Sales and Use Tax Exemption for Electrical Generating Equipment

December 05, 2023

Summary

Indiana does not have a specific sales and use tax exemption for equipment used in the production of renewable electricity. Therefore, such equipment is presumed to be subject to sales and use tax. However, in Indiana, transactions involving manufacturing machinery, tools, and equipment are exempt from the state gross retail tax if the property is directly used for the direct production of tangible personal property (which includes electricity) for sale. Therefore, equipment, machinery, and tools used in the production of renewable electricity for sale could possibly be eligible for this exemption. Furthermore, a manufacturer of other tangible personal property can purchase equipment used in the production of renewable electricity exempt from Indiana sales and use tax to the extent that the electricity produced would be directly used in the direct production of the other tangible personal property for sale.

The Indiana Department of Revenue (DOR) has issued revenue rulings for wind energy and solar photovoltaics equipment in relation to the manufacturing exemption. In these two rulings, they found some components of the renewable energy systems to be exempt from the sales and use tax under the manufacturing exemption described above for the specific facts and circumstances described. However, DOR has not ruled on the specific components of other renewable energy systems. The rulings specifically note the caveat that "other taxpayers with substantially identical factual situations may rely on this ruling for informational purposes in preparing returns and making tax decisions. If a taxpayer relies on this ruling and the Department discovers, upon examination, that the fact situation of the taxpayer is different in any material respect from the facts and circumstances given in this ruling, then the ruling will not afford the taxpayer any protection. It should be noted that subsequent to the publication of this ruling a change in statute, regulation, or case law could void the ruling. If this occurs, the ruling will not afford the taxpayer any protection."

Wind Energy

In 2009, DOR issued a ruling specifically for wind turbines, clarifying that the foundation, tower, nacelle, gearbox, generator, yaw motors, blades and related component parts in the particular case considered were all exempt from the state sales and use tax because they were being directly used in the direct production of electricity for sale. However, the DOR ruled that that any "property which consists of or becomes part of a transformer in an electrical interconnection system for a wind turbine" are taxable because they would not be directly used in the direct production of electricity.

Solar PV

In 2014, the DOR issued a ruling specifically for solar PV arrays, clarifying that the modules, racking, and inverters in the particular case considered were all exempt from the state sales and use tax because they were being directly used in the direct production of electricity for sale. However, the DOR ruled that transformers were not exempt, as “use of transformers involves the economics of transmission and distribution, not production.” Further, monitoring equipment was found not to be exempt, because it “does not have an immediate impact on the production of electricity.”

Claiming the Exemption

Since equipment used in the production of renewable electricity is presumed to be subject to Indiana sales and use tax, a person claiming that they qualify for the manufacturing exemption would need to provide the Indiana seller with a properly executed Indiana General Sales Tax Exemption Certificate, Form ST-105.

Renewable energy property used in the production of electricity for residential use would typically not be exempt under the manufacturing exemption, even if all or part of the electricity generated reverts to the electrical grid of a utility, as the electricity is not being generated for sale.

Program Overview

Implementing Sector:	State
Category:	Financial Incentive
State:	Indiana
Incentive Type:	Sales Tax Incentive
Web Site:
Administrator:	Indiana Department of Revenue
Start Date:
Eligible Renewable/Other Technologies:	Solar Photovoltaics Wind (All) Biomass Hydroelectric Landfill Gas Wind (Small)
Incentive Amount:	The manufacturing exemption is dependent upon the extent that equipment is directly used in the direct production of tangible personal property.
Maximum Incentive:	None specified
Equipment Requirements:	See below

Authorities

Name:

IC 6-2.5-5-3(b)

Name:

IC 6-2.5-3-4(a)

Name:	Revenue Ruling #2009-06ST
Date Enacted:	06/10/2009

Name:

45 IAC 2.2-5-8(c)

Name:

Revenue Ruling #2014-03ST

Contact

Name:	Sales Tax Contact
Address:
Phone:	(317) 233-4015

This information is sourced from DSIRE; the most comprehensive source of information on incentives and policies that support renewables and energy efficiency in the United States. Established in 1995, DSIRE is operated by the N.C. Clean Energy Technology Center at N.C. State University.