Arizona: Solar and Wind Equipment Sales Tax Exemption

Arizona provides a sales tax exemption* for the retail sale of solar energy devices and for the installation of solar energy devices by contractors. The statutory definition of "solar energy device" includes wind electric generators and wind-powered water pumps in addition to daylighting, passive solar heating, active solar space heating, solar water heating, and photovoltaics. The sales tax exemption does not apply to batteries, controls, etc., that are not part of the system. (Note that HB 2429, enacted in June 2006, eliminated the $5,000 limit per device.)

To take advantage of these exemptions from tax, a solar energy retailer or a solar energy contractor must register with the Arizona Department of Revenue prior to selling or installing solar energy devices (Arizona Form 6015, Solar Energy Devices – Application for Registration). The Arizona Department of Commerce Energy Office has compiled a guide to the solar energy devices that qualify for exemption under the statutory definition. It is possible to petition the Arizona Department of Commerce to add additional items if they qualify per the statutory definition.

SB 1229 of 2012 extended this exemption to the sale of renewable energy credits (RECs). RECs are typically sold by a renewable energy generator to a utility to company so that company can demonstrate its compliance with the state's renewable energy standard. SB 1229 clarified that sales tax should not be applied to those transactions.

Most cities have a 0.5 to 2% city privilege ("sales") tax that is applicable to sales or installations of solar energy devices, unless a city specifically exempts such sales under its city tax code. Solar energy retailers should check with the city in which the retail business is located to find out whether city privilege tax is applicable. Solar energy contractors should check with the city in which the installation will be performed to find out whether city privilege tax is applicable.

*Technically, the law allows retailers to deduct the amount received from the sale of solar energy devices from their transaction privilege tax base, and similarly, it allows prime contractors to deduct proceeds from a contract to provide and install a device from their transaction privilege tax base.