Understanding Sales Tax Incentives for Solar Energy Systems

One method some state and local governments have used to incentivize solar adoption is to exempt solar energy equipment from sales taxes. Sales taxes can add significant costs to the total price of an energy system, so full or partial exemptions can make a meaningful difference in the value proposition of installing solar. Sales taxes, and their corresponding incentives, vary across states and jurisdictions, both in magnitude and in the way in which they are structured. This factsheet provides a comprehensive overview of state and local sales tax incentives, the ways in which they vary, and factors local governments can consider in sales tax design.