Do Solar Panels Increase Property Taxes in California?

by | May 22, 2023

person using calculator at desk

There are countless benefits to adding a solar system to your building. But, it can feel almost too easy to get panels on the roof, hook them to the grid, and start generating power. What’s the catch?

Some commercial property owners mistakenly believe that increasing property taxes are the issue. They know that bringing solar to their building boosts property values, needs government approval, and adds value for tenants, so it must cost something extra come tax time. So, do solar panels increase property taxes?

No, solar panels don’t increase property taxes in California on commercial buildings. Although they require a permit, they will not trigger an adjustment in property value. Thanks to some legal protection, they won’t raise or lower taxes until the building changes ownership.


Property tax basics for commercial buildings

Contrary to its reputation, California has fairly favorable property taxes in comparison to the rest of the US. The average effective property tax rate in California is .71%, sitting much lower than the .99% national average.

A majority of California’s property tax structure is due to 1978’s Proposition 13. It limits property taxes to 1% of the assessed value, plus other voter-approved taxes. Created in response to ballooning property values and tax rates in the 70’s, Prop 13 makes the tax structure more predictable for both commercial and residential property owners.

Calculator and pen on paper

Most importantly, Proposition 13 states that the assessed value of a property can’t increase more than 2% each year unless there’s a change in ownership or new construction. Simply put, the taxable value of a building can’t rise dramatically unless it’s sold or updated.


Do solar panels increase property taxes?

But, it wasn’t a totally perfect solution. While they didn’t realize it at the time, Prop 13’s new construction wording created a potential barrier to entry for those looking to install solar panels on their property.

Under Proposition 13, California defines new construction as any “addition to land or improvements, including fixtures.” A county assessor generally uses permits to determine what counts as new construction and sends an official to reassess, if needed.

As solar requires permitting and is usually permanently fixed to the building, it technically qualifies as new construction under the proposition. This would trigger a reassessment of the property and an increase in property taxes.

Fortunately, California legislators and voters encouraged the adoption of solar panels by creating a legal policy that excludes them from Prop 13’s “new construction” rules. The first version was available to California property owners in 1981 and has continued in some form ever since–except for a period in 1994-1999.


The Active Solar Energy Exclusion

The current version of the property tax policy is the Active Solar Energy Exclusion. Under these rules, solar systems won’t increase or decrease the assessed value of the existing property. The government had set the program’s sunset date for 2025, but an amendment recently extended its operation until January 1, 2027.

The exclusion defines an active solar energy system as a unit that uses solar for the collection, storage, or distribution of solar energy. To qualify, the property must use the system for:

  • Domestic, recreational, therapeutic, or service water heating
  • Space conditioning
  • Production of electricity
  • Process heat
  • Solar mechanical energy

The guidelines are also clear that the solar system can’t be a swimming pool heater, hot tub heater, passive energy system, or a wind energy system.


Raising your property value without increasing property taxes

If solar panels increasing property taxes is your concern, King Energy has a solution. We can help multi-tenant building owners bring solar panels to their site, increasing their property value without increasing property taxes. Instead of a complex partnership or split-ownership agreement, King Energy simply rents the rooftop of your commercial building and creates a solar program.

King Energy’s solar panels are also not physically mounted to the property and personnel can remove them at any time. Using a technique called ballasting, we weigh solar panels down instead of drilled into the roof. Not only does this keep your warranty secure, it also ensures that your system doesn’t fall under the category of a “fixture.”

Ballasted solar panels on commercial roofKing Energy’s ballasted solar panels on a flat commercial roof

To put it simply, just like anyone else that pays rent in your building, King Energy needs to bring their equipment on site to do business. A laundromat needs to bring in their own washers and dryers when they move in. Similarly, King Energy brings in solar panels to their rented space. Property owners get the value add without the work.

King Energy makes solar simple for your commercial building, raising value without increasing property taxes, generating more monthly income, and improving the tenant experience. We manage the solar program end-to-end for commercial properties, paying to install and maintain the system while offering tenants access to solar energy at 10% less than the utility rate. You’ll enjoy an increased rent roll, and your tenants get access to locally-generated discounted energy.

For a personalized proposal for your building, contact our team today.