Despite Florida's rainy and occasionally cloudy summers, the Sunshine State provides residents the opportunity to "go green" with its abundantly available sunshine for alternative energy purposes. To encourage taking advantage of this generally plentiful resource, the Florida Legislature provides a sales and use tax exemption in section 212.08(7)(hh), Florida Statutes, for "solar energy systems". In fact, recently issued TAA 15A-008 addressed this very exemption.
In the TAA, the Florida taxpayer indicated it provides temporary lighting solutions through a model that provides "a durable, reliable, portable light and power source suitable for any situation or environment." The TAA indicates the lighting solution model contains: solar modules, AGM batteries, LED lights, inverter/charger, inverter, charge controller, light stand, and trailer.
Naturally, the TAA begins by noting the legislative intent in section 212.05, F.S., that every person is exercising a taxable privilege who engages in the business of selling or repairing tangible personal property ("TPP") in this state unless a specific exemption applies. The above noted exemption is then quoted. The exemption states:
[a]lso exempt are solar energy systems or any component thereof. The Florida Solar Energy Center shall from time to time certify to the department a list of equipment and requisite hardware considered to be a solar energy system or a component thereof.
The TAA concludes that the taxpayer's model is not a solar energy system and therefore is not exempt from Florida sales and use tax. But, noted before that conclusion is the statement that components of the model were eligible for tax exemption. The specifically listed components available for exemption purposes were: solar modules, inverters, and charge controllers. Thus, the TAA stands for tax exemption under section 212.08(7)(hh), F.S., for the purchase or sale of solar modules, inverters, and charge controllers (under the facts provided as will be discussed below). The associated implication is that the exemption is related to energy generation itself as opposed to what will use the energy or what might be accomplished by the energy's use.
An interesting part of the TAA involved the statement that the Department contacted the entity cited in the exemption (the Florida Solar Energy Center) for guidance in a determination whether the model at issue in the TAA was a "solar energy system" and required for the exemption. The TAA stated that "certain components . . . would be considered solar equipment." This term appeared important but I did not find an explicit definition of the phrase "solar equipment" but found it generally used in three TIPs besides the TAA (which only noted the exemption was being extended and now has no expiration date).
In TIP 05A01-05, I found the definition of "solar energy system" which indicated that term "means the equipment and requisite hardware that provide and are used for collecting, transferring, converting, storing, or using incidental solar energy for water heating, space heating and cooling, or other applications that would otherwise require the use of a conventional source of energy such as petroleum products, natural gas, manufactured gas, or electricity." The TIP then provides a list of equipment and requisite hardware considered to be a "solar energy system" or component thereof. A link is attached for a reference to the whole list.
Also included in TIP 05A01-05, in typical DOR fashion, is an administrative requirement that sellers of solar energy systems or components thereof are required to document exempt sales. The TIP includes a suggested form that includes a generic compliance statement along with a place for the purchaser's name, address, signature, and date. Despite there being a list to certify particular equipment, the documentation is a requirement I easily foresee the DOR using to disallow exempt sales. So, please be advised of this is you are a seller of solar energy systems or components thereof.
Additionally, you have to be careful because the list accompanying TIP 05A01-05 includes the typical disclaimer that allows the DOR a lot of wiggle room when addressing the exemption. If you skip the note at the end of the components list, you will miss the final statement on the page which provides that "[t]angible personal property in which the solar equipment is integral to the property and where the cost of the solar equipment cannot be or is not separate from the total product cost, is not considered to be a solar energy system." This statement specifically identified calculators, patio lights, appliances, and novelty items as examples. The statement also provides a troublesome definition (and list of examples) to exclude or possibly include unintended items. There is no dollar threshold included (though the examples imply low cost as an indicator for exclusion) so I can easily envision high dollar components (possibly solar powered engines) that will have to be separate from the total product cost for exemption. Otherwise, it would be integral to the property but not considered a solar energy system and I submit that this may be an unintended conclusion.
I think that might have something to do with the entity responsible for certifying the list of equipment and requisite hardware considered to be a solar energy system or component thereof to the Department. The Florida Solar Energy Center ("FSEC") has a website (www.floridaenergycenter.org) which provides member lists and contact info along with some general information on the entity. Online information indicates the entity's mission is "to research and develop energy technologies that enhance Florida's and the nation's economy and environment and to educate the public, students and practitioners on the results of the research."
The FSEC is a research institute affiliated with the University of Central Florida created by the Florida Legislature in 1975. The FSEC states is main responsibilities are to conduct research, test and certify solar systems, and develop education programs. The FSEC identifies it has a staff of 150 which includes 95 professionals with experience in engineering, energy research, building science, energy and policy analysis, and education and training. There is also a link if you are interested in doing business with the FSEC.
I note the background information because the TAA identified that it contacted the FSEC for guidance. Without citing to any factors or basis, the Department simply indicated that the model involved in the TAA would not be considered a solar energy system. The TAA subsequently classifies the model in question as "not a solar energy system but rather a lighting system that uses solar components (as well as electricity) to operate." Again, I find this statement to be a slippery slope and of little guidance value because it implies a marginalization of the function to look at the components which could allow arbitrary classification based more on the function than the parts to arguably result in a contrary conclusion.
The statutory exemption provides that the FSEC shall from time to time certify to the Department a list that qualifies for the exemption. A DOR Deputy Director confirmed that the most recent list was provided in TIP 05A01-05. This "timely" list is very similar to that provided in TIP 97A01-02 – even down to the suggested documentation to support the exemption. This leads me to assume that our solar energy systems and the requisite components have not advanced significantly enough to justify updating the list.
This really shouldn't be surprising. Reliance on vague information that can vary depending on the desired tax application is status quo for the DOR – especially in TAAs. They provide proposed tax treatment that indicates it is binding on the Department only under the facts and circumstances described in the request. Though TAAs note that judicial interpretations of the statutes or rules may result in different tax treatment than expressed in the response, the DOR repeatedly ignores judicial interpretation if it disagrees with that interpretation.
The bottom line is the same with all exemptions. It is useful if you know it is available. But, you need to make sure that you are fully aware of the disclaimers and administrative requirements so that you don't get surprised in a subsequent audit where the Department is alleging the exemption doesn't apply and you now owe tax which you didn't collect or pay at the time. We see these types of audit findings in many cases and can help you before, during, or after the Department has gotten involved. Feel free to contact any of our offices to discuss any state tax questions you might have. We are here to help make you fully aware of your rights when confronted by the DOR.
About the author: Mr. Parker is a sales and use tax attorney and an associate in the law firm the Law Offices of Moffa, Sutton, & Donnini, P.A., based in the firm's Tampa office. Mr. Parker's practice includes state tax audits and controversies involving sales and use tax and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Parker received his law degree and L.L.M. in Taxation from the University of Florida. To learn more about Mr. Parker, please visit his firm bio.
ADDITIONAL RESOURCES
FLORIDA TAX INCENTIVES FOR BUSINESS, published November 10, 2013, by Jerry Donnini, Esq.
FL TAX ALERT: USE TAX ON MANUFACTURERS / FABRICATORS INSTALLING TPP OUT OF STATE, published April 19, 2012, by James Sutton, CPA, Esq.