Tax Development Mar 03, 2017
On February 28,2017, the Washington Department of Revenue (“Department”) issued a ruling on the application of Washington’s renewable energy machinery and equipment exemption. The ruling comes in response to the Department’s denial of the taxpayer’s prior refund request. The taxpayer requested a 75% refund of retail sales tax it paid on charges related to the purchase and installation of a solar energy system. In particular, the taxpayer argued that it was improperly denied the partial exemption for charges related to “…electrical and structural engineering, electrical and building permits, a construction bond, plan review, project management and coordination, equipment rental, and a weather station with solar radiation monitoring.”
Washington law provides a partial exemption for labor and service charges rendered with respect to “machinery and equipment used directly in generating electricity using fuel cells, wind, sun, biomass energy, tidal or wave energy, geothermal resources, anaerobic digestion, technology that converts otherwise lost energy from exhaust, or landfill gas as the principal source of power.”1
The Department’s denial of the taxpayer’s refund was ultimately upheld because the charges for which the taxpayer sought a refund were not directly related to the installation of qualifying renewable machinery and equipment. Rather, they were charges for services that generally occur before actual construction or installation begins.
The Department’s interpretation of the exemption may be applied too narrowly, as it curiously contradicts how construction activities are normally subject to taxation. To read the full analysis, please see Washington Tax Determination No. 16-0277 (2017).
1 Wash. Rev. Code § 82.08.962.