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Friday, August 8, 2014

What about accountability? California solar energy property

Photo from EPA's Solar Energy website.
In June 2014, California enacted S 871 (Chapter 41, 6/20/14) . It "extends the sunset for a solar tax exemption for new active solar energy systems on new construction.  This bill extends the exemption through 2023-24, and extends the sunset through January 1, 2025." Under this rule, the construction or addition of an "active solar energy system" is excluded from being classified as "newly constructed." Thus, it will not increase the owner's property taxes. On August 8, 2014, the State Board of Equalization issued a letter to county assessors about the extension and the modified text of R&T Section 73. Guidelines from BOE on the exclusion can be found here (Nov. 2012).

The exemption is allowed per Section 2(c) of Article XIIIA of the California Constitution which allows the legislature to "provide that the term 'newly constructed' does not include an of the following: (1) The construction of addition of any active solar energy system." Apparently this special rule was added by the voters as Prop 7 in 1980 (per BOE memo of 9/23/13).

In 2013, California enacted three new tax incentives to encourage business activity in the state (California Competes income tax credit, New employment income tax credit, and a state sales tax exemption for certain R&D and manufacturing equipment). The first two, have significant accountability measures associated with them. For example, the California Competes credit is obtained through a competitive bidding process where the taxpayer must prove to a 5-member panel that they indeed will be increasing investment in California. The employment credit requires timely application to the Franchise Tax Board and an increase in the number of full-time employees compared to a base year. For both of these credits, the taxpayer's name and tax benefits are made public. These all have expiration dates as well. [See my chart below for a quick review of these provisions, as well as the links at the start of this paragraph.]

The property tax exclusion for active solar energy systems also had an accountability measure. That measure was the expiration date.  That is, when the exclusion approached its expiration date, it would be examined to see if it was achieving its stated purpose in a cost-efficient manner.

I can't find any data from BOE or the legislative analysis of S 871 on the data.  While common sense might tell us that the measure is appropriate because solar energy equipment should be encouraged to reduce reliance on other forms of energy, particularly those that use a lot of scarce water or generate greenhouse gas emissions, it would be good to see the data.

From the data, we ideally should be able to answer the following questions:
  • What is the cost of the exclusion relative to the cost of the solar energy equipment?
  • Has the exclusion caused an increase in installation of such equipment?
  • How does California's use of solar energy equipment compare to states with no incentives and those with other incentives?
  • Who is installing the solar energy equipment?  This data should be examined looking at industry, income levels, location, etc.?
  • Might a different incentive be better at broadening the use of solar energy equipment?
  • Why don't all property owners take advantage of this incentive?
Often, the necessary data to examine the effectiveness of a tax incentive is difficult to obtain. The enacting legislation should include a mandate that specific government agencies collect the data and funds should be allocated to be sure that happens. S. 871 does not include such a mandate and likely the earlier enacting bills also did not include the mandate.  Much of this data is likely fairly easy to obtain.

In February 2012, the legislature held a joint hearing on the subject of accountability of tax measures. I testified at that hearing and my testimony covered reasons for accountability measures and suggestions on how to implement them.

So, where is the data to support that the solar exclusion for property taxes is best meeting the goal, which I presume is to increase the use of solar energy in California?

What do you think?


Jade Graham said...

For both of these credits, the taxpayer's name and tax benefits are made public. These all have expiration dates as well. solar tax break

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