California – Solar Power Facilities May Qualify as Farm Equipment

SALT Report 1894 – The California State Board of Equalization announced that certain solar power facilities may qualify for the farm equipment and machinery partial exemption from sales and use tax.  The farm equipment and machinery partial exemption will apply to the state general fund portion of the sales and use tax rate which is currently set at 5.25%.

According to the BOE, this partial exemption would apply even if the electricity generated first goes to the electrical grid before being used in qualified agricultural activities.

Qualifying for the Exemption

Farm equipment and machinery that is used at least 50% of the time to produce and harvest agricultural products qualifies for the partial exemption.  Additionally, if you qualify for the farm equipment and machinery partial exemption, any solar power facilities that are tied to the local power grid but are not directly attached to the qualifying farm equipment may qualify, if they are designed to generate power for the equipment and machinery.

To determine whether a solar power facility is used at least 50% of the time to produce and harvest agricultural products, taxpayers are instructed to divide the total annual amount of power consumed by the equipment and machinery by the total annual amount of power generated by the solar power facility.

Required Documentation

To support a claim that a solar power facility qualifies for the partial tax exemption, taxpayers must document the annual amount of electricity consumed by qualifying farm equipment and machinery for the first 12 months after the solar power facility is operational.  Documentation should include the data obtained from the meters on the qualifying farm equipment.   For recordkeeping purposes, taxpayers must retain any supporting documentation for at least four years after the purchase date of the solar power facility.

Partial Exemption Certificate

A seller of solar power facilities is not liable for the state portion of sales or use tax if it takes a partial exemption certificate from a qualified purchaser.  The certificate should states that the property will be used in a qualifying manner.

Construction Contractors

Under Regulation 1521, construction contractors who furnish and install solar power facilities under a construction contract are considered retailers of fixtures and consumers of materials. The partial exemption may apply to the sale of the solar power facility if the contractor is considered a retailer. If the contractor is considered a consumer of materials, the partial exemption does not apply to the contractor’s purchases used to construct the solar power facility.

The BOE provides an in-depth explanation of the partial exemption in Sales and Use Tax Regulation 1533.1, Farm Equipment and Machinery.

For Further Information:

California State Board of Equalization – Special Notice L-330