In a decision issued last month, the Vermont Superior Court, Chittenden Unit, reversed a Formal Ruling from the Department of Taxes and held that fixed support and orientation equipment used to hold solar photovoltaic (PV) modules are exempt from Vermont’s sales and use tax under 32 V.S.A. §9741(14).
The reason? The Court determined that the steel and aluminum racks are used “directly and exclusively” for the manufacture of electricity. Under Vermont law, machinery and equipment is exempt from the sales and use tax if it is used “directly and exclusively” in the manufacture of electricity for sale. 32 V.S.A. §9741(14). The decision in this case turned on the meaning of the phrase “directly and exclusively.”
The Department of Taxes argued that, because the racks were fixed, as opposed to the mobile “tracker” types of racks, there was not an “active causal relationship between the use of the machinery and equipment…and the production…” of electricity. Therefore, the Department concluded that the aluminum racks could not be considered as used “directly and exclusively” for the production of electricity. Formal Ruling 2011-03 at 1-2. The Department fixated on the notion that because the racks didn’t move they couldn’t be directly or meaningfully related to the production of electricity.
The solar farm operator argued that the fixed racks, which position the PV modules at a 30 degree angle facing solar south, thereby allowing them to absorb the maximum possible amount of solar energy, are an integral component of the system and are therefore “actively” involved in the production process. The Court agreed with the solar farm operator and found that, although the support and orientation equipment do not themselves produce electricity, “the amount of electricity a PV module produces depends in part on its orientation.” Because of the integral nature of the equipment to the production of electricity, the court concluded that the equipment “is exempt from the Vermont sales and use tax because it is directly and exclusively used in the manufacture of electricity for sale.”
The decision is of great importance to solar producers, and possibly other energy producers, as it will help to keep down the price of this renewable energy.
The solar farm operator in this matter, Alteris Renewables, Inc., was represented by SRH Law attorney, Karen Tyler.
