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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)
Maximum Rebate 

None specified

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 can 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.

The Indiana Department of Revenue (DOR) has specifically ruled that wind energy and solar photovoltaics equipment is exempt from the sales and use tax (see below); however, DOR has not ruled on the specific components of other renewable energy systems.

Wind Energy

In 2009, 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.

Solar PV

In 2014, the DOR issued a ruling specifically for solar PV arrays, 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.” 

Claiming the Exemption

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

Renewable energy property used in the production of electricity for residential use would typically 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.