“Nothing is certain except death and taxes.” Even 200 years after Benjamin Franklin famously uttered these words, this saying still rings true … MOST of the time. Renewable energy companies own and operate equipment and properties, which are generally subject to sales use and property taxes in Texas. In Texas, specific legislation has been passed to allow certain companies to avoid taxes that would typically be imposed on specific equipment or property in certain situations. However, taking advantage of these benefits often requires completing complicated processes and numerous complex forms. Renewable energy companies must be aware of these laws , and how they work or otherwise risk paying substantial amounts of money, they otherwise did not have to pay. 

Generally, Texas imposes a 6.25% sales and use tax on all retail sales, leases, and rentals of most goods and taxable services. Tex. Tax Code §151.318 lists “items [that] are exempted from [sales use taxes] if sold, leased, or rented to, or stored, used, or consumed by a manufacturer” and includes “tangible personal property directly used or consumed in or during the actual manufacturing…of tangible personal property for ultimate sale [which includes electricity] if the use or consumption of the property is necessary or essential to the manufacturing…operation and directly makes or causes a chemical or physical change to the product being manufactured….”.  Components of such equipment may also be tax exempt if the item is “reasonably essential” to the functioning of the single item of manufacturing equipment. These codes were written at a time before renewable energy had become prevalent.  However, a Private Letter Ruling from the Texas Comptroller delineates and clarifies the taxability of certain items related to renewable electricity generating facilities (see STAR Accession No. 201907005L). The ruling indicates solar modules, panels, and components used to convert sunlight into electricity for ultimate sale qualify for exemption under Section §151.318(a)(2), while fixed racking, tracker racking, and support posts are not exempt as they “neither generate nor make a chemical or physical change in electricity for ultimate sale” as required by Section §151.318. Therefore, it is clear that components that generate a chemical or physical change in electricity for ultimate sale are sales use tax exempt.  To claim this exemption, a company must fill out and submit to its equipment supplier the Texas Comptroller’s Sales & Use Tax Exemption Form 01-339.

Energy storage systems, such as battery energy storage sites (“BESS”), do not qualify for the manufacturing exemption in Tex. Tax Code §151.318, because the batteries are for storing the energy, and storage is not essential to generating the energy (See Tex. Comptroller of Public Accounts, Priv. Ltr. Rul. No. 201808009L (Aug. 14, 2018); Tex. Comptroller of Public Accounts, Priv. Ltr. Rul. No. 201808010L (Aug. 14, 2018)). However, BESS can be tax exempt from property taxes under various Texas’ incentive programs. One such program is referred to as Chapter 312 (TX Tax Code §312). Under Chapter 312, each county can designate “reinvestment zones” where tax-exempt activity can occur via County Order.  To qualify for property tax exemptions, once a zone is designated, a company must fill out and submit the County’s Application for Tax Abatement after the company ensures it can meet all requirements listed in the County Order creating the reinvestment zone. After submission of the company’s application, the County and the company will have the chance to enter into an Abatement Agreement, which will include all requirements listed in the order. Once approved, to be property tax exempted, the company will need to annually file Comptroller Exemption Form 50-116 with the County Appraiser.  Chapter 312 abatements are available until September 1, 2029, and only residential, commercial, or industrial projects are eligible; oil and gas development is not. Another way BESS companies can qualify for property tax abatement is if the company qualifies for, completes, and submits Comptroller Form 50-821. This form is used to claim exemptions under Texas Tax Code §11.315, which states a company is entitled to an exemption from taxation by a taxing unit of an energy storage system owned by the company if certain requirements set forth in Texas Tax Code §11.315 are satisfied, including the project site being located in (i) an area designated as a nonattainment area within the meaning of Section 107(d) of the Federal Clean Air Act (42 U.S.C. Section 7407) or (ii) a municipality with a population of at least 150,000 adjacent to a municipality with a population of more than two million.

Renewable energy companies can avoid specific sales use and property taxes by availing themselves of certain legislatively granted, complicated processes. The attorneys at RR&A possess the knowledge and experience to deal with these processes. Contact RR&A so we can help guide you through these processes, and don’t leave money on the proverbial table