LR 8180
Taxability of Machinery & Equipment for Solar Electric Facility
January 28, 2022
Dear Applicant:
This is a letter ruling issued by the Director of Revenue under Section 536.021.10, RSMo, and Missouri Code of State Regulations 12 CSR 10-1.020, in response to your letter dated Dec. 7, 2021.
The facts as presented in your letter ruling request are summarized as follows:
Applicant may construct a solar electric facility in Missouri for the retail sale of electricity.
Photovoltaic modules (solar panels) will be installed and aimed at the sun to collect sunlight that will be converted into direct current electricity. The photovoltaic modules are held in place by photovoltaic module support structures that are anchored to concrete foundations. Spare photovoltaic modules are maintained in case of damage to installed modules to ensure continued generation of electricity. The modules are all wired together and all electricity is collected and combined via direct current (DC) combining equipment. The DC combining equipment is also a point of disconnection for safety issues. The collected DC is then sent to a set of inverters for additional processing into alternating current (AC). The AC power is then collected and combined via Low-Voltage Alternating Current Combining Equipment then processed through a step-up transformer to complete the manufacturing process so the power may be transmitted to customers. Applicant will purchase these materials from a vendor.
ISSUE 1:
Is Applicant's purchase of photovoltaic modules (solar panels), including both those installed immediately and those purchased as spares, exempt from Missouri sales or use tax?
RESPONSE 1:
Yes. Both Applicant's purchase of photovoltaic modules installed immediately and those used as spares would be exempt from Missouri sales or use tax. Section 144.020.1, RSMo provides "tax is hereby levied and imposed... upon all sellers for the privilege of engaging in the business of selling tangible personal property or rendering taxable service at retail in this state." Section 144.610.1, RSMo, provides "a tax is imposed for the privilege of storing, using or consuming within this state any article of tangible personal property[.]"
Section 144.030.2(5), RSMo exempts:
Machinery and equipment, and parts and the materials and supplies solely required for the installation or construction of such machinery and equipment, purchased and used to establish new or to expand existing manufacturing, mining or fabricating plants in the state if such machinery and equipment is used directly in manufacturing, mining or fabricating a product which is intended to be sold ultimately for final use or consumption.
Section 144.615(3), RSMo, exempts from Missouri use tax "[t]angible personal property, the sale or other transfer of which, if made in this state, would be exempt from or not subject to the Missouri sales tax pursuant to the provisions of subsection 2 of section 144.030[.]"
The production of electricity is manufacturing in Missouri. See Missouri Public Service Company v. Director of Revenue, 733 S.W.2d 448, 449 (Mo. banc 1987). Applicant's purchases of photovoltaic modules that are immediately installed are exempt under section 144.030.2(5).
Applicant's purchases of photovoltaic modules that are not immediately installed, but saved as spares would be exempt from sales tax under section 144.030.2(4), RSMo.
Section 144.030.2(4), RSMo exempts:
Replacement machinery, equipment, and parts and the materials and supplies solely required for the installation or construction of such replacement machinery, equipment, and parts, used directly in manufacturing, mining, fabricating or producing a product which is intended to be sold ultimately for final use or consumption.
Applicant's purchases of spare modules would fall under the replacement machinery contemplated by the statute.
ISSUE 2:
Is Applicant's purchase of photovoltaic module support structures and parts that hold photovoltaic modules and aim them toward the sun exempt from Missouri sales or use tax?
RESPONSE 2:
Yes. Applicant's purchases of photovoltaic module support structures and parts would be exempt from Missouri sales and use tax as parts and machinery used directly in manufacturing, mining, fabricating or producing a product which is intended to be sold ultimately for final use or consumption as items at issue help aim the photovoltaic modules towards the sun. See response 1 regarding the application of section 144.030.2(5).
ISSUE 3:
Is Applicant's purchase of the materials and supplies that provide foundation for photovoltaic module support structures exempt from Missouri sales or use tax?
RESPONSE 3:
No. Applicant's purchases of the materials and supplies that provide foundation for photovoltaic module support structures are not exempt from Missouri sales and use tax as parts and machinery used directly in manufacturing, mining, fabricating or producing a product which is intended to be sold ultimately for final use or consumption. The items at issue are not used directly in manufacturing. See response 1 regarding the application of section 144.030.2(5).
ISSUE 4:
Is Applicant's purchase of DC combining equipment, cables, and related conduits and fittings used in the installation and construction of the equipment exempt from Missouri sales or use tax?
RESPONSE 4:
No. Applicant's purchase of DC combining equipment, cables, and related conduits and fittings would not be exempt from Missouri sales or use tax.
In Utilicorp United, Inc., v. Director of Revenue, 75 S.W.3d 725 (Mo. banc 2001), the Missouri Supreme Court ruled that purchases of machinery and equipment used to transmit or distribute electricity that has already been manufactured do not qualify for the exemption under section 144.030.2(5). The DC combing equipment collects and combines electricity that has already been manufactured by the photovoltaic modules. The court in Utilicorp stated that,
"[t]he product-electricity-may have its voltage increased, and thereby its amperage reduced, for transmission across distances. And its voltage may be reduced and its amperage thereby increased near the customer's meter to deliver electricity at a voltage suitable for the customer's needs. But the essential product, and the total electric power expressed in watts, remains fundamentally unchanged from the time and place the electricity was generated." (at 728-729)
The DC combining equipment and the associated cables and conduits collect and transmit electricity that was already manufactured by the photovoltaic modules.
ISSUE 5:
Is Applicant's purchase of DC to AC inverters and spare inverters used to invert the electricity from DC to AC exempt from Missouri sales or use tax?
RESPONSE 5:
No. Applicant's purchase of DC to AC inverters are not exempt from Missouri sales or use tax. See response 4 regarding Utilicorp United, Inc. v. Director of Revenue, 75 S.W.3d 725 (Mo. banc 2001).
ISSUE 6:
Is Applicant's purchase of low-voltage AC combining equipment, cables, and related conduits and fittings exempt from Missouri sales or use tax?
RESPONSE 6:
No. Applicant's purchase of low-voltage AC combining equipment, cables, and related conduits and fittings are not exempt from Missouri sales or use tax. See response 4 regarding Utilicorp United, Inc. v. Director of Revenue, 75 S.W.3d 725 (Mo. banc 2001).
ISSUE 7:
Is Applicant's purchase of step-up transformers exempt from Missouri sales or use tax?
RESPONSE 7:
No. Applicant's purchase of step-up transformers are not exempt from Missouri sales or use tax. See response 4 regarding Utilicorp United, Inc. v. Director of Revenue, 75 S.W.3d 725 (Mo. banc 2001).
This letter ruling is binding upon the Department of Revenue with respect to the Applicant for three (3) years from the date of this letter and is subject only to statutory changes by the General Assembly and to changes in the interpretation of law by the courts or administrative tribunals. If a change occurs, the taxpayer who relies upon an outdated interpretation may be subject to additional taxes, interest and penalties, which may be imposed prospectively from the date of the change. For this reason, the interpretation set forth above should be reviewed on a regular basis. Please note that any change in or deviation from the facts as presented will render this ruling inapplicable.
Should additional information be needed, please contact Legal Counsel J. Ross Shelton, General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475 (phone 573-751-0961), or me.
Sincerely,
Wayne Wallingford