Do solar farm racking, support posts, AC collection systems, cables, and inverter-transformers qualify for Texas's manufacturing sales tax exemption as equipment used to generate electricity for sale?

Plain-English summary

A construction contractor that builds solar and wind farms for facility owners asked which equipment in these installations qualifies for Texas's manufacturing sales tax exemption — the exemption for tangible personal property directly used in generating electricity for sale. The facilities included fixed and tracker racking, support posts, solar-inverter transformers, and AC collection systems (solar), plus AC collection systems (wind).

The Comptroller split the equipment into two buckets. Solar panels/modules themselves are exempt manufacturing equipment because they directly convert sunlight into electricity for sale. But the racking, tracker racking, and support posts that hold and position multiple panels are taxable — the Comptroller applied a "component part" test: an item only qualifies if it's a component of, or reasonably essential to the functioning of, a single piece of qualifying manufacturing equipment. Racking that merely holds and angles several panels at once (like server racks holding multiple servers, or carts holding vending equipment in prior Comptroller decisions) doesn't meet that test — it doesn't itself generate or physically/chemically change the electricity, and it isn't a component of any one panel. On the other side, the AC collection system (underground cable and collector switchgear that carries electricity from the generating equipment to the step-up transformers) and solar-inverter transformers used at the generating facility are exempt under § 151.318(a)(4), for both solar and wind installations — because that equipment is squarely within the statute's specific carve-out for property at an electric generating facility.

What this means for you

Solar and wind farm developers, contractors, and equipment suppliers

Don't assume everything physically part of a generation facility is exempt just because the facility as a whole generates electricity for sale. The dividing line is whether an item is a component of (or reasonably essential to) a single piece of generating equipment, versus support/housing infrastructure that merely holds multiple units. Racking, mounting posts, and similar structural support items are a recurring taxable category even in facilities that otherwise qualify heavily for the manufacturing exemption.

Businesses evaluating "peripheral support" exemption claims generally

This ruling reinforces a consistent Comptroller position (citing its own 2000 guidance and 2005 hearings) that peripheral supports only qualify for the manufacturing exemption when they're components of one specific piece of qualifying equipment — not when they house or hold several pieces of equipment collectively. The same reasoning applies well beyond solar/wind: carts holding food-service equipment and server racks holding multiple servers were both found taxable using this same test.

Accountants and tax professionals

Note the important carve-out at the end: facilities built purely for the owner's own storage and use (not for resale of the electricity) don't qualify for the manufacturing exemption at all, and equipment used in transmission/distribution outside the generating facility is excluded under § 151.318(c)(5) regardless. Confirm the facility is generating electricity for ultimate sale before applying any part of this analysis.

Common questions

Q: Is solar panel racking exempt as part of the manufacturing exemption?
A: No. Fixed racking, tracker racking, and support posts that hold multiple solar panels are taxable — they're not components of a single panel and don't themselves change the electricity being generated.

Q: What generating-facility equipment IS exempt?
A: The solar panels/modules themselves, the AC collection system (underground cable and collector switchgear), and solar-inverter transformers that carry electricity to the step-up transformers, for both solar and wind facilities.

Q: Does this exemption apply if the facility generates electricity only for the owner's own use, not for sale?
A: No. The manufacturing exemption requires the electricity be generated for ultimate sale; facilities built solely for the owner's own storage and use don't qualify.

Q: Can another solar or wind developer rely on this ruling?
A: No. It binds the Comptroller only for the taxpayer and facts presented; different equipment configurations could be analyzed differently.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.051 (sales tax imposed); § 151.010 (taxable item)
• Tex. Tax Code § 151.318(a)(2) (manufacturing equipment — solar modules); § 151.318(a)(4) (electric generating facility equipment exemption); § 151.318(c)(5) (transmission/distribution exclusion)

Cited case law and prior guidance:

• Southwest Airlines, Inc. v. Bullock, 784 S.W.2d 563 (Tex. App.—Austin 1990, no writ) — "reasonably essential to a single item" component test
• Comptroller's Decision No. 44,820 (2005) — carts holding food-service equipment not exempt
• Comptroller's Decision No. 42,916 (2005) — server racks holding multiple servers not exempt
• STAR Accession No. 200002044L (Feb. 11, 2000) — peripheral supports must be components of qualifying equipment

Source

• Landing page (STAR search): https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/201907005L

Original ruling text

July 8, 2019

RE: Private Letter Ruling No. PLR20180710093909

**, Taxpayer No. **

Dear **:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters.[1] We are responding to your request for guidance, dated June 15, 2018, on the taxability of certain items related to solar and wind electricity generation systems. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

Facts Presented

** (Taxpayer) contracts with customers to construct solar and wind farm facilities in Texas. The facilities generate electricity for residential and commercial customers. Taxpayer will construct the solar and wind farms on land owned or leased by the owner of the electricity generation facility. The facility owners produce electricity that the owners will store. Taxpayer purchases the materials needed for the construction of these solar and wind power facilities. Taxpayer enters into separated contracts, per Rule 3.291(a)(13), with its customers.

Solar Farm Facilities

Solar farm facilities include infrastructure such as alternating current (AC) collection systems, fixed racking, tracker racking, and solar panel support posts. These items are employed to position solar modules/panels (also known as photovoltaic cells), which convert sunlight into direct current (DC) electricity.

Fixed Racking

Solar fixed racking is made of steel or aluminum frames to hold a number of solar modules/panels in a solar row. The fixed racks are held at an optimal angle relative to the ground to maximize energy production.

Tracker Racking

Solar tracker racking is made of steel or aluminum frames onto which the modules/panels are clamped. Tracker racks are polar, single-axis type, designed to follow the sun throughout the day to maximize energy production.

Solar Module/Panel Support Posts

The solar panel support posts are steel posts that support the rack and aim the modules in the optimal direction and at the optimal angle to maximize energy production.

Solar Inverter-Transformers

The inverters are electrical devices that convert the 1,500 volts (V) DC voltage produced by the solar modules/panels into AC. The AC voltage is then sent into a transformer where it is stepped-up to the collector voltage of 34.5 kilovolts (kV). The overall system requires 1,500 V DC to convert it to 34.5 kV AC.

Solar AC Collection System

The solar AC collection system consists of underground cable and collector switchgear in the substation. The underground cable interconnects the inverter- transformers and then connects to the collector switchgear. Bus or cable then connects from the collector switchgear to the main power transformer to step-up the power to the transmission system voltage for export from the site.

Wind Farm Facilities

Wind AC Collection System

The wind turbine AC collection system consists of underground cable and collector switchgear in the substation. The underground cable interconnects the wind turbine generators and then connects to the collector switchgear. Bus or cable then connects from the collector switchgear to the main step-up transformer to step-up the power to the transmission system voltage for export from the site.

Question, Rulings and Analysis

Your questions are restated below, followed by our responses and analysis.

Question One: Are charges for the solar facility equipment − fixed racking, tracker racking, support posts, solar-inverter transformers, AC collection system, and cables − exempt from sales and use tax as tangible personal property directly used or consumed in or during the actual manufacturing or processing of electricity?

Ruling One: The fixed racking, tracker racking, and support posts are not exempt when used to hold and support multiple solar modules/panels that generate electricity for sale. The AC collection system and the cables located at an electric generating facility that carry the electricity from the electric generating equipment to the step-up transformers are exempt. Solar-inverter transformers used at a generating facility also qualify for exemption.

Analysis: Taxpayer’s inquiry refers to generating facilities’ substations. This response refers solely to solar and wind electric generating facilities.

Sales tax is imposed on each sale of a taxable item in Texas. Section 151.051 (Sales Tax Imposed). The term “taxable item” means tangible personal property and taxable services. Section 151.010 (Taxable Item). Section 151.318 (Property Used in Manufacturing) provides certain exemptions for tangible personal property used by a manufacturer. Section 151.318(a)(4) exempts specific equipment used to generate electricity or located at an electric generating facility.

Solar modules/panels used to convert sunlight into electricity for ultimate sale qualify for exemption under Section 151.318(a)(2). They are single items of manufacturing equipment. Components of such modules/panels also qualify for exemption.

The fixed racking, tracker racking, and support posts neither generate nor make a chemical or physical change in electricity for ultimate sale. These items would qualify for exemption only if they were components of the solar modules/panels that actually generate electricity.

Taxpayer cites to STAR Accession No. 200002044L (Feb. 11, 2000), for example, to suggest that these items qualify as “peripheral supports” of the solar modules/panels. However, that same document notes that peripheral supports must be component parts of qualifying manufacturing equipment in order to qualify for exemption. Supports that house or hold several pieces of equipment (e.g., several solar panels) are not parts or components of any one piece of equipment and do not qualify for exemption.

The Comptroller addressed a similar situation in Comptroller’s Decision No. 44,820 (2005). In that hearing, the Petitioner sought exemption for carts used to hold popcorn and soda machines, which clearly made chemical or physical changes to tangible personal property for sale. The qualifying equipment was plumbed and wired into the carts. The Administrative Law Judge (ALJ) confirmed the Comptroller’s position that an item is not exempt if it does not become a component part of qualifying manufacturing equipment. The ALJ, citing to Southwest Airlines, Inc. v. Bullock, 784 S.W.2d 563 (Tex.App. -Austin 1990, no writ), further noted that an item must be “reasonably essential” to the functioning of a single item of manufacturing equipment to be considered a component of the equipment.

The Comptroller reached a similar conclusion in Comptroller’s Decision No. 42,916 (2005). The Petitioner in that case used servers to manufacturer software for sale. The Comptroller held that server racks holding several servers were not component parts of those servers.

The fixed racking, tracker racking, and support posts for the solar facility are used to secure or position multiple solar modules/panels in a solar row. They do not function as components of, nor are they essential to the functioning of, a solar module/panel.

Furthermore, the tracker racking, although designed to allow positioning of a solar row for optimal access to sunlight, does not “control” a single item of manufacturing equipment (e.g., a solar module/panel); rather, it merely holds solar modules/panels in the solar row. It does not qualify for exemption under Section 151.318(a)(4).

Underground cable and collector switchgear (AC collection system) used at the generating facility to carry the electricity from the electric generating equipment to the step-up transformers are exempt. Section 151.318(a)(4). Similarly, solar-inverter transformers used at a generating facility qualify for exemption.

Question Two: Are wind facility AC collection systems and cables exempt from sales and use tax as tangible personal property directly used or consumed in or during the actual manufacturing or processing of electricity?

Ruling Two: AC collection systems, as well as the cables located at an electric generating facility that carry the electricity from the electric generating equipment to the step-up transformers, are exempt.

Analysis: AC collection systems and the cables located at an electric generating facility that carry the electricity from the electric generating equipment to the step-up transformers are exempt. Section 151.318(a)(4).

Be aware that any facilities (solar or wind) constructed to generate electricity for the customer’s own storage and use, and not for sale, do not qualify for manufacturing exemptions. Furthermore, items used in transmission or distribution activities outside a generating facility are not exempt. Section 151.318(c)(5).

Comptroller’s Decisions and STAR documents cited can be found on the Comptroller’s State Tax Automated Research (STAR) system. The Texas Tax Code, Texas Administrative Code, and the STAR system are accessible at www.comptroller.texas.gov/taxes/.

If you have questions about this private letter ruling, please email us through our website at https://comptroller.texas.gov/web-forms/tax-help/ and reference Private Letter Ruling No. PLR20180710093909.

Sincerely,

Tax Policy Division – Indirect Taxes

Texas Comptroller of Public Accounts

ENDNOTE:

[1] Unless otherwise indicated, all references to “Section” are to the Texas Tax Code, and all references to “Rule” are to Title 34 of the Texas Administrative Code.