Tax Guide for Green Technology
As California continues to be the national leader in green technology, the California Department of Tax and Fee Administration (CDTFA) understands the need to inform businesses of the tax laws that come with this industry growth.
In this industry guide, you will find information on the following topics:
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A solar energy system is defined as any solar collector or other solar energy device that provides for the collection and distribution of solar energy and, where applicable, the storage of solar energy.
Generally, a contract to furnish and install a solar energy system onto a structure or realty is a construction contract which involves furnishing and installing both materials and fixtures. Construction contractors are the consumer of materials they furnish and install and the retailer of fixtures they furnish and install.
Fixtures vs. materials
Solar components are considered materials when they function in the same manner as other materials such as roofing, windows, or walls and are incorporated into, attached to, or affixed to real property and, as such, lose their identity to become an integral and inseparable part of the real property. Examples of these types of solar panels include Photovoltaic (PV) integrated skylights, PV panels used to function as a roof on a parking lot shade structure, and PV integrated roofing tiles.
Solar components are considered fixtures when they become accessories to a building or other structure and do not lose their identity as accessories when installed. Examples of these types of solar panels include rack mounted solar panels installed on roofs and solar panels used in free-standing solar arrays.
How tax applies to the installation of solar panels
If the solar components you provide and install are considered materials, generally you are the consumer of materials. As a consumer, you owe tax on the cost to you of materials you provide and install in the performance of a construction contract.
If the solar components you provide and install are considered fixtures, generally you are the retailer of those fixtures. As a retailer, you owe tax on the selling price of the fixtures you provide and install in the performance of a construction contract. If the contract does not state the selling price of the fixture, the selling price shall be deemed to be the cost price of the fixture to you.
Solar rebates provided by a public utility company or a municipality are considered manufacturer rebates. These rebates are usually paid directly to the customer, or the customer assigns the rebate to the manufacturer, installer or retailer. Rebates paid by a third party do not decrease the selling price for tax purposes and should be included in the measure of tax.
Example: A solar installer enters into a time and material contract with a homeowner to provide and install roof mounted solar panels. The stated selling price of the solar panels in the contract is $20,000. The homeowner receives a $5,000 rebate and assigns it to the installer which reduces the contract price by $5,000. Tax still applies to the entire $20,000 selling price of the solar panels.
For more information about rebates, please see publication 113, Coupons, Discounts and Rebates.
Solar power facilities may qualify as farm equipment and qualify for a partial exemption of the sales tax, currently 5.25 percent, for farming equipment and machinery that is primarily used in agricultural activities.
How does a system qualify?
- Demonstrate that a solar facility is specifically designed to provide power to qualifying machinery.
- The solar facility must be primarily used in the production and harvesting of agricultural products.
If you otherwise qualify for the farm equipment and machinery partial exemption, your solar power facilities that are tied to the local power grid but are not directly attached to qualifying farm equipment may qualify, if they are designed to generate power for such equipment and machinery.
To determine whether a solar power facility is primarily used (at least 50 percent of the time) in the production and harvesting of agricultural products, divide the total annual amount of power consumed by qualifying farm equipment and machinery by the total annual amount of power generated by the solar power facility.
For example, a solar facility producing 1,000 kilowatts of electricity annually to power qualified agricultural equipment that consumes 600 kilowatts of electricity annually would qualify for the partial exemption (600/1,000 = 60 percent).
For more information, please see our Special Notice: Solar Power Facilities May Qualify as Farm Equipment
CAEAFTA Sales and Use Tax Exclusion
Manufacturers of green technology may qualify to purchase manufacturing equipment without payment of California sales or use tax. More information about this program can be found on our website at www.boe.ca.gov/sutax/gme.htm.
This program is administered by the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA). Please visit www.treasurer.ca.gov/caeatfa/ for information on:
- Application materials
- Application process
- SB 71 regulations
- Other program information
How to obtain the exclusion
- Complete the application and pay the fees
- Obtain a resolution from the CAEAFTA Board
- Provide the exemption certificate to your vendor
- Purchase the equipment on your approved "project"
A new law beginning on July 1, 2014 allows manufacturers to obtain a partial exemption of sales and use tax on certain manufacturing and research and development equipment purchases. To be eligible under this law, you must meet all three of these conditions:
- Be engaged in certain types of business, also known as a "qualified person."
- Purchase "qualified property."
- Use that qualified property for the uses allowed by this law.
For more information, see our Manufacturing Exemption page.
Tax Rebates and Credits for Plug-In Electric Vehicles
The Clean Vehicle Rebate Project (CVRP) establishes rebates available for the purchase or lease of a qualified plug-in electric vehicle as of March 15, 2010.
Rebates are available up to $2,500 for zero-emission light-duty vehicles and plug-in hybrid vehicles.
None of these rebate credits reduce the amount on which sales or use tax is due.
For more information about the CVRP, please visit: www.energycenter.org
Effective January 1, 2010, tax credits are available for full-function electric-drive vehicles. The credits range from $2,500 up to $7,500.
There is an additional federal tax credit for a portion of the cost of residential and commercial electric vehicle charging equipment and installations. These tax credits are taken on your federal income tax return.
Again, total gross receipts from the sale of electric vehicles and charging equipment (excluding installation fees) are subject to sales or use tax. Gross receipts are not reduced by the amount of the income tax credit.
For more information about this federal credit, please visit: www.fueleconomy.gov
- Publication 9, Construction and Building Contractors
- Regulation 1521, Construction Contractors
- Regulation 1533.1, Farm Equipment and Machinery
- Regulation 1671.1, Discounts, Coupons, Rebates and Other Incentives
Sales and Use Tax Law
- Sales and Use Tax Law Section 6010.8 , "Sale" and "purchase"; alternative energy and advanced transportation project