SALT Report 2427 – The New York Department of Taxation issued an advisory opinion regarding whether machinery and equipment installed in a solar farm/facility that will be subsequently used to produce electricity for sale is exempt from tax. In this case, the Taxpayer was contracted to construct a solar farm/facility to produce electricity that will be sold by the facility owner to a third-party utility company.
The construction will include the installation of the solar modules/panels, the foundations and racks to hold the panels, power generation monitoring systems, inverters, combiners, wiring within the system, isolation disconnects, step-up high voltage transformers, the wiring to the power grid, switchgear, ground mounting system, concrete drives and walkways within the facility, buildings, and fences.
The Taxpayer requested a ruling as to whether the property and services purchased to construct and install the components of the solar power facility are subject to sales tax.
In its response, the Department referred to New York tax law section 1115(a)(12) which provides an “exemption for machinery or equipment used or consumed directly and predominantly in the production of electricity for sale by generating.” The exemption does not apply to parts with a useful life of one year or less, or tools or supplies used in connection with the machinery or equipment. Instead, these items with a useful life of one year or less, used in connection with generating machinery and equipment are exempt under New York tax law section 1105-B.
Based the above, the Department determined that the Taxpayer’s solar modules and panels, the positioning racks for the solar modules and panels, the inverters, and the related control system are considered generating equipment used to produce electricity for sale and therefore exempt pursuant to Tax Law §§1115(a)(12) and 1105-B.
However, because the transmission and distribution of electricity falls outside the production process, certain equipment and transformers used to step-up the electrical voltage for transmission to the utility company is not eligible for the exemption.
Finally, the party that ultimately sells the electricity to the third-party utility company must obtain a fully completed resale certificate from the utility company that is purchasing the electricity. The certificate must also indicate that the electricity is being purchased for resale.
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