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What are tax exemptions for solar?

#8 in our “Key Solar Concepts” series.

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Solar tax exemptions are the quiet workhorses of the solar incentive game. Sure, rebates and tax credits get all the glory, and SRECs can net you hundreds of dollars a year through online sales, but all of them are very complicated. Tax credits only work for people with enough income to take advantage of them, rebates vary widely and sometimes pay you back slowly, and SRECs are financial assets that are subject to arcane rules and sold by middlemen who take a cut.

Solar tax exemptions, on the other hand, are (mostly) really easy. They come in two flavors—property and sales—and are notable because they require essentially no work on your part. 24 states have a sales tax exemption (or no sales tax at all), and 33 states offer some sort of solar property tax exemption. Here’s a list:

StateProperty Tax ExemptionSales Tax Exemption
AlabamaNoneNone
AlaskaLocal OptionNo State Sales Tax
Arizona100%100%
ArkansasNoneNone
California100%None
Colorado100%100%
Connecticut100%100%
DelawareNoneNo State Sales Tax
Florida100%100%
GeorgiaNoneNone
Hawaii100% HNL onlyNone
IdahoNoneNone
IllinoisSpecial AssessmentNone
Indiana100%100%
Iowa100% for 5 years100%
Kansas100%None
KentuckyNoneNone
Louisiana100%None
MaineNoneNone
Maryland100%100%
Massachusetts100% for 20 years100%
MichiganNoneNone
Minnesota100%100%
MississippiNoneNone
Missouri100%None
Montana100% for 10 yearsNo State Sales Tax
NebraskaNoneNone
NevadaNoneNone
New HampshireLocal OptionNo State Sales Tax
New Jersey100%100%
New Mexico100%100%
New York100% for 15 years100%
North Carolina80%None
North Dakota100% for 5 yearsNone
OhioLocal Option – Cincinatti and Cleveland100%
OklahomaNoneNone
Oregon100%No State Sales Tax
PennsylvaniaNoneNone
Rhode IslandSame Assessment as Conventional System100%
South CarolinaNoneNone
South Dakota$50,000 or 70% (greater amount) of total property valueNone
TennesseeTax value no more than 12.5% of installed cost100%
Texas100%None
UtahNoneOnly for systems great than 2MW
Vermont100%100%
VirginiaLocal OptionNone
WashingtonNone100% up to 10kW
Washington DC100%None
West VirginiaNoneNone
Wisconsin100%100%
WyomingNoneNone

So what’s the big deal with tax exemptions, anyway?

The big deal is that tax exemptions save you money on the upfront and longterm costs of solar. Conversely, people in states without solar tax exemptions pay more upfront and over the long term. Here’s a table of the additional costs of a typical 5-kW residential system in states without sales tax exemptions (highest added cost first):

StateState Sales Tax RateCost to install solar/wattCost
added to 5-kW system
California7.50%$4.25$1,593.75
Mississippi7.00%$4.00$1,400.00
Arkansas6.50%$4.25$1,381.25
Illinois6.25%$4.25$1,328.13
Kansas6.15%$4.25$1,306.88
Idaho6.00%$4.25$1,275.00
Kentucky6.00%$4.25$1,275.00
Michigan6.00%$4.00$1,200.00
Pennsylvania6.00%$4.00$1,200.00
South Carolina6.00%$4.00$1,200.00
West Virginia6.00%$4.00$1,200.00
Nevada6.85%$3.50$1,198.75
Utah5.95%$4.00$1,190.00
Washington DC5.75%$4.00$1,150.00
Maine5.50%$4.00$1,100.00
Nebraska5.50%$4.00$1,100.00
Texas6.25%$3.25$1,015.63
North Dakota5.00%$4.00$1,000.00
Virginia5.30%$3.75$993.75
North Carolina4.75%$4.00$950.00
Oklahoma4.50%$4.00$900.00
Missouri4.23%$4.00$845.00
Alabama4.00%$4.00$800.00
Georgia4.00%$4.00$800.00
Hawaii4.00%$4.00$800.00
Louisiana4.00%$4.00$800.00
South Dakota4.00%$4.00$800.00
Wyoming4.00%$4.00$800.00

As for property taxes, that’s a bit harder to figure out. Property taxes are assessed at the local level, based on lots of rules and regulations. They’re calculated differently everywhere, too; some are based on the assessed sale price of the property, and some a based on the potential income you could net from it. Suffice it to say that exempting solar property from taxes is the right thing to do.

The key here is that solar panels add value to your home. You can click on the link to read more, but the gist of of that article is that homes with solar sell for more money, and they sell faster, too. Here’s a chart based on the data from the linked article:

Pretty cool, huh? Studies of home price increases resulting from solar installation have been conducted in a few states, so we tend not to extrapolate that data for the whole country. What we use instead is a standard estimate for home price increases based on 20 years of free electricity at the current retail rate. It works surprisingly well to predict the kind of value bump you can see from installing solar.

Here’s the formula we use to calculate expected electricity generation for 20 years:

Avg. electricity cost per kWh
x
Annual insolation (kWh/m²)
x
.78 (electricity losses due to system design)
x
20 years

Below is a table that shows how that all shakes out, with values rounded to the nearest thousand dollars. Keep in mind that you can be taxed on the value added by solar in states that have no exemption. That possibility relies on the fact that your city or state has developed a way to calculate that value. Check with your city or county assessor’s office to find out.

StateProperty Tax ExemptionElectricity
$/kWh
InsolationValue added by solar
Hawaii100% HNL only$0.302180$51,000
Arizona100%$0.131960$20,000
NevadaNone$0.141930$21,000
Florida100%$0.121920$18,000
California100%$0.171880$25,000
New Mexico100%$0.121810$17,000
Texas100%$0.121760$16,000
Louisiana100%$0.101740$14,000
Colorado100%$0.121660$16,000
UtahNone$0.111650$14,000
ArkansasNone$0.101630$13,000
GeorgiaNone$0.121600$15,000
OklahomaNone$0.111590$14,000
AlabamaNone$0.121580$15,000
IdahoNone$0.121550$15,000
WyomingNone$0.111550$13,000
North Carolina80%$0.111530$13,000
South CarolinaNone$0.131510$15,000
Kansas100%$0.131500$15,000
Missouri100%$0.121490$14,000
TennesseeTax value no more than 12.5% of installed cost$0.111470$13,000
Maryland100%$0.141450$16,000
Montana100% for 10 years$0.111450$12,000
NebraskaNone$0.111450$12,000
Washington DC100%$0.131450$15,000
KentuckyNone$0.101420$11,000
VirginiaLocal Option$0.121420$13,000
Indiana100%$0.121410$13,000
South Dakota$50,000 or 70% (greater amount) of total property value$0.111410$12,000
DelawareNone$0.141400$15,000
OhioLocal Option – Cincinatti and Cleveland$0.131400$14,000
PennsylvaniaNone$0.141400$15,000
MaineNone$0.161390$17,000
Oregon100%$0.111390$12,000
Iowa100% for 5 years$0.121380$13,000
IllinoisSpecial Assessment$0.131360$14,000
West VirginiaNone$0.101360$11,000
Wisconsin100%$0.141350$15,000
Minnesota100%$0.131340$14,000
North Dakota100% for 5 years$0.101340$10,000
Rhode IslandSame Assessment as Conventional System$0.191330$20,000
New Jersey100%$0.161320$16,000
Connecticut100%$0.231310$24,000
Massachusetts100% for 20 years$0.211310$21,000
MichiganNone$0.141310$14,000
MississippiNone$0.121310$12,000
New HampshireLocal Option$0.201310$20,000
New York100% for 15 years$0.181290$18,000
WashingtonNone$0.091290$9,000
Vermont100%$0.181250$18,000
AlaskaLocal Option$0.20760$12,000

Last modified: January 17, 2019

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