Are payments for leased residential solar panels subject to Louisiana lease tax?

Plain-English summary

Louisiana Revenue Ruling 13-006 treated the leased solar panels described in the ruling as movable tangible personal property rather than immovable component parts of a residence.

Both roof-mounted and ground-mounted panels were designed to be removed without substantial damage, remained owned by the lessor, and supplemented rather than replaced the home's existing electrical system. Payments for their use were therefore subject to lease tax.

The homeowner's assignment of the solar-energy tax credit to the lessor was also taxable consideration. If the homeowner later bought the equipment at fair market value, the full purchase price was subject to sales tax.

Why the panels were movable property

Louisiana's lease-tax definition covered the use of tangible personal property for consideration without a transfer of title. The ruling used the Civil Code's movable-versus-immovable rules to classify the installed equipment.

An attached item could be an immovable component part if it served to complete the building or could not be removed without substantial damage. The solar panels in the ruling did not meet that test.

Roof-mounted systems

The typical roof-mounted panels could be removed promptly at the end of the lease or after nonpayment without damaging the panels or residence. They supplemented power-grid service rather than replacing the home's existing hardwiring.

The ruling concluded that those facts did not make the panels integral or component parts of the building.

Ground-mounted systems

The ground-mounted panels sat on poles separate from the residence and could be removed from those poles. They likewise supplemented the existing residential electrical system.

The ruling therefore classified them as movable property under the described facts.

The assigned solar credit was taxable consideration

Under the described agreement, the homeowner transferred the right to claim the solar-energy tax credit to the lessor in exchange for use of the installed panels.

The ruling treated that assignment as consideration for the lease. Because gross lease proceeds could not be divided into taxable and nontaxable components, the entire assigned credit amount was subject to lease tax.

Purchase at the end of the lease

The homeowner could extend the lease, return the equipment, or purchase it for fair market value. If the purchase option was exercised, the ruling treated the entire sales price as subject to sales tax.

Facts and circumstances mattered

The conclusion applied absent facts materially different from the installation and lease terms described in the ruling. A system attached differently, one that replaced rather than supplemented the building's systems, or one that could not be removed without substantial damage would require a fresh classification analysis.

What this means for you

Solar lessors

The form and removability of an installation affected whether payments were taxable lease receipts. The assigned tax credit was part of the taxable consideration under the ruling's agreement.

Homeowners and residential property owners

Monthly payments for the described leased panels were taxable, and a later fair-market-value purchase was a separate taxable sale.

Installers and advisers

Document how the panels attach, whether removal causes substantial damage, whether they supplement existing building systems, and who owns them during the lease.

Common questions

Q: Did roof attachment automatically make the panels immovable property?

A: No. The ruling focused on removability, damage, intended permanence, and whether the panels completed the building's electrical system.

Q: Were ground-mounted panels treated differently?

A: No. Under the described facts, their separation from the residence and easy removal also made them movable property.

Q: Was only the monthly cash payment taxable?

A: No. The assigned solar-energy tax credit was consideration for use of the panels, and its entire value was included in taxable lease proceeds.

Q: What happened if the homeowner bought the panels?

A: The full fair-market-value sales price under the purchase option was subject to sales tax.

Citations and references

• La. R.S. 47:6030 — solar and wind energy system tax credit described in the ruling
• La. R.S. 47:301(16)(l) — permanently attached constructions excluded from tangible personal property
• La. R.S. 47:301(16)(a) — tangible personal property definition
• La. R.S. 47:301(7)(a) — lease or rental definition
• La. R.S. 47:301(13)(a) — sales price definition
• La. C.C. arts. 462, 463, 465, and 466 — immovables and component parts
• South Central Bell Telephone Co. v. Barthelemy, 643 So.2d 1240 (La. 1994) — tangible personal property and corporeal movables
• Bridges v. National Financial Systems, Inc., 960 So.2d 202 (La. Ct. App. 2007), writ denied, 966 So.2d 602 — leased modular structures classified as movable
• McNamara v. Electrode Corporation, 418 So.2d 652 (La. Ct. App. 1982), writ denied, 420 So.2d 986 — gross lease proceeds not divided into nontaxable components
• LAC 61:III.101(C) — Revenue Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA Revenue Ruling 13-006

Original ruling text

Revenue Ruling
No.13-006
June 28, 2013
Sales Tax
Taxability of Solar Panels Held For Lease or Rental
La. R.S. 47:6030 provides a refundable tax credit against the income tax for the cost of
purchase and installation of a wind energy system or solar energy system, or both, by a taxpayer
at his residence located in this state, by the owner of a residential rental apartment project, or by
a taxpayer who purchases and installs such a system in a residential rental apartment project
which is located in Louisiana. The credit may be claimed in cases where the resident individual
purchases a newly constructed home with such a system already installed or where such a system
is purchased and installed at an existing home, or where such systems are purchased and installed
in new or existing residential rental apartment projects.

Purpose
The purpose of this Revenue Ruling is to address the taxability of solar panels in those
situations where the tax credit is being claimed by a taxpayer other than the homeowner and the
solar panel is subject to a lease or rental agreement.

Law
La. R.S. 47:301(16)(l) provides “For purposes of the sales and use tax imposed by the
state of Louisiana, by a political subdivision whose boundaries are coterminous with those of the
state, or by all political subdivisions of the state and without regard to the nature of the
ownership of the ground, tangible personal property shall not include other constructions
permanently attached to the ground which shall be treated as immoveable property.”
La. R.S. 47:301(16)(a) defines the term “tangible personal property,” in pertinent part as
“…personal property which may be seen, weighed, measured, felt or touched, or is in any other
manner perceptible to the senses.” In South Central Bell Telephone Co. v. Barthelemy, 94-0499
(10/17/94), 643 So.2d 1240, the Louisiana Supreme Court ruled that “tangible personal property”
is equivalent to corporeal moveable property as defined in Article 471 of the Louisiana Civil

Revenue Ruling No. 13-006
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Code. There, the Civil Code describes “corporeal moveables” as “…things, whether animate or
inanimate, that normally move or can be moved from one place to another.”
The provisions which govern the classification of objects as either “moveable” or
“immoveable” for purposes of the lease/sales tax are contained in the Louisiana Civil Code. La.
C.C. art. 462 provides that “tracts of land, with their component parts, are immoveables.” La.
C.C. art. 463 further provides that “buildings…and…other constructions permanently attached to
the ground…are component parts of a tract of land when they belong to the owner of the
ground.” Further expounding on the concept of permanency, La. C.C. art. 465 provides that
“things incorporated into…a building, or other construction, so as to become an integral part of
it, such as building materials, are its component parts.” Finally, La. C.C. art. 466 provides that
“things that are attached to a building and that, according to prevailing usages, serve to complete
a building of the same general type, without regard to its specific use, are its component parts.
Component parts of this kind may include…plumbing heating, cooling, electrical and similar
systems…” La. C.C. art. 466 further provides “…Other things are component parts of a building
or other construction if they are attached to such a degree that they cannot be removed without
substantial damage to themselves or to the building or other construction.”

Facts/Analysis
Photovoltaic panels are commonly used for the purpose of converting sunlight to
electrical energy for connection and use by an electrical load. Such a system constitutes a solar
electric system. In addition, photovoltaic panels are also used for the purpose of converting
sunlight to thermal heat which is subsequently used for the purpose of heating water, space
heating or space cooling. Such a system constitutes a solar thermal system. Both solar electric
and solar thermal energy systems are often the subject of a lease/rental agreement whereby the
homeowner/lessee waives and transfers its right to a solar energy system tax credit to the
lessor/owner of the installed solar panels. Thereafter, the lessor/owner claims the solar energy
tax credit and the homeowner/lessee pays a monthly lease for the right of use of the installed
solar panels. At the end of the lease period, the homeowner has the option of extending the lease,
purchasing the equipment for the fair market value, or returning the equipment to the lessor.

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Scenario I: Roof-Mounted Systems
La. R.S. 47:301(7)(a) defines the term “lease or rental,” in pertinent part, as “the leasing
or renting of tangible personal property and the possession or use thereof by the lessee or renter,
for a consideration, without transfer of the title of such property.” Determining whether installed
solar panels subject to such an agreement constitutes tangible personal property, i.e. corporeal
moveable property-which is subject to lease tax-or immoveable property-which is immune from
lease tax-largely depends upon the facts and circumstances surrounding the installation of the
solar panels. Typically, the leased solar panels are installed on the roof or other structure of a
homeowner’s residence in such a manner that their removal, should the lessee choose not to
extend the lease or fail to timely submit its lease payment, may be done in an expedient manner
which does not cause injury to the solar panels or the residence to which it is attached. This type
of transiency has already been found to render an object as moveable. In Bridges v. National
Financial Systems, Inc., 06-0957 (La. App. 1 Cir. 3/23/07), 960 So.2d 202, writ denied, 07-1600
(La. 11/2/07), 966 So.2d 602, the court considered the classification of modular banking units
which were attached to concrete slabs and leased to banks and federally assured financial
institutions desiring to open branch locations in rural and urban areas. Upon termination of the
lease agreement, the modular units were capable of being removed and leased to another client.
In reaching its determination that the modular units were moveable property, and thus subject to
lease tax, the court held “although arguably the structures at issue herein have some degree of
permanency once they are set in place, they are not permanent, nor are they intended to be
permanent…when moved onto a leased site, the modular banking units are not meant to stay at
that location permanently, but only for the term of the lease.” Considering the transient nature of
leased solar panels, such solar panels do not appear to be attached in such a manner that would
render them an “integral” or “component part” of the building or that they “…cannot be removed
without substantial damage to themselves or to the building or other construction.”
When considering the frequency with which solar panels are installed and removed, it is
important to point out that solar panels are typically installed for the purpose of supplementing
the electrical or thermal energy needs of a lessee, not replacing the already present hardwiring
which serves the residence through the power grid. When the solar panels are removed, the
residence continues to be served with electricity through the already present hardware, only
without the aid of the solar panels producing supplemental electricity which can be used to

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reduce the amount of electrical or thermal energy needed from the power grid. As such, leased
solar panels do not appear to constitute the kind of “…heating, cooling,…or electrical…system”
which would “serve to complete a building of the same general type” thereby rendering it a
“component part.”
Scenario II: Ground Mounted Systems
Aside from the customary roof-mounted systems discussed above, a taxpayer may also
install a “ground mounted system.” Such a system typically consists of one or more poles which
are mounted in the ground near the grid serving the residence, but separate and apart from the
residence. After the poles are mounted in the ground, the solar panels are attached to the poles. In
the event the lessee chooses not to extend the lease agreement or fails to submit timely payment,
the lessor may remove the solar panels from the poles.
Clearly, the “ground mounted system” does not constitute the kind of “…heating,
cooling,…or electrical…system” which would “serve to complete a building of the same general
type” as the system is not attached to the residence but exists separately on a ground mounted
pole. Further, the solar panels may be easily removed from the pole to which they are attached
should the lessee choose not to extend the lease agreement or fail to submit timely payment. As
such, the ground mounted panels are clearly not installed in such a manner that they “…cannot
be removed without substantial damage to themselves or to the building or other construction.”
Finally, as with roof-mounted systems, the solar energy generated therefrom serves to
supplement the already existing electrical system which consists of the hardwiring found inside
the residence. Accordingly, the ground-mounted system would not be considered a “component
part.”
Conclusion
Absent a showing of facts and circumstances that are materially different from those
recited above, solar panels which are subject to the above-described lease agreement are treated
as moveable property and any lease payments submitted thereunder are subject to lease tax. In
addition, under the above-referenced lease agreement, the assignment of the solar energy tax
credit in exchange for the right of use of the installed solar panels constitutes “consideration” as
provided in R.S. 47:301(7)(a). Further, because the gross proceeds of the lease may not be
broken into component parts or nontaxable elements, the entire amount of the assigned tax credit
is subject to lease tax. McNamara v. Electrode Corporation, 418 So.2d 652 (La.App. 1 Cir.

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1982), writs denied, 420 So.2d 986 (La. 1986) Finally, should the lessee choose to exercise its
option to purchase the solar equipment for its fair market value, the entire sales price, as that
term is defined in R.S. 47:301(13)(a), will be subject to sales tax.

Tim Barfield
Secretary

A Revenue Ruling is issued under the authority of LAC 61:III.101 C. A Revenue Ruling is written to provide guidance to
the public and to Department of Revenue employees. It is a written statement issued to apply principles of law to a
specific set of facts. A Revenue Ruling does not have the force and effect of law and is not binding on the public. It is a
statement of the Department’s position and is binding on the Department until superseded or modified by a subsequent
change is statute, regulation, declaratory ruling, or court decision.