Indiana Exempts Solar Power Plant Production Equipment

Friday, January 16th, 2015

Solar panels.

The Indiana Department of Revenue released a letter ruling discussing the taxability of equipment used in solar power plants.

The taxpayer planned to develop and operate solar power plants and sell the energy produced to customers. The taxpayer needed to purchase (1) modules to convert sunlight into electricity, (2) racking to install modules in, (3) inverters to change direct current generated by the modules to alternating current for use, (4) MV transformers to change medium voltage current into a high voltage current for transport, and (5) monitoring equipment used to monitor the performance of the entire system.

Manufacturing equipment acquired for direct use in the production of tangible personal property is exempt. Electricity is considered tangible personal property in Indiana. The "direct use" requirement means the equipment must have an immediate effect on the property produced. Equipment must be an essential and integral part of the production process to be exempt.

The modules, racks, and inverters were exempt manufacturing equipment. Each component immediately affected the electricity and was essential and integral to the production of electricity. However, the MV transformers and monitoring equipment were not exempt. The transformers were used to transmit and distribute electricity, not produce it. The monitoring equipment did not have an immediate effect on the electricity, but simply monitored exempt production equipment. These items were therefore not exempt.

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