Sales Tax Slice: Can Sales Tax Exemptions Save the Earth?


Carbon Emissions

Last Saturday was Earth Day. Last year, the holiday was marked by the signing of the Paris Agreement on climate change, in which 175 countries joined. As Bloomberg reported this week, the U.S.’s continuing commitment to the pact is currently in question. Despite an uncertain commitment at the federal level to curbing climate change, many states still support this cause via clean energy-related sales and use tax exemptions. 

For example, just in time for this year’s Earth Day celebration, Arizona Gov. Doug Ducey (R) signed a bill that exempts from the state’s use tax machinery, equipment, materials and other tangible personal property used to construct a qualified environmental technology manufacturing, producing or processing facility. The exemption, effective July 29, 2017, may be claimed by qualified facilities used to prepare, fabricate, manufacture or otherwise process finished products that are powered exclusively with solar or other specific renewable energy. An identical exemption already applies to Arizona's retail transaction privilege tax.       

In a similar vein, Texas has what may be the lone clean energy exemption explicitly targeting carbon emissions. Under the exemption, signed into law in 2009 by then Governor Rick Perry (R), Texas exempts from sales and use tax tangible personal property used in connection with an advanced clean energy project to capture and sequester carbon dioxide. In his current position as U.S. Energy Secretary, Perry has called for the U.S. to remain a party to and renegotiate the Paris Agreement. 

Many other states have likewise demonstrated a commitment to clean energy through their sales and use tax laws. For instance, beginning July 1, 2019, Colorado exempts tangible personal property used as a component of a biogas production system. Iowa exempts wind energy conversion property and hydroeclectricity conversion property used as an electric power source.  

While these and other exemptions may help to slow climate change, it is clear that many want more effective action. This Saturday’s People’s Climate March in Washington is expected to draw large crowds in spite of record heat.  

How effective are sales tax exemptions at reducing carbon emissions? Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn

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