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Sales and Use Tax Exemption for Electrical Generating Equipment

Eligibility 
Industrial
Tribal Government
Savings Category 
Solar Photovoltaics
Wind (All)
Biomass
Hydroelectric
Landfill Gas
Wind (Small)
Program Info
Sector Name 
State
Administrator 
Indiana Department of Revenue
State 
Indiana
Program Type 
Sales Tax Incentive
Rebate Amount 

The manufacturing exemption is dependent upon the extent that equipment is directly used in the direct production of tangible personal property.

Summary 

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 may also be eligible for this exemption. Further, a manufacturer of other tangible personal property could possibly 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 2009, the Indiana Department of Revenue (DOR) issued a ruling specifically for wind turbines, clarifying that the foundation, tower, nacelle, gearbox, generator, yaw motors, blades and related component parts are 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 that any "property which consists of or becomes part of a transformer in an electrical interconnection system for a wind turbine" are taxable because they would not be directly used in the direct production of electricity.

In 2014, the DOR issued a ruling specifically for solar power plants, clarifying that the modules, racking, and inverters are 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.”

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. The production of electricity by a person for residential use would 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.
The DOR has not ruled on the specific components of other renewable energy systems.