Sales and Use Tax Exemption for Electrical Generating Equipment
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The manufacturing exemption is dependent upon the extent that equipment is directly used in the direct production of tangible personal property.
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.
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.