Texas Tax Code Incentives for Renewable Energy. Texas Tax Codes Related to Renewable Energy Systems

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1 Home Innovative/Renewable Energy Program Contact Us RENEWABLE ENERGY PROGRAM Renewable Energy The Infinite Power of Texas Texas Tax Code Incentives for Renewable Energy Although the state does not have have a tax exemption program at this time that provides funding of renewable energy equipment on an individual basis, there are a few allowable tax exemptions and deductions. Texas Tax Codes Related to Renewable Energy Systems A franchise tax exemption is extended to manufacturers, sellers, or installers of solar energy devices. Additionally, the state allows for a corporate deduction from the state s franchise tax for renewable energy sources. Business owners can deduct the total cost of the system from the company s taxable capital or take 10 percent of the system s cost off the company s income. The state also offers a 100 percent property tax exemption on the appraised value of an on-site solar, wind or biomass power generating device. 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, See publication , Franchise Tax Credits for Economic Development for additional information on these credits. Texas Tax Code (TTC) Section and TTC Section concern exemptions and credits available under Texas franchise tax for a limited liability company (LLC) engaged in renewable energy such as solar/wind power. For more detailed information, see the following tax and property file:///c /Documents%20and%20Settings/Rick/My%20D...ourcewebdoc_ND_Solar%20and%20Wind%20Incentive.htm (1 of 10) [7/9/2010 1:58:10 PM]

2 code information: Section Exemption: Solar and Wind-Powered Energy Devices Section Exemption: Corporation With Business Interest in Solar Energy Devices Per House Bill 3: Revised Franchise Tax Overview 2007, wind energy continues to qualify under the term solar energy for the exemption and deduction under Sections and Section Deduction: Cost of Solar Energy Device From Taxable Capital Per House Bill 3: Revised Franchise Tax Overview 2007, wind energy continues to qualify under the term solar energy for the exemption and deduction under Sections and Questions? If you have questions, call the Comptroller of Public Accounts, Tax Policy Division, toll-free: Franchise tax questions , ext or (512) Property tax questions , ext or (512) You can also to or write to the Tax Policy Division, Comptroller of Public Accounts, P.O. Box 13528, Austin, Texas Texas Franchise Tax Frequently Asked Questions These questions and answers apply to franchise tax reports originally due before January 1, Renewable Energy Systems Property Tax Exemption Texas Tax Code, Title 1, Property Tax Code Subtitle C, Chapter 11, Taxable Property & Exemptions, Subchapter B. Exemptions, Section file:///c /Documents%20and%20Settings/Rick/My%20D...ourcewebdoc_ND_Solar%20and%20Wind%20Incentive.htm (2 of 10) [7/9/2010 1:58:10 PM]

3 Section Solar and Wind-Powered Energy Devices "Solar" is broadly defined to include a range of biomass technologies. Incentive Type Property tax exemption - commercial, industrial & residential. Eligible Renewable Technologies Passive solar space heat, solar water heat, solar space heat, solar thermal electric, solar thermal process heat, photovoltaics, wind, biomass, storage technologies, solar pool heating, anaerobic digestion. NOTE: If you are planning to install a renewable energy devise in anticipation of a Section property tax exemption, please make sure that your devise is listed here. If you are uncertain, you can call , ext or (512) Or you can write to the Tax Policy Division - Property Tax, Comptroller of Public Accounts, P.O. Box 13528, Austin, Texas Form This link opens to the exemption application for solar or windpowered energy devices. Exemption Handbook This Texas Comptroller's Office information includes some of the eligible solar and wind-powered devices (with illustrations). The State offers this property tax exemption that allows residents to take an exemption from taxation (using form ) of the amount of the appraised value of the property that arises from the installation or construction of a solar or wind-powered energy device that is primarily for the production and distribution of of thermal, mechanical, or electrical energy for on-site use, or devices used to store that energy. "Solar" is broadly defined to include a range of biomass technologies. Example: If your property is valued and taxed at $150,000 and you add a $15,000 system that increases the property value, the exemption applies to the added value, so with the exemption you will only be taxed on the property value before file:///c /Documents%20and%20Settings/Rick/My%20D...ourcewebdoc_ND_Solar%20and%20Wind%20Incentive.htm (3 of 10) [7/9/2010 1:58:10 PM]

4 you added the system. Find your appraisal district contact information. SECTION TEXT (a) A person is entitled to an exemption from taxation of the amount of appraised value of his property that arises from the installation or construction of a solar or wind-powered energy device that is primarily for production and distribution of energy for on-site use. (b) The comptroller, with the assistance of the Texas Energy and Natural Resources Advisory Council, or its successor, shall develop guidelines to assist local officials in the administration of this section. (c) In this section: (1) "Solar energy device" means an apparatus designed or adapted to convert the radiant energy from the sun, including energy imparted to plants through photosynthesis employing the bioconversion processes of anaerobic digestion, gasification, pyrolysis, or fermentation, but not including direct combustion, into thermal, mechanical, or electrical energy; to store the converted energy, either in the form to which originally converted or another form; or to distribute radiant solar energy or the energy to which the radiant solar energy is converted. (2) "Wind-powered energy device" means an apparatus designed or adapted to convert the energy available in the wind into thermal, mechanical, or electrical energy; to store the converted energy, either in the form to which originally converted or another form; or to distribute the converted energy. Added by Acts 1981, 67th Leg., 1st C.S., p. 130, ch. 13, Sec. 39, eff. Jan. 1, Amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 6, Sec. 11, eff. Sept. 1, (Residential) Return to Top of Page House Bill 3: Revised Franchise Tax Overview 2007 file:///c /Documents%20and%20Settings/Rick/My%20D...ourcewebdoc_ND_Solar%20and%20Wind%20Incentive.htm (4 of 10) [7/9/2010 1:58:10 PM]

5 Amends Texas Tax Code Chapter 171 House Bill 3: Revised Franchise Tax Overview February 2007 House Bill 3 (HB3) was passed during the 79th 3rd Called Session of the Texas Legislature. This bill amends Texas Tax Code Chapter 171 to revise the existing franchise tax by changing the tax base, lowering the rate, and extending coverage to active businesses receiving state law liability protection. Changes made by HB3 are effective for franchise tax reports originally due on or after January 1, Tax Code Section currently provides an exemption from franchise tax for a corporation engaged solely in the business of manufacturing, selling, or installing solar energy devices, as defined by Tax Code Sec No changes were made to Tax Code Sec in HB3, therefore the exemption will continue in effect for qualifying corporations. Additionally, HB3 provides that an entity that is not a corporation may also qualify for the exemption based on its activities. Wind energy continues to qualify under the term solar energy for the exemption and deduction under Sections and P-204 Application for Exemption - Federal and All Others Solar Energy Devices Franchise Tax Deduction Texas Tax Code, Title 2, State Taxation Subtitle F, Chapter 171, Franchise Tax Subchapter C, Determination of Taxable Capital; Allocation and Apportionment Section , Deduction of Cost of Solar Energy Device From Taxable Capital or Taxable Earned Surplus Apportioned to this State Section Deduction of Cost of Solar Energy Device From Taxable Capital Incentive Type Corporate deduction for commercial and industrial file:///c /Documents%20and%20Settings/Rick/My%20D...ourcewebdoc_ND_Solar%20and%20Wind%20Incentive.htm (5 of 10) [7/9/2010 1:58:10 PM]

6 Eligible renewable & Other Technologies Solar water heat, solar space heat, solar thermal electric, solar thermal process heat, photovoltaics. Wind energy continues to qualify under the term solar energy for the exemption and deduction under Sections and NOTE: If you are planning to install a renewable energy devise in anticipation of a Section franchise tax deduction, please make sure that your devise is listed here. If you are uncertain, you can call , ext or (512) Or you can write to the Tax Policy Division - Franchise Tax, Comptroller of Public Accounts, P.O. Box 13528, Austin, Texas Texas allows a corporation to deduct the cost of a solar energy device from the franchise tax in one of two ways: (1) the total cost of the system may be deducted from the company s taxable capital; or, (2) 10% of the system s cost may be deducted from the company s income. Both taxable capital and a company s income are taxed under the franchise tax, which is Texas s equivalent to a corporate tax. SECTION TEXT This text of this section is effective only until January 1, Click here to see the text which will be come effective on January 1, (a) In this section, "solar energy device" means a system or series of mechanisms designed primarily to provide heating or cooling or to produce electrical or mechanical power by collecting and transferring solar-generated energy. The term includes a mechanical or chemical device that has the ability to store solargenerated energy for use in heating or cooling or in the production of power. (b) A corporation may deduct from its apportioned taxable capital the amortized cost of a solar energy device or from its apportioned taxable earned surplus 10 percent of the amortized cost of a solar energy device if: (1) the device is acquired by the corporation for heating or file:///c /Documents%20and%20Settings/Rick/My%20D...ourcewebdoc_ND_Solar%20and%20Wind%20Incentive.htm (6 of 10) [7/9/2010 1:58:10 PM]

7 cooling or for the production of power; (2) the device is used in this state by the corporation; and (3) the cost of the device is amortized in accordance with Subsection (c) of this section. (c) The amortization of the cost of a solar energy device must: (1) be for a period of at least 60 months; (2) provide for equal monthly amounts; (3) begin on the month in which the device is placed in service in this state; and (4) cover only a period in which the device is in use in this state. (d) A corporation that makes a deduction under this section shall file with the comptroller an amortization schedule showing the period in which a deduction is to be made. On the request of the comptroller, the corporation shall file with the comptroller proof of the cost of the solar energy device or proof of the device's operation in this state. (e) A corporation may elect to make the deduction authorized by this section either from apportioned taxable capital or apportioned taxable earned surplus for each separate regular annual period. An election for an initial period applies to the second tax period and to the first regular annual period. Acts 1981, 67th Leg., p. 1698, ch. 389, Sec. 1, eff. Jan. 1, Amended by Acts 1991, 72nd Leg., 1st C.S., ch. 5, Sec. 8.07, eff. Jan. 1, Return to Top of Page Solar Energy Devices Business Franchise Tax Exemption file:///c /Documents%20and%20Settings/Rick/My%20D...ourcewebdoc_ND_Solar%20and%20Wind%20Incentive.htm (7 of 10) [7/9/2010 1:58:10 PM]

8 Texas Tax Code, Title 2, State Taxation Subtitle F, Chapter 171, Franchise Tax, Subchapter B, Exemptions Section , Exemption, Corporation With Business Interest in Solar Energy Devices Section A corporation in Texas engaged solely in the business of manufacturing, selling, or installing solar energy devices is exempted from the franchise tax. Incentive Type Industry Recruitment for Commercial and Industrial. Eligible Renewable & Other Technologies Solar Water Heat, Solar Space Heat, Solar Thermal Electric, Solar Thermal Process Heat, Photovoltaics. Wind energy continues to qualify under the term solar energy for the exemption and deduction under Sections and NOTE: If you are planning to install a renewable energy devise in anticipation of a Section franchise tax exemption, please make sure that your devise is listed here. If you are uncertain, you can call , ext or (512) Or you can write to the Tax Policy Division - Franchise Tax, Comptroller of Public Accounts, P.O. Box 13528, Austin, Texas Application Guidelines To apply for the exemption under Tax Code Sec , Form AP-204, Texas Application for Tax Exemptions for Miscellaneous Organizations, must be completed. Include with the application a copy of the file-stamped articles of incorporation; a detailed description of all the activities of the corporation; a detailed description of the solar energy device that is being manufactured, sold or installed; and copies of any brochures, pamphlets or other written documentation that supports the claim for exemption. The completed application and all required documentation should be sent to the address listed on the form. SECTION TEXT file:///c /Documents%20and%20Settings/Rick/My%20D...ourcewebdoc_ND_Solar%20and%20Wind%20Incentive.htm (8 of 10) [7/9/2010 1:58:10 PM]

9 No changes were made to Tax Code Sec in HB 3, therefore the exemption will continue in effect for a qualifying corporation and limited liability company (LLC). Additionally, HB 3 provides that an entity that is not a corporation may also qualify for the exemption based on its activities. Sec Exemption--Corporation With Business Interest in Solar Energy Devices. A corporation engaged solely in the business of manufacturing, selling, or installing solar energy devices, as defined by Section of this code, is exempted from the franchise tax. (a) In this section, "solar energy device" means a system or series of mechanisms designed primarily to provide heating or cooling or to produce electrical or mechanical power by collecting and transferring solar-generated energy. The term includes a mechanical or chemical device that has the ability to store solargenerated energy for use in heating or cooling or in the production of power. (b) A corporation may deduct from its apportioned taxable capital the amortized cost of a solar energy device or from its apportioned taxable earned surplus 10 percent of the amortized cost of a solar energy device if: (1) the device is acquired by the corporation for heating or cooling or for the production of power; (2) the device is used in this state by the corporation; and (3) the cost of the device is amortized in accordance with Subsection (c) of this section. (c) The amortization of the cost of a solar energy device must: (1) be for a period of at least 60 months; (2) provide for equal monthly amounts; (3) begin on the month in which the device is placed in service in this state; and (4) cover only a period in which the device is in use in this state. (d) A corporation that makes a deduction under this section shall file with the comptroller an amortization schedule showing the period in which a deduction is to be made. On the request of the comptroller, the corporation shall file with the comptroller proof file:///c /Documents%20and%20Settings/Rick/My%20D...ourcewebdoc_ND_Solar%20and%20Wind%20Incentive.htm (9 of 10) [7/9/2010 1:58:10 PM]

10 of the cost of the solar energy device or proof of the device's operation in this state. (e) A corporation may elect to make the deduction authorized by this section either from apportioned taxable capital or apportioned taxable earned surplus for each separate regular annual period. An election for an initial period applies to the second tax period and to the first regular annual period. Return to Top of Page Send comments, questions, and suggestions to website manager. Window on State Government Privacy and Security Policy Accessibility Policy file:///c /Documents%20and%20Settings/Rick/My%20D...ourcewebdoc_ND_Solar%20and%20Wind%20Incentive.htm (10 of 10) [7/9/2010 1:58:10 PM]