition of any active solar energy system” includes the construction of an active solar energy system incorporated by the owner-builder in the initial construction of a new building that the owner-builder does not intend to occupy or use. The exclusion from “newly constructed” provided by this subdivision applies to the initial purchaser who purchased the new building from the owner-builder, but only if the owner-builder did not receive an exclusion under this section for the same active solar energy system and only if the initial purchaser purchased the new building before that building became subject to reassessment to the owner-builder, as described in subdivision (d) of Section 75.12. The assessor shall administer this subdivision in the following manner:

(A)The initial purchaser of the building shall file a claim with the assessor and provide to the assessor any documents necessary to identify the value attributable to the active solar energy system included in the purchase price of the new building. The claim shall also identify the amount of any rebate for the active solar energy system provided to either the owner-builder or the initial purchaser by the Public Utilities Commission, the State Energy Resources Conservation and Development Commission, an electrical corporation, a local publicly owned electric utility, or any other agency of the State of California.

(B)The assessor shall evaluate the claim and determine the portion of the purchase price that is attributable to the active solar energy system. The assessor shall then reduce the new base year value established as a result of the change in ownership of the new building by an amount equal to the difference between the following two amounts:

(i)That portion of the value of the new building attributable to the active solar energy system.

(ii)The total amount of all rebates, if any, described in subparagraph (A) that were provided to either the owner-builder or the initial purchaser.

(C)The extension of the new construction exclusion to the initial purchaser of a newly constructed new building shall remain in effect only until there is a subsequent change in ownership of the new building.

(2)The State Board of Equalization, in consultation with the California Assessors’ Association, shall prescribe the manner, documentation, and form for claiming the new construction exclusion required by this subdivision.

(f)Notwithstanding any other law, the exclusion from new construction provided by this section shall remain in effect only until there is a subsequent change in ownership. For purposes of this subdivision, “subsequent change in ownership” does not include a change in ownership described in paragraph (1) of subdivision (c) of Section 64.

(g)This section applies to property tax lien dates for the 1999–2000 fiscal year to the 2023–24 fiscal year, inclusive.

(h)The amendments made to this section by the act that added this subdivision apply beginning with the lien date for the 2008–09 fiscal year.

(i)(1)This section shall remain in effect only until January 1, 2025, and as of that date is repealed.

(2)Active energy solar systems that qualify for an exclusion under this section before January 1, 2025, shall continue to be excluded on and after January 1, 2025, until there is a subsequent change in ownership. For purposes of this paragraph, “subsequent change in ownership” does not include a change in ownership described in paragraph (1) of subdivision (c) of Section 64.

SECTION 1.

 The Legislature finds and declares all of the following:
(a) Section 73 of the Revenue and Taxation Code was enacted to encourage and to provide incentives for the development of active solar energy systems by providing an exclusion from classification as newly constructed the construction or addition of active solar energy systems.
(b) In order to finance the construction of new active solar energy systems, solar developers often enter into financing arrangements, including sale-leaseback arrangements, partnership flip structures, or similar transactions, with investors (purchasers) that may also be eligible for federal tax benefits. In 2011, Section 73 of the Revenue and Taxation Code was amended to clarify that it is the intent of the Legislature that the purchaser of the active solar energy system in a sale-leaseback arrangement, partnership flip structure transaction, or similar transaction receive an exclusion until there is a subsequent change in ownership.
(c) For purposes of Section 73 of the Revenue and Taxation Code, a subsequent change in ownership is not intended to include a change in control among the partners in a partnership flip transaction, resulting solely from a change in the allocation of the partnership’s capital and profit among the partners, if the mechanics of the change were in place at the time the active solar energy system is acquired by the partnership.
(d) The addition of Section 64.1 to the Revenue and Taxation Code by this act does not constitute a change in, and is declaratory of, existing law.

SEC. 2.

 Section 64.1 is added to the Revenue and Taxation Code, to read:

64.1.
 (a) (1) Notwithstanding paragraph (1) of subdivision (c) of Section 64, in the case of a legal entity that owns an active solar energy system pursuant to a partnership flip transaction, neither an initial transfer of a capital and profits interest in the legal entity, nor any subsequent change in the allocation of the capital and profits of the legal entity among the members, shall be deemed to constitute a transfer of control of, or of a majority interest in, the legal entity.
(2) Paragraph (1) shall not apply to any real property owned by the legal entity other than the active solar energy system. Real property owned by the legal entity, other than the active solar energy system, shall be deemed to undergo a change in ownership to the extent otherwise provided under subdivision (c) of Section 64.
(b) For purposes of this section, both of the following definitions apply:
(1) “Active solar energy system” has the same meaning as defined in Section 73.
(2) “Initial transfer” means a transfer or series of transfers of an interest in a partnership or limited liability company used to own the active solar energy system and that commence prior to the date that the active solar energy system is placed in service for federal income tax purposes.
(3) “Partnership flip transaction” means a financing arrangement that meets all of the following requirements:
(A) A developer of an active solar energy system and one or more unrelated parties enter into the financing arrangement.
(B) As part of the initial transfer, the unrelated party or parties agree to provide a capital contribution, or a series of contributions, to a partnership or limited liability company in exchange for, on a cumulative basis, an interest in a majority of the tax attributes, such as federal tax credits, depreciation, and a majority of either, or both, the capital and profits of the entity.
(C) The unrelated party or parties receive the tax attributes until the party or parties achieve a preestablished yield or until after a preestablished period of time, at which time the tax attributes are reduced, and the developer obtains a majority of both the capital and profit interests of the partnership or limited liability company.
(c) Nothing in this section shall be construed to exclude from a change in ownership any other transfer or change in the allocation in the interest in profits and losses, or the ownership interests, in an active solar energy system that is not a partnership flip transaction.

SEC. 2.SEC. 3.

 If the Commission on State Mandates determines that this act contains costs mandated by the state, reimbursement to local agencies and school districts for those costs shall be made pursuant to Part 7 (commencing with Section 17500) of Division 4 of Title 2 of the Government Code.

SEC. 3.SEC. 4.

 Notwithstanding Section 2229 of the Revenue and Taxation Code, no appropriation is made by this act and the state shall not reimburse any local agency for any property tax revenues lost by it pursuant to this act.

SEC. 4.SEC. 5.

 This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.