In 2018, solar energy production in the Sunshine State only made up approximately 1.5 percent of Florida’s energy portfolio. Over the next 10 years, the state’s solar energy production is projected to increase nearly tenfold. This includes the installation of an estimated 7,125 megawatts of new solar generation based on a review of the ten-year site plans for the electric utilities. Nearly 80 percent of this generation will be owned by the state’s utility companies, and the remainder will be contracted.
As solar projects expand across the Sunshine State, utilities and solar developers should be aware of all cost-saving opportunities available in the state. Florida law provides a long-standing state and local tax exemption for solar devices, and a recently enacted constitutional amendment will provide significant property tax savings for commercial solar projects through 2037.
Florida Sales and Use Tax Exemption
The sales and use tax provides the state’s largest source of general revenue. Beginning in 1997, solar energy systems and their components became fully exempt from the state sales and use tax. Eligible systems must convert sunlight into energy for use as a power source for another system. The broad list of exempt components include solar collectors, photovoltaic power conditioning equipment, pumps, controllers, piping, insulation and mounting brackets. To take advantage of the exemption, the purchaser must certify the equipment and hardware purchased or leased will be used exclusively in a solar energy system. Additionally, the cost of the solar system components must be separated from any costs of the project unrelated to the solar energy system.
Florida Property Tax Exemptions
Florida’s constitution authorizes local governments to levy ad valorem taxes on real property and tangible personal property. In 2008, voters approved an amendment to the state’s constitution permitting the Legislature to effectively exempt the increased value created when a solar or renewable energy source device was installed on residential real property. This permanent, 100 percent residential exemption was codified by the Legislature for renewable energy source devices installed on or after Jan. 1, 2013.
In 2016, more than 72 percent of Florida voters approved another amendment to the constitution to create a similar exemption for nonresidential real property and tangible personal property but only for 20 years. The Legislature implemented this amendment by prohibiting the consideration of 80 percent of the just value of property attributable to a renewable energy source device in determining the assessed value of any nonresidential real property. The legislation also created an exemption equal to 80 percent of the value of a renewable energy source device from the tangible personal property tax. These exemptions were limited to 80 percent of the value of the renewable energy devices, because the legislative sponsors wanted local governments to receive some financial benefit from solar projects in an effort to incentivize local governments to actively seek out new solar projects for their communities.
The nonresidential exemptions generally applied to renewable energy devices installed after January 1, 2018. The legislation grandfathered in a few specific projects installed prior to that date and excluded certain projects installed after that date in fiscally constrained counties. Most importantly, this nonresidential exemption has a limited duration. Solar developers need to understand the nonresidential exemptions will expire December 31, 2037, unless another constitutional amendment is reapproved by at least 60 percent of voters.
Similar to the sales and use tax exemption, the property tax exemptions for residential and nonresidential properties apply to components such as solar energy collectors, photovoltaic modules, inverters, pumps, fans, pipes, ducts, wiring, structural supports, refrigerant handling systems and other components used as integral parts of such renewable energy systems. However, the term does not include any equipment or structure that would be required in the absence of the renewable energy source device or any device located on the distribution or transmission side of the point of interconnection where a renewable energy source device is interconnected to an electric utility’s distribution grid or transmission lines.
While Florida’s tax incentives may not be the sole reason for the strong projected solar growth over the next decade, these broad-based state tax exemptions combined with federal incentives and reduced costs for photovoltaic cells appear to make Florida primed for investment in new solar energy production.
French Brown is an attorney in Dean Mead’s Tallahassee office and a member of the firm’s solar energy industry team. He assists businesses with Florida tax planning and controversies, as well as utility-scale solar projects across the state.
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