Sales Tax Slice: Could Solar Sales Tax Breaks Help Sweltering States?


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The fate of the Senate health care bill is not the only hot news topic as summer officially begins. The blistering temperatures plaguing parts of the western and southwestern United States have made national news. Arizona's heat wave is literally melting parts of the state, where trash cans and street signs are disintegrating and drivers wear oven mitts just to hold on to steering wheels hot enough to cause third degree burns. These record high temperatures are also causing record high energy use. Fortunately for some residents and businesses in these states, sales tax exemptions can take the heat off of their energy bills.

In Arizona, the strain on the power grid would be worse without the proliferation of rooftop solar power, “which reduces a homeowner’s draw on the power grid while the sun is shining.” Maybe Arizona residents and utility companies owe a bit of thanks to state sales tax policy that encouraged some to make the switch to solar energy. For 20 years, solar energy contractors in Arizona received a full exemption from the state’s transactions privilege[1] and use taxes for the contractor’s gross proceeds derived from installing solar energy devices. This exemption expired in December 2016, but the state still allows an exemption for the sale of solar energy devices. Arizona also exempts the sale or transfer of renewable energy credits that track usage of renewable energy resources.

Nevada, one of the states also suffering through this most recent heat wave, offers a partial abatement of sales and use taxes for certain facilities that use solar or other sources of renewable energy to generate process heat or electricity. And California, another state that has seen extremely high temperatures so early this summer, provides a limited sales or use tax exclusion for certain property to be used in projects related to alternative energy sources, presumably including solar energy. California also allows a partial exemption for solar power facilities where more than 50 percent of the power is used for farming.

Perhaps it is a sign of the times when even a museum dedicated to celebrating coal mining installs solar panels to power its building. The Kentucky Coal Mining Museum started installing solar panels this past April. As the Washington Post reported, the irony is not lost on the museum’s operators. A spokesman is quoted as saying, “[C]oal and solar and all the different energy sources work hand-in-hand. And, of course, coal is still king around here.” By the way, Kentucky offers a sales and use tax incentive of up to 100 percent for purchases related to alternative fuel or renewable energy projects.

Some experts forecast hotter weather ahead for years to come. According to National Geographic, “30 percent of the world’s population is currently exposed to potentially deadly heat for 20 days or more,” and since 1970, “92 percent of U.S. cities have become hotter.” Maybe the fact that, in addition to those already mentioned, states like Connecticut, New York, Florida, Minnesota, Colorado, Rhode Island, Vermont, Maryland, and New Mexico are offering sales tax exemptions and deductions related to the sale, use, production, and generation of solar energy and solar energy devices is a recognition that taxpayers may need a little help staying cool. (See Bloomberg BNA’s Green Incentives Navigator, subscription required.)

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Are sales and use tax incentives or other state tax incentives an effective means of promoting the use of solar and other renewable energy sources? 

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By René Y. Blocker

 


 

[1] Arizona’s transaction privilege tax is the state’s version of a sales tax.