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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:

State Property Tax Exemption Sales Tax Exemption
Alabama None None
Alaska Local Option No State Sales Tax
Arizona 100% 100%
Arkansas None None
California 100% None
Colorado 100% 100%
Connecticut 100% 100%
Delaware None No State Sales Tax
Florida 100% 100%
Georgia None None
Hawaii 100% HNL only None
Idaho None None
Illinois Special Assessment None
Indiana 100% 100%
Iowa 100% for 5 years 100%
Kansas 100% None
Kentucky None None
Louisiana 100% None
Maine None None
Maryland 100% 100%
Massachusetts 100% for 20 years 100%
Michigan None None
Minnesota 100% 100%
Mississippi None None
Missouri 100% None
Montana 100% for 10 years No State Sales Tax
Nebraska None None
Nevada None None
New Hampshire Local Option No State Sales Tax
New Jersey 100% 100%
New Mexico 100% 100%
New York 100% for 15 years 100%
North Carolina 80% None
North Dakota 100% for 5 years None
Ohio Local Option – Cincinatti and Cleveland 100%
Oklahoma None None
Oregon 100% No State Sales Tax
Pennsylvania None None
Rhode Island Same Assessment as Conventional System 100%
South Carolina None None
South Dakota $50,000 or 70% (greater amount) of total property value None
Tennessee Tax value no more than 12.5% of installed cost 100%
Texas 100% None
Utah None Only for systems great than 2MW
Vermont 100% 100%
Virginia Local Option None
Washington None 100% up to 10kW
Washington DC 100% None
West Virginia None None
Wisconsin 100% 100%
Wyoming None None

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):

State State Sales Tax Rate Cost to install solar/watt Cost
added to 5-kW system
California 7.50% $4.25 $1,593.75
Mississippi 7.00% $4.00 $1,400.00
Arkansas 6.50% $4.25 $1,381.25
Illinois 6.25% $4.25 $1,328.13
Kansas 6.15% $4.25 $1,306.88
Idaho 6.00% $4.25 $1,275.00
Kentucky 6.00% $4.25 $1,275.00
Michigan 6.00% $4.00 $1,200.00
Pennsylvania 6.00% $4.00 $1,200.00
South Carolina 6.00% $4.00 $1,200.00
West Virginia 6.00% $4.00 $1,200.00
Nevada 6.85% $3.50 $1,198.75
Utah 5.95% $4.00 $1,190.00
Washington DC 5.75% $4.00 $1,150.00
Maine 5.50% $4.00 $1,100.00
Nebraska 5.50% $4.00 $1,100.00
Texas 6.25% $3.25 $1,015.63
North Dakota 5.00% $4.00 $1,000.00
Virginia 5.30% $3.75 $993.75
North Carolina 4.75% $4.00 $950.00
Oklahoma 4.50% $4.00 $900.00
Missouri 4.23% $4.00 $845.00
Alabama 4.00% $4.00 $800.00
Georgia 4.00% $4.00 $800.00
Hawaii 4.00% $4.00 $800.00
Louisiana 4.00% $4.00 $800.00
South Dakota 4.00% $4.00 $800.00
Wyoming 4.00% $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.

State Property Tax Exemption Electricity
$/kWh
Insolation Value added by solar
Hawaii 100% HNL only $0.30 2180 $51,000
Arizona 100% $0.13 1960 $20,000
Nevada None $0.14 1930 $21,000
Florida 100% $0.12 1920 $18,000
California 100% $0.17 1880 $25,000
New Mexico 100% $0.12 1810 $17,000
Texas 100% $0.12 1760 $16,000
Louisiana 100% $0.10 1740 $14,000
Colorado 100% $0.12 1660 $16,000
Utah None $0.11 1650 $14,000
Arkansas None $0.10 1630 $13,000
Georgia None $0.12 1600 $15,000
Oklahoma None $0.11 1590 $14,000
Alabama None $0.12 1580 $15,000
Idaho None $0.12 1550 $15,000
Wyoming None $0.11 1550 $13,000
North Carolina 80% $0.11 1530 $13,000
South Carolina None $0.13 1510 $15,000
Kansas 100% $0.13 1500 $15,000
Missouri 100% $0.12 1490 $14,000
Tennessee Tax value no more than 12.5% of installed cost $0.11 1470 $13,000
Maryland 100% $0.14 1450 $16,000
Montana 100% for 10 years $0.11 1450 $12,000
Nebraska None $0.11 1450 $12,000
Washington DC 100% $0.13 1450 $15,000
Kentucky None $0.10 1420 $11,000
Virginia Local Option $0.12 1420 $13,000
Indiana 100% $0.12 1410 $13,000
South Dakota $50,000 or 70% (greater amount) of total property value $0.11 1410 $12,000
Delaware None $0.14 1400 $15,000
Ohio Local Option – Cincinatti and Cleveland $0.13 1400 $14,000
Pennsylvania None $0.14 1400 $15,000
Maine None $0.16 1390 $17,000
Oregon 100% $0.11 1390 $12,000
Iowa 100% for 5 years $0.12 1380 $13,000
Illinois Special Assessment $0.13 1360 $14,000
West Virginia None $0.10 1360 $11,000
Wisconsin 100% $0.14 1350 $15,000
Minnesota 100% $0.13 1340 $14,000
North Dakota 100% for 5 years $0.10 1340 $10,000
Rhode Island Same Assessment as Conventional System $0.19 1330 $20,000
New Jersey 100% $0.16 1320 $16,000
Connecticut 100% $0.23 1310 $24,000
Massachusetts 100% for 20 years $0.21 1310 $21,000
Michigan None $0.14 1310 $14,000
Mississippi None $0.12 1310 $12,000
New Hampshire Local Option $0.20 1310 $20,000
New York 100% for 15 years $0.18 1290 $18,000
Washington None $0.09 1290 $9,000
Vermont 100% $0.18 1250 $18,000
Alaska Local Option $0.20 760 $12,000

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