Does a company engaged in solar or wind energy qualify for a Texas franchise tax exemption, and what deduction or credits are available?

Plain-English summary

An LLC in the renewable energy business (solar/wind) asked what Texas franchise tax exemptions and credits are available. The Comptroller identified an exemption, a deduction, and separate economic development credits - and confirmed that wind energy counts as "solar energy" for these purposes.

• Full exemption for solar/wind-only businesses. Tax Code Sec. 171.056 exempts a corporation or LLC engaged solely in the business of manufacturing, selling, or installing solar energy devices (as defined by Sec. 171.107). Wind energy qualifies under the term "solar energy" for both the exemption and the deduction.
• A deduction if you are not solely in that business. Under Sec. 171.107 there is a deduction for the amortized cost of a solar energy device - from apportioned taxable capital, or 10 percent of the amortized cost from apportioned taxable earned surplus.
• Three economic development credits. A corporation may also qualify for credits for certain research and development expenses and payments, qualified capital investments or expenditures, or certain new jobs created in Texas on or after January 1, 2000 (see publication 96-686, Franchise Tax Credits for Economic Development).
• How to claim the exemption. Send a written exemption request with (1) a filed-stamped photocopy of the articles of organization, (2) a brochure or written description of the business activities, and (3) any other relevant information, to the Exempt Organizations Section, P.O. Box 13528, Austin, Texas 78711-3528.

Currency note: This applies the pre-2008 franchise tax. It was replaced by the margin tax (House Bills 3 and 3928, effective January 1, 2008); a solar/wind exemption and cost deduction exist under current law but on different terms. Confirm present statutes before relying on the specifics here.

What this means for you

Solar and wind energy companies

If your company does only solar or wind device manufacturing, sales, or installation, you may have been entirely exempt from the franchise tax under Sec. 171.056 - and wind counted as "solar" for eligibility. If renewable energy was only part of your business, you could still deduct the device's amortized cost (fully against taxable capital, or 10% against earned surplus).

Businesses investing in renewable energy equipment

Even outside the exemption, the Sec. 171.107 device-cost deduction and the economic development credits (R&D, capital investment, new jobs from January 1, 2000) could reduce the tax. Match the benefit to your facts.

Accountants and tax professionals

Confirm "solely" for the exemption - a mixed business gets the deduction, not the exemption. Note that all of this is pre-2008 franchise tax; verify the current margin-tax solar/wind provisions before applying.

Common questions

Q: Is a solar or wind energy company exempt from the Texas franchise tax?
A: It could be. Sec. 171.056 exempts a corporation/LLC engaged solely in manufacturing, selling, or installing solar energy devices, and wind energy qualifies as "solar energy."

Q: What if renewable energy is only part of my business?
A: You may take the Sec. 171.107 deduction - the device's amortized cost against apportioned taxable capital, or 10% of it against apportioned earned surplus.

Q: Are there other benefits?
A: Yes - economic development credits for R&D, qualified capital investment, and new Texas jobs created on or after January 1, 2000 (publication 96-686).

Citations and references

Statutes and publication:

• Texas Tax Code Sec. 171.056 - franchise tax exemption for a corporation/LLC engaged solely in manufacturing, selling, or installing solar energy devices (wind energy included)
• Texas Tax Code Sec. 171.107 - definition of solar energy device; deduction of its amortized cost (full against taxable capital, 10% against earned surplus)
• Franchise Tax Credits for Economic Development (Publication 96-686)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/200207364L

Original ruling text

July 30, 2002

To: **

Dear **:

Thank you for your Tax Help inquiry concerning exemptions and credits available
under Texas franchise tax for a limited liability company (LLC) engaged in
renewable energy such as solar/wind power.

Texas Tax Code (TTC) Section 171.056 provides an exemption from franchise tax
for a corporation or LLC engaged solely in the business of manufacturing,
selling, or installing solar energy devices, as defined by Section 171.107.
Under TTC Section 171.107 there is a deduction for the amortized cost of a
solar energy device from apportioned taxable capital or 10 percent of the
amortized cost from apportioned taxable earned surplus. Wind energy qualifies
under the term "solar energy" for the exemption and deduction under Sections
171.056 and 171.107.

Additionally, there are three economic development credits for which a
corporation may qualify. Eligible corporations may take advantage of these
credits for certain research and development expenses and payments incurred,
for qualified capital investments or expenditures made, or for certain new jobs
created in Texas on or after January 1, 2000. See publication 96-686,
Franchise Tax Credits for Economic Development, for additional information on
these credits.

To apply for the exemption under TTC Section 171.056, please send a letter
requesting exemption along with the following information: (1) a photocopy of
the articles of organization bearing the filed stamp of the Office of the
Secretary of State; (2) a brochure or a written description of the LLC's
business activities; and (3) any other additional information relevant to the
determination of the exemption. Your request for exemption should be sent to
the attention of the Exempt Organizations Section, P.O. Box 13528, Austin,
Texas 78711-3528.

The statutes and publication mentioned, as well as other related information,
are available online at
http://www.window.state.tx.us/taxinfo/franchise/index.html.

This response is based on the facts presented and current law. If there are
different or additional facts, the response may change.

If you have questions about this, my internet address is
, or you may call toll-free at 1-800-531-5441,
extension 59952.

Sincerely,

Teresa Bostick
Tax Policy Division