How does New York sales tax apply to a contractor's purchase, sale, and installation of residential and commercial solar energy systems?

Plain-English summary

Two affiliated companies — one sells residential and commercial solar energy systems, the other transports and installs them — asked how New York sales and use tax applies across their purchases, sales, and installations.

The Office of Counsel laid out the rules:

• Core solar equipment is exempt — when destined for a specific site. Solar modules, racking, and inverters are "solar energy systems equipment" exempt from the 4% State sales tax and the 3/8% MCTD tax, and exempt from local tax only if the locality adopted the exemption (§ 1115(ee) residential, § 1115(ii) commercial; § 1210(a)(1) local option). To buy them tax-free, the installer gets Form ST-121 from the customer and gives its vendor Form ST-120.1.
• Bulk purchases (install site unknown) are taxable. If they don't yet know where qualifying equipment will be installed, the exemption can't apply and they must pay tax at purchase.
• "Balance of System" parts are taxable. Wire, conduit, straps, fittings, connectors, sealant, fuses, breakers — these also belong to non-solar systems, so they don't get the solar exemption.
• Contractors can't use a resale certificate. Because they're contractors using materials in construction, they cannot give vendors a resale certificate (Form ST-120); materials sold to contractors are taxed as retail sales.
• Installation. Because the solar exemptions cover the installation of qualifying equipment, no tax is charged on installing the modules/racking/inverters (and no local tax where the exemption was adopted), whether or not the job is a capital improvement. Installing Balance of System equipment is taxable if separately charged — unless the whole job is a capital improvement (Form ST-124), in which case local tax isn't collected on the installation but the contractor may claim a refund/credit for tax it paid on the components.
• Cross-jurisdiction use tax. Tax follows the point of installation: take a credit for local tax paid where delivered, pay the difference if the install locality's rate is higher (or claim a refund if lower).

What this means for you

Solar installers and contractors

You can buy modules, racking, and inverters State-tax-free for a specific customer's job (ST-121 → ST-120.1), but not when stocking up in bulk for unknown sites, and never with a resale certificate. Treat balance-of-system parts as taxable, and track delivery-vs-installation localities for the local-tax true-up.

Homeowners and businesses going solar

The core equipment and its installation are exempt from State tax (and MCTD), and from local tax where your locality adopted the exemption — check Publications 718-S / 718-CS for your jurisdiction.

Accountants and tax professionals

Map each item to § 1115(ee)/(ii) (exempt) vs. balance-of-system (taxable), apply the § 1210(a)(1) local option, the contractor rules in 20 NYCRR 541 (no resale certificate; capital-improvement ST-124), and the install-jurisdiction use-tax credit (541.13(b)).

Common questions

Q: Are my solar panels exempt from sales tax?
A: Modules, racking, and inverters bought for a specific residence or commercial site are exempt from State and MCTD tax, and from local tax only where the locality adopted the exemption.

Q: What about wiring, conduit, and connectors?
A: Those "balance of system" parts are taxable, because they're also used in non-solar systems.

Q: Can I buy the equipment in bulk tax-free?
A: No. If you don't know the install location at purchase, the exemption doesn't apply and you must pay tax.

Q: Can I use a resale certificate as the contractor?
A: No. Contractors can't give vendors a resale certificate for materials used in construction.

Q: Can I rely on this opinion?
A: It binds the Department only as to the petitioner. Use it as guidance and confirm your own facts.

Citations and references

• Tax Law § 1105(a), (c)(3) (tax on tangible personal property and on installation services)
• Tax Law § 1115(ee), (ii) (residential and commercial solar energy systems equipment exemptions)
• Tax Law § 1210(a)(1) (local option to adopt the solar exemptions)
• Tax Law § 1101(b)(9) (capital improvement)
• 20 NYCRR 541 (contractors); 526.7(e), 541.13(b) (delivery vs. installation jurisdiction)
• Forms ST-120.1, ST-121, ST-124; Publications 718-S, 718-CS, 862; TSB-M-05(11)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales-ao-2020.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a20-46s.pdf

Original ruling text

New York State Department of Taxation and Finance
Office of Counsel

TSB-A-20(46)S
Sales Tax
October 27, 2020

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION
The Department of Taxation and Finance received a Petition for an Advisory Opinion
from [ REDACTED ] (Petitioner A) and [ REDACTED ] (Petitioner B). Petitioners sell and
install commercial and residential solar energy systems. Petitioners asked questions about the
applicability of the state and local sales and use tax to its purchase, sale and installation of solar
energy systems, including the applicability of the exemptions in Tax Law § 1115(ee) and (ii).
Facts
Petitioners A and B are both owned by the same partners. Petitioner A sells commercial
and residential solar energy systems to customers primarily located in upstate New York.
Petitioner A procures and provides solar modules, inverters, and racking components required
for the installation of the solar energy systems. Petitioner B is responsible for the transportation
and installation of the solar energy systems at the customers’ sites. Neither Petitioner is engaged
in the sale of electricity under a written Solar Power Purchase Agreement. Petitioner B is
responsible for procuring items known as “Balance of System” components that typically include
items like electrical conduit, wire, straps, fittings, connectors and miscellaneous supplies like
roofing sealant, fuses and breakers. Petitioner B, in performing the installation of the system, is
acting informally as a sub-contractor to Petitioner A, who acts as the contractor and arranges for
the sales of the solar energy systems to the customers. There is no formal contractorsubcontractor relationship between the Petitioners because the two entities are owned by the
same partners. Petitioners sometimes buy the components in bulk and sometimes buy the
components for the installation of a residential or commercial solar energy system for a specific
customer.
Analysis
Tax Law § 1105 (a) generally imposes sales tax on every sale, except sales for resale, of
all tangible personal property otherwise exempt. Generally, sales of tangible personal property
to contractors (including sub-contractors) for use or consumption in construction are treated as
retail sales and subject to sales and use tax, regardless of whether tangible personal property is to
resold as such or incorporated into real property as a capital improvement. 20 NYCRR 541.1(b).
Accordingly, a contractor is not allowed to give a vendor a resale certificate (Form ST-120). In
contrast, sales to other vendors potentially may be treated as sales for resale. Whenever a
contractor uses materials on which the contractor has paid sales tax in the course of performing
services subject to tax under Tax Law § 1105(c), the contractor may be entitled to a refund or
credit of the portion of the tax paid by the contractor attributable to materials transferred to a

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customer, provided the contractor is required to collect sales tax from the customer. 20 NYCRR
541.1(b). Receipts from the performance of a capital improvement to real property by a
contractor are not subject to sales tax. 20 NYCRR 541.1(c).
Retail sales and installations of residential solar energy systems equipment and
commercial solar energy systems equipment are exempt from the 4% New York State sales tax
and the 3/8% sales tax rate imposed in the Metropolitan Commuter Transportation District
(MCTD). See Tax Law § 1115 (ee) & (ii). Such sales and installations are exempt from local
sales and use taxes only if the jurisdiction specifically enacts the exemption. See Tax Law §
1210(a)(1). Publication 718-S, Local Sales and Use Tax Rates on Sales and Installations of
Residential Solar Energy Systems Equipment and Publication 718-CS, Local Sales and Use Tax
Rates on Sales and Installations of Commercial Solar Energy Systems Equipment, provide
information about which jurisdictions have enacted the exemptions for residential and
commercial solar energy systems equipment.
Residential solar energy systems equipment means an arrangement or combination of
components installed in a residence that utilizes solar radiation to produce energy designed to
provide heating, cooling, hot water, or electricity. See Tax Law § 1115 (ee) (1). For purposes of
this exemption, the Department of Taxation and Finance has defined a “residence” as a dwelling,
whether owned or rented. It includes a single-family house, a multi-family building which
consists exclusively of residential dwelling units, or a residential dwelling unit or units within
such a multi-family building, including an apartment, a cooperative apartment or a condominium
unit. See TSB-M-05(11)S.
Commercial solar energy systems equipment means as an arrangement or combination of
components installed upon nonresidential premises that utilize solar radiation to produce energy
designed to provide heating, cooling, hot water and/or electricity. Tax Law § 1115 (ii) (1).
Both residential and commercial solar energy systems equipment exclude items such as
pipes, controls, insulation, or other equipment that are part of a conventional non-solar energy
system, such as a gas, oil, or electric heating or cooling system. See Tax Law §§ 1115 (ee) (1)
& (ii) (1).
Based on the foregoing, we conclude that Petitioners’ “modules, racking and inverters”
will qualify as residential or commercial solar energy systems equipment when purchased for
installation in the residence or non-residential, i.e. commercial premises of a particular customer.
These components, when installed, will be exempt from the State and MCTD sales taxes, and
may be exempt from local sales tax if the jurisdiction where this equipment is installed has
enacted the applicable exemption. In order to purchase this equipment exempt from sales tax,
Petitioners would need to first obtain a properly completed Form ST-121, Exempt Use
Certificate from the customer in whose residence or commercial premises the equipment is to be
installed, and then present Form ST-120.1, Contractor Exempt Purchase Certificate to its
vendor. If Petitioners do not know at the time of purchase where qualifying solar energy systems
equipment will be installed, as would be the case when they purchase the equipment in bulk, the

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exemptions in Tax Law § 1115(ee) and (ii) would not apply and they must pay sales tax on the
purchase. These exemptions do not apply to the “Balance of System” equipment purchased by
Petitioner B because these items of equipment also would be part of non-solar energy systems,
and Petitioner B must pay sales tax on the purchase of these items. Petitioners, because they are
contractors, cannot use a resale certificate (Form ST-120) when purchasing any of the
components.
Tax Law § 1105 (c) imposes tax upon the receipts from every sale, except for resale, of
certain enumerated services. Included in the services subject to sales tax is the service of
installing tangible personal property, except where the installed property will constitute an
addition or capital improvement to real property. See Tax Law § 1105 (c) (3). However,
because the exemptions in § 1115(ee) and (ii) apply to the installation of qualifying solar energy
systems equipment, Tax Law § 1105(c) does not apply to the installation of the modules,
racking and invertors and Petitioners are not required to collect state sales tax, or local sales tax
if the installation is in a locality that has elected to allow the exemptions, from its customers for
the installation of the solar energy systems, whether or not the solar energy systems qualify as
capital improvements. These exemptions do not apply to the installation of the Balance of
System equipment, and Petitioners are required to collect tax on the installation of those items if
Petitioners charge a separate installation charge for such items.
If the installation of the solar energy system, and the Balance of System equipment if
there is a separate charge for the installation of that equipment, is in a locality that has not
elected to exempt solar energy systems, the installation will be subject to local sales tax as a
receipt from the service of installing tangible personal property unless the installation of the
system qualifies as a capital improvement. Tax Law § 1105(c)(3).
A capital improvement is defined as follows:
(i) An addition or alteration to real property which:
(A) Substantially adds to the value of the real property, or appreciably prolongs the
useful life of the real property; and
(B) Becomes part of the real property or is permanently affixed to the real property so
that removal would cause material damage to the property or article itself; and
(C) Is intended to become a permanent installation.
Tax Law § 1101 (b) (9); 20 NYCRR 541.2(g). The installation or replacement of permanent
residential or commercial solar energy systems, and additions to permanent solar energy systems,
will be considered capital improvements if they meet these criteria. See Publication 862. If the
systems qualify as capital improvements, Petitioners would not be required to collect the local
sales tax on the installation of the solar energy system and the Balance of System equipment if a
separate installation charge is imposed. In this instance, Petitioners would be required to obtain a
properly completed certificate of capital improvement (Form ST-124) from the customer. If the
solar energy system does not qualify as a capital improvement, Petitioners would be required to
collect the local sales tax on the installation, but would be entitled to a credit or refund of the
portion of tax they paid attributable to the components of the system.

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A sale is taxable at the place where the tangible personal property or service is delivered
or the point at which possession is transferred by the vendor to the purchaser or his designee.
See 20 NYCRR 526.7(e). The applicable rate of use tax to be paid by the contractor is the tax
rate in effect in the locality where the product is installed. See 20 NYCRR 541.13(b).
Consequently, when tangible personal property is later incorporated into real property in a
different jurisdiction from the point of delivery, the tax due is then based on the point of
installation. Additional tax would be due if the rate in effect at the point of installation is higher
than that previously paid or if no tax was previously paid. If it is lower, a refund or credit would
apply. See TB-ST-130.
When buying the components in bulk, Petitioners will owe State and local sales tax on
the purchased equipment at the combined rate in effect where it is delivered. If either of the
Petitioners receives the equipment in one jurisdiction (the delivery jurisdiction), but installs it in
a different jurisdiction (the installation jurisdiction), Petitioner should take a full credit for the
local sales tax paid in the delivery jurisdiction and report full local use tax for the installation
jurisdiction. Petitioner must pay the difference in additional tax if the local rate in effect is
higher in the installation jurisdiction than that paid in the delivery jurisdiction. If the local rate in
effect is lower in the installation jurisdiction than that paid in the delivery jurisdiction, Petitioner
may be entitled to a refund or credit in the amount of the difference.
DATED: October 27, 2020

/S/
DEBORAH R. LIEBMAN
Deputy Counsel

Note:

An Advisory Opinion is issued at the request of a person or entity. It is limited to the
facts set forth therein and is binding on the Department only with respect to the
person or entity to whom it is issued and only if the person or entity fully and
accurately describes all relevant facts. An Advisory Opinion is based on the law,
regulations, and Department policies in effect as of the date the Opinion is issued or
for the specific time period at issue in the Opinion. The information provided in this
document does not cover every situation and is not intended to replace the law or
change its meaning.