AB 2389 continues the long‑standing California property‑tax exclusion that treats the construction or addition of active solar energy systems as excluded from the constitutional term “newly constructed.” The bill keeps that exclusion in place for customer‑sited systems (and systems sited on public entities) beyond the current sunset, clarifies what equipment counts as part of an active system (including certain spare parts and storage up to—but not including—conveyance), and sets rules for how assessors must treat owner‑built systems sold to an initial purchaser.
Why it matters: the bill preserves a tax incentive that lowers the assessed‑value hit when solar is added to property, but it also creates appraisal mechanics (rebate offsets, 75% allocation for dual‑use components, and a claims process for purchaser/owner‑builders) that will change how assessors, buyers, developers, and installers document value and calculate tax outcomes. The text contains some inconsistent date language that will matter for local implementation and revenue forecasting.
At a Glance
What It Does
The bill declares that “newly constructed” does not include active solar energy systems and defines those systems and related terms. It continues the exclusion for customer‑sited systems (and systems on public entity property) past the prior sunset and prescribes valuation rules: include certain spare parts and storage up to the stage before electricity conveyance, offset the exclusion by rebates, and treat mixed‑use pipes/ducts or equipment as 75% solar property.
Who It Affects
Residential and commercial property owners who install customer‑sited solar (including systems ≤2 MW), public entity property owners, solar equipment manufacturers and maintenance contractors that hold spare parts, county assessors who must value and administer claims, and purchasers of owner‑built new buildings.
Why It Matters
This preserves a property‑tax incentive that reduces assessed‑value increases when solar is added, thereby affecting project economics and transaction documentation. It also creates specific appraisal and administrative rules that could complicate assessments and local revenue projections, and the bill contains inconsistent date provisions that create implementation uncertainty.
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What This Bill Actually Does
The bill restates and extends California’s existing rule that adding an active solar energy system does not make a property “newly constructed” for property tax reassessment purposes. It starts by defining “active solar energy system” broadly to include devices that collect, store, or distribute solar energy for water heating, space conditioning, electricity production, process heat, or solar mechanical energy — but it expressly excludes pool and hot tub heaters.
It also defines “customer‑sited,” “public entity customer,” and “system size” (nameplate megawatts AC) to anchor which installations are covered.
On valuation, AB 2389 says systems used to produce electricity include storage devices, power conditioning and transfer equipment, and parts necessary for system function — and it explicitly includes spare parts owned by an owner or a maintenance contractor if those parts were specially purchased or fabricated for that system. The bill limits the definition of included equipment “up to, but not including, the stage of conveyance or use of the electricity,” and it treats pipes/ducts or other dual‑use equipment that carry both solar and non‑solar energy as active solar property only to the extent of 75 percent of full cash value.The bill creates an owner‑builder/initial purchaser rule: when an owner‑builder installs a system in a new building they do not intend to occupy, the initial purchaser may claim the exclusion (provided the owner‑builder did not already receive it).
To use that path the purchaser must file a claim with the county assessor (including documents identifying the portion of the purchase price attributable to the system and stating any rebates received by the owner or purchaser). The assessor then reduces the new base‑year value by the system’s attributable value minus rebates.
The State Board of Equalization, in consultation with the California Assessors’ Association, must prescribe claim forms and documentation requirements.Finally, the bill preserves the exclusion until a subsequent change in ownership. The text extends the exclusion period for customer‑sited systems and public‑entity‑sited systems beyond the current end date, and it contains multiple date references (including provisions referencing 2027, a clause saying applicability through 2031 for some systems, and a later clause stating the section remains in effect only until January 1, 2032) that create an implementation ambiguity about the exact sunset for different categories of systems.
The Five Things You Need to Know
The bill explicitly includes spare parts and storage devices as part of an active solar energy system for production of electricity when those parts were purchased or fabricated for that system, bringing them into the appraisal exclusion.
Mixed‑use pipes, ducts, and dual‑use equipment are counted as active solar property only to the extent of 75% of full cash value — a fixed allocation for shared‑use components.
When an owner‑builder installs an active solar system and later sells the new building, the initial purchaser may file a claim (within three years of purchase) to have the assessor exclude the system’s value from the new base‑year, subject to deduction for any rebates the owner or purchaser received.
The assessor must reduce the new base‑year value by the amount attributable to the active solar system minus the total of any rebates provided to the owner‑builder or purchaser (PUC, CEC, electrical corporation, local publicly owned utility, or other state agency).
The bill’s dates are internally inconsistent: one provision continues exclusions for certain customer‑sited and public‑entity systems through lien dates before January 1, 2031, while a later clause states the section remains in effect only until January 1, 2032 — an unresolved drafting conflict that affects implementation.
Section-by-Section Breakdown
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Exclusion from “newly constructed” for active solar energy systems
This subsection invokes the Legislature’s constitutional authority to declare that “newly constructed” does not include the construction or addition of an active solar energy system. Practically, that means installation of covered systems will not trigger reassessment that normally follows new construction unless a later change in ownership occurs.
Definitions — active solar, customer‑sited, public entity, system size
This section lays out what counts as an active solar energy system (collection/storage/distribution devices, and specific end‑uses), excludes pool and hot tub heaters, and defines customer‑sited (installed on the customer’s property for the customer’s electrical needs), public entity customer (per Civil Code §8036), and system size (nameplate MW AC). These definitions set the scope of who and what installations qualify for the exclusion and anchor later valuation rules.
Inclusion of storage, power equipment, and spare parts; limits on conveyance and auxiliary equipment
Subdivision (d) specifies that systems used to produce electricity include storage devices, power conditioning, and transfer equipment, and it expressly brings spare parts into the exclusion if they were specifically purchased or fabricated for the system. It draws a line at the stage of conveyance or use of electricity — equipment beyond that stage is excluded — and excludes auxiliary non‑solar furnaces or heaters while treating dual‑use equipment at 75% value. These are the core valuation rules assessors must apply.
Owner‑builder / initial purchaser claim process and rebate offsets
This part allows an initial purchaser of a new building (where an owner‑builder installed the solar system) to claim the exclusion if the owner‑builder did not already claim it. The initial purchaser must file a claim (timely within three years of purchase) and provide documentation of value and rebates. The assessor determines the attributable system value and reduces the new base‑year value by that amount minus rebates. The State Board of Equalization will prescribe claim forms and documentation standards, creating a standardized administrative path.
Duration, applicability, and sunset language (with inconsistent dates)
These clauses state that the exclusion lasts until a subsequent change in ownership and trace the historical and extended applicability: the bill treats lien dates from 1999–2000 through 2025–26 as previously covered, and it extends coverage for customer‑sited systems ≤2 MW and systems on public entity property for lien dates on or after January 1, 2027. However, the text also contains overlapping sunset dates — one clause references application before January 1, 2031, while a later clause sets a cut‑off of January 1, 2032 and preserves exclusions for systems that qualified prior to that date until a change in ownership. That divergence is a drafting issue assessors and counsel will need to reconcile.
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Who Benefits
- Residential property owners who add customer‑sited solar: they avoid a reassessment tied to “new construction,” preserving lower property tax bills when systems are installed.
- Owners of commercial or industrial customer‑sited systems up to the specified size threshold (≤2 MW where applicable): maintaining the exclusion reduces operating costs and can improve project economics for site‑hosted generation.
- Public entities (schools, cities, special districts) with customer‑sited solar: the explicit extension for public‑entity‑sited systems helps manage facility operating costs and capital planning by preventing reassessment when systems are added.
- Solar equipment manufacturers and maintenance contractors: inclusion of spare parts and system components in the exclusion reduces the ownership tax footprint for installed systems and clarifies that contractor‑held spare parts can count toward excluded property when they were custom acquired.
- Initial purchasers of owner‑built new buildings that include systems: the claim process gives buyers a path to secure the exclusion after purchase, avoiding an unexpected assessed‑value increase if the owner‑builder did not claim an exclusion.
Who Bears the Cost
- County assessors and their offices: new valuation rules, 75% apportionment for mixed‑use items, rebate offsets, and a claim administration regime increase workload and will require new forms and training.
- Local governments and special districts: the exclusion reduces assessed value growth tied to added solar, which lowers property‑tax revenue relative to full reassessment; budget offices will need to adjust revenue forecasts.
- Owners and purchasers who fail to document system value or rebates properly: absent timely claims and documentation, taxpayers may lose exclusion benefits or face later correction and appeals.
- Maintenance contractors and owners who hold spare parts: while included in the exclusion, tracking and documenting qualifying spare parts will impose recordkeeping obligations and potential audit exposure.
- Utilities and ratepayer programs: the deduction of rebates from the excluded amount means public subsidy programs and utility incentive structures can directly affect assessed‑value outcomes and local tax revenue.
Key Issues
The Core Tension
The central tension is between maintaining a generous, clear incentive to install customer‑sited solar (which argues for broad, durable exclusions) and keeping property‑tax law administrable and revenue‑predictable (which argues for narrow definitions, clear valuation rules, and simple sunset mechanics). AB 2389 widens the exemption to support adoption but does so via detailed technical definitions and apportionments that shift complexity and fiscal risk onto assessors and local budgets — a trade‑off with no frictionless resolution.
AB 2389 tries to thread a narrow administrative needle: it preserves a valuable incentive while prescribing detailed appraisal mechanics. That creates several implementation headaches.
First, the inclusion of spare parts and storage equipment up to—but not including—the conveyance stage forces assessors to draw fine technical lines between equipment that is part of the excluded system and equipment that is part of downstream distribution or commercial electricity use. Valuation disputes are likely when system components are integrated with building electrical systems or when custom spare parts are catalogued by maintenance contractors.
Second, the 75% rule for mixed‑use ducts/pipes and dual‑use equipment is administratively blunt. While it simplifies apportionment relative to a full‑cost allocation, it will produce winners and losers depending on how a system is plumbed or wired and invites gaming around equipment classifications.
Third, the owner‑builder/initial purchaser claim path introduces a three‑year filing window that only becomes operative with later effective dates, and the bill contains inconsistent sunset dates (references to 2031 and to 2032). Those date conflicts create legal uncertainty for assessors, buyers, and counsel about which lien dates are covered and how to apply transitional rules.
Finally, offsetting the exclusion by rebates ties local valuation outcomes to a patchwork of state and utility incentive programs and raises sequencing questions about when rebates are counted for appraisal purposes and how to handle retroactive adjustments or audits.
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