Which parts of a utility-scale solar farm are exempt from Missouri sales and use tax?

Plain-English summary

The Missouri Department of Revenue ruled on which purchases for a utility-scale solar farm qualify for the state's sales and use tax exemption for solar photovoltaic energy systems.

Applicant is developing a utility-scale solar farm in Missouri and will purchase machinery, equipment, materials, and supplies to build it. Those purchases will be integrated into the solar farm's manufacturing process, which produces high-voltage AC power for resale to consumers. The components at issue included solar panels, panel racking and supports, a tracking system, combiner boxes, inverters, solar collection transformers, electrical DC wiring, AC electrical wiring and data cabling, a SCADA (Supervisory Control and Data Acquisition) system control center, a project substation and interconnection transformer, site fencing, and service and access roads.

Section 144.030.2(46), RSMo, exempts purchases of solar photovoltaic energy systems, the components used to construct such a system, and materials and supplies used directly to construct or improve such a system, as long as the system is sold or leased to an end user, or is used to produce, collect, and transmit electricity for resale or retail. Section 144.615.3, RSMo, provides the parallel exemption from use tax.

The Department addressed four groups of purchases:

1. Solar panels, panel racking and supports, combiner boxes, inverters, solar collection transformers, and the project substation/interconnection transformer are exempt from both sales and use tax. These are the main components of a solar photovoltaic system: the modules/panels, their support structures, the equipment that converts direct current to alternating current, and the associated transformers.

2. The tracking system and SCADA control center are also exempt. Although not among the "basic" components of a photovoltaic system, they monitor the system and improve its efficiency, and Section 144.030.2(46) separately exempts "materials and supplies used directly to construct or improve such systems."

3. Electrical DC wiring and AC electrical wiring/data cabling are exempt, but only the portion that moves energy through the system itself. Wiring used after the system, to deliver power onward to the end user, is not exempt, because it is not part of the photovoltaic system itself.

4. Site fencing and gravel access/service roads are not exempt, because they are not part of the photovoltaic energy system itself.

What this means for you

Solar farm developers and utility-scale renewable energy companies

If you are building a utility-scale solar facility in Missouri, this ruling indicates that the core generation equipment -- panels, racking/supports, combiner boxes, inverters, collection transformers, and the interconnection transformer -- qualifies for the Section 144.030.2(46) sales and use tax exemption. Systems that monitor or improve the photovoltaic system's efficiency, such as tracking systems and a SCADA control center, are exempt as well. But draw a clear line on wiring: wiring that carries energy through the system is exempt, while wiring that carries power onward after the system (toward the end user) is not. Site work such as fencing and gravel access/service roads remains taxable, since it is not treated as part of the photovoltaic system itself.

Accountants and tax professionals

When advising a solar developer client, separate purchase invoices into: (1) core photovoltaic components (exempt), (2) monitoring/efficiency equipment like tracking and SCADA systems (exempt as materials/supplies used to improve the system), (3) in-system wiring (exempt) versus downstream/delivery wiring (taxable), and (4) site infrastructure like fencing and access roads (taxable). This ruling is a letter ruling binding only on the requesting Applicant for three years, so confirm a client's facts match before relying on the same treatment, and watch for any statutory or regulatory changes to Section 144.030.2(46) or 144.615.3.

Common questions

Q: Are solar panels and their racking/support structures exempt from Missouri sales and use tax?
A: Yes. Solar panels, panel racking and supports, combiner boxes, inverters, solar collection transformers, and the project substation/interconnection transformer are exempt from both sales tax (Section 144.030.2(46), RSMo) and use tax (Section 144.615.3, RSMo), because they are part of the main components of a solar photovoltaic system.

Q: Is the tracking system or SCADA control center exempt, even though they aren't part of the "basic" solar panel setup?
A: Yes. The Department found that even though the tracking system and SCADA control center are not part of the basic components of a photovoltaic system, they monitor the system and improve its efficiency. Section 144.030.2(46), RSMo, separately exempts "materials and supplies used directly to construct or improve such systems," which covers these items.

Q: Is all of the electrical wiring on a solar farm exempt?
A: No -- only some of it. Electrical DC wiring and AC electrical wiring/data cabling are exempt when they move energy through the photovoltaic system itself. Wiring used after the system, to carry the energy onward to the end user, is not exempt, because it is not considered part of the system.

Q: Are site fencing and access roads exempt as part of the solar energy system?
A: No. The Department ruled that site fencing and gravel access and service roads are not exempt from Missouri sales and use tax, because they are not part of the photovoltaic energy system itself.

Q: Can another solar developer rely on this ruling for its own project?
A: Not automatically. This is a Missouri letter ruling, binding on the Department only with respect to the requesting Applicant, only for three years from its date, and only so long as the facts and law remain unchanged. Another developer should confirm its equipment and facts match those described here and consult a tax professional before relying on this result.

Citations and references

Statutes:

• Section 144.030.2(46), RSMo (sales tax exemption for solar photovoltaic energy systems and their components)
• Section 144.615.3, RSMo (parallel use tax exemption)
• Section 144.020.1, RSMo (general sales tax levy)

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8258

Original ruling text

Dear Applicant:

This is a letter ruling issued by the Director of Revenue under Section 536.021.10, RSMo, and Missouri Code of State Regulations 12 CSR 10-1.020, in response to your letter dated May 19, 2023.

The facts as presented in your letter ruling request are summarized as follows:

Applicant will be purchasing machinery, equipment, materials, and supplies related to the development of a utility scale solar farm in Missouri (the "Solar Energy System").

As part of the Solar Energy System, the specific equipment outlined below will be procured and integrated into the solar farm's manufacturing process for the production of saleable, high-voltage AC power required for the ultimate resale to consumers for their consumption. The individual components are listed below:

Solar Panels

Solar Panel Racking and Supports

Tracking System

Combiner Boxes

Inverters

Solar Collection Transformers

Electrical DC Wiring

AC Electrical wiring and data cabling

Supervisory Control and Data Acquisition ("SCADA") system control center

Project substation & Interconnection transformer

Site Fencing

Service and Access Roads

ISSUE 1 :

Are Applicant's purchases of solar panels, solar panel racking and supports, combiner boxes, inverters, solar collection transformers, and project substation and interconnection transformers exempt from Missouri sales and use tax?

RESPONSE 1 :

Yes. Applicant's purchases of solar panels, solar panel racking and supports, combiner boxes, inverters, solar collection transformers, and project substation and interconnection transformers are exempt from Missouri sales and use tax.

Section 144.020.1, RSMo, provides: "A tax is hereby levied and imposed...upon all sellers for the privilege of engaging in the business of selling tangible personal property or rendering taxable service at retail in this state."

However, section 144.030.2(46) provides:

(46)  All purchases by a company of solar photovoltaic energy systems, components used to construct a solar photovoltaic energy system, and all purchases of materials and supplies used directly to construct or make improvements to such systems, provided that such systems:

(a)  Are sold or leased to an end user; or

(b)  Are used to produce, collect and transmit electricity for resale or retail.

Additionally, section 144.615.3, RSMo, exempts:

(3)  Tangible personal property, the sale or other transfer of which, if made in this state, would be exempt from or not subject to the Missouri sales tax pursuant to the provisions of subsection 2 of section 144.030;

The main components of a solar photovoltaic system include modules/panels, the support structures of the panels, electrical equipment that transforms energy from direct current to alternating current, and the electric cables that carry the energy through the system.

Applicant's purchases of solar panels, solar panel racking and supports, combiner boxes, inverters, solar collection transformers, and project substation and interconnection transformers are part of the solar energy system, and are therefore exempt from sales tax pursuant to section 144.030.2(46), RSMo, and exempt from use tax pursuant to section 144.615.3, RSMo.

Issue 2:

Is Applicant's purchase of tracking systems and a SCADA system control center exempt from Missouri sales and use tax?

Response 2 :

Yes, Applicant's purchase of tracking systems and a SCADA system control center is exempt from Missouri sales and use tax. Although not a part of the basic components of a photovoltaic system, the tracking and SCADA systems monitor the status of the system and contributes to improving efficiency. Section 144.030.2(46), RSMo, exempts "materials and supplies used directly to construct or improve such systems." The tracking and SCADA systems' purpose is to improve the photovoltaic energy system, therefore, the materials and supplies used to construct are exempt from sales and use tax.

Issue 3:

Are Applicant's purchases of electrical DC wiring, and AC electrical wiring and data cabling exempt from Missouri sales and use tax?

Response 3 :

Yes, Applicant's purchases of electrical DC wiring and AC electrical wiring and data cabling are exempt from Missouri sales and use tax when they are moving the energy through the actual system because they are a part of the photovoltaic energy system. The wiring used after the system that takes the energy to the end user is not exempt, as it is not a part of the overall system.

Issue 4:

Is Applicant's purchase of site fencing and gravel access and service roads exempt from Missouri sales and use tax?

Response 4:

No, Applicant's purchase of site fencing and gravel access and service roads are not exempt from Missouri sales and use tax because they are not a part of the photovoltaic energy system.

This letter ruling is binding upon the Department of Revenue with respect to the Applicant for three (3) years from the date of this letter and is subject only to statutory changes by the General Assembly and to changes in the interpretation of law by the courts or administrative tribunals.  If a change occurs, the taxpayer who relies upon an outdated interpretation may be subject to additional taxes, interest and penalties, which may be imposed prospectively from the date of the change.  For this reason, the interpretation set forth above should be reviewed on a regular basis.  Please note that any change in or deviation from the facts as presented will render this ruling inapplicable.

Should additional information be needed, please contact Legal Counsel J. Ross Shelton, General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475, phone (573) 751-0961.

Sincerely,

Wayne Wallingford