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May 30, 2024

California BOE update focuses on construction commencement date for extended solar energy exclusion

Active solar energy system projects must commence construction by January 1, 2025, and be completed by January 1, 2027, to be excluded from taxation, according to unpublished information EY has obtained from the California State Board of Equalization (BOE).

Legislation enacted in 2022 (SB 1340 (Stats. 2022, ch. 425)) extended the exclusion for the active solar energy system from the 2023-24 fiscal year to the 2025-26 fiscal year and changed the repeal date to January 1, 2027 (from January 1, 2025). According to Cal. Rev. & Tax. Cd. Section 73(g), the exclusion applies from the property tax lien dates for the 1999–2000 fiscal year to the 2025-26 fiscal year, inclusive.

The BOE has specified in the updated guidance that a project must “commence construction” by January 1, 2025, and complete construction by January 1, 2027 for an active solar energy system to be excluded from taxation before the sunset date. Any construction in progress (CIP) as of January 1, 2025 (the lien date for the 2025-26 fiscal year) will continue to be excluded from new construction until a change in ownership occurs.

As the exclusion remains in effect until January 1, 2027, under Cal. Rev. & Tax. Cd. Section 73(i) if the construction is completed by January 1, 2027, the entire facility will receive the exclusion until its ownership changes. If the facility is not complete by January 1, 2027, construction added from January 1, 2025, will not receive the exclusion.

Additionally, the BOE described activities that would be regarded as a “triggering mechanism” to qualify as CIP. Under Rule 463.500(c)(3), the “commencement of construction” is defined as “the performance of physical activities on the property … ” such as clearing land, fencing the site, and installing temporary structures. Commencement of construction does not include activities preparatory to actual construction (e.g., obtaining permits, zoning variances or architect services).

Further, the BOE stated that “simply having an amount booked as CIP on a balance sheet … is not enough to be considered the commencement of construction.” The BOE noted there are various examples in the rule and the Assessors’ Handbook, Section 410, Assessment of Newly Constructed Property, describing the commencement of construction.


Previous BOE guidance on the new construction exclusion for an active solar energy system has focused on projects completing construction by the January 1, 2027 repeal date. The latest information from the BOE brings the initial construction date into full focus.

Taxpayers that are in the process of developing solar energy systems may be impacted by this new guidance, particularly since construction must be in progress by January 1, 2025. Industry stakeholders are currently in discussions with the BOE on how to potentially lessen the impacts of the new guidance.

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Published by NTD’s Tax Technical Knowledge Services group; Chris DeZinno, legal editor