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Business Taxes Law Guide—Revision 2024
Sales and Use Tax Annotations
A B C D E F G H I J L M N O P R S T U V W X
F
229.0000 Farm Equipment and Machinery—Regulation 1533.1
Annotation 229.0010
229.0010 Solar Facility. A hay and cattle rancher designed a solar facility for use on its ranch. The purchase of a solar facility may qualify for the farm equipment and machinery partial exemption. To qualify for the partial exemption there must be (1) a qualified person who (2) purchases qualifying farm equipment and machinery and (3) uses that equipment and machinery primarily in producing and harvesting agricultural products.
A qualified person means any person engaged in a line of business described in Codes 0111 to 0291, inclusive, of the Standard Industrial Classification (SIC) Manual. Hay farming is described in SIC Code 0139, and cattle ranching is described in SIC Code 0212. Therefore, a hay and cattle rancher is a qualified person.
A solar facility may constitute farm equipment and machinery if it constitutes equipment used to operate qualifying farm equipment and machinery. Specifically, the taxpayer needs to demonstrate that the solar facility is specifically designed to provide power to qualifying farm equipment and machinery. The rancher designed the solar facility to generate 90 percent of the total amount of electric power consumed by the ranch's irrigation pumps each year based on a three-year average. The ranch is prohibited by the electric cooperative, of which the ranch is a member, from attaching the solar facility directly to the irrigation pumps. Instead, the solar facility is tied to the regional power grid and subject to a net metering agreement between the ranch and the electric cooperative. Based on all these facts and circumstances, this solar facility is specifically designed to provide electric power to the irrigation pumps. Therefore, the solar facility is equipment used to operate (i.e., to power) qualifying machinery, irrigation pumps or an irrigation system, and thus the solar facility itself constitutes farm equipment and machinery as defined in Regulation 1533.1, subdivision (b)(1)(A).
To determine whether the solar facility is primarily used in producing and harvesting agricultural products, fifty percent or more of the annual energy generated by the solar facility must be consumed by the ranch's irrigation pumps in producing and harvesting agricultural products. Specifically, this is calculated by dividing the total annual amount of power consumed by the ranch's irrigation pumps in producing and harvesting agricultural products by the total annual amount of power generated by the solar facility. The irrigation pumps, which are powered by the solar facility, are used solely for those activities described in SIC Code 0139 and SIC Code 0212. Each year, the solar facility will generate 90 percent of the amount of electric power that the irrigation pumps consume. Under such facts, all of the electric power generated by the solar facility effectively is consumed by the irrigation pumps in producing and harvesting agricultural products. Therefore, the solar facility is used 50 percent or more of the time in producing and harvesting agricultural products.
The solar facility was furnished and installed by a construction contractor. To the extent the construction contractor is regarded as a retailer under Regulation 1521, the partial exemption applies to the sale of such items to the qualified person. However, to the extent the construction contractor is regarded as the consumer under Regulation 1521, the partial exemption is not applicable to the construction contractor's purchase of materials consumed in constructing the solar facility. 12/15/11.