Last  week, New  York  State enacted a  bud- get  for  the fiscal  year  2015-16  (i.e.,  April  1, 2015 to Mar.  31, 2016) that continues two  tax incentives for the installation of solar energy systems: (1) tax  credits conferred to partially offset the costs of such installations, and (2) a sales tax  exemption for  the retail sale  and installation of residential and commercial solar equipment.

In 2012, we expected New York State’s solar energy tax  incentives to spur a significant increase in  solar energy systems across the state. That expectation has materialized. From 2012 to present, more solar energy equipment was  installed in  New  York  State than in  the entire decade prior. In  2014, enough  solar power was   installed in  New York  State to  power 25,000 homes. Accord- ing to the Solar Energy Industries Associa- tion, only six states added more solar energy capacity in  2014.  In  the order of capacity added, these states are California, North Car- olina, Nevada, Massachusetts, Arizona, and New  Jersey. This  article briefly summarizes the continuing tax-related solar incentives provided by New York State.

Tax Credit

New  York  State taxpayers can   claim a  tax credit against state income tax  liability to partially offset the costs of solar energy equipment installed on a principal residence located within the state.  A taxpayer is enti- tled to the credit if the taxpayer either:

  1. purchases   solar  energy  equipment installed at the taxpayer’s residence,
  2. enters into a written lease agreement of at least 10 years with respect to solar energy equipment installed at  the taxpayer’s resi- dence, or
  3. enters into a  written power purchase agreement to  buy  solar energy power for  at least 10 years from another party that installs solar energy equipment at the taxpayer’s residence.

In  the case  of  purchasing the equipment, the credit is  worth 25% of  qualified expen- ditures on  the equipment, which includes labor costs but not any  financing or interest charges.  In  the case   of  a  taxpayer  enter- ing  into a  lease, the credit is  worth 25% of all  of  the lease payments to  be  made over the course of  the lease agreement. Yet,  the credit is  still  fully  available in  the year  the equipment is  placed in  service. And  in  the case  of a taxpayer entering into a power purchase agreement, the credit is worth 25% of  payments made in  a  given tax  year, but only through the 15th  year  of the agreement. Under all three scenarios, a taxpayer may not include as  costs any   payments made with non-taxable federal, state, or local  grants.

The credit is capped at $5,000 per  taxpayer with respect to a given solar energy system. Any  unused credits in  the year  the property is  placed in  service can  be  carried forward for  a period of five  years. For  example, if a taxpayer earns $5,000 in  credits in  the year the property is  placed in  service, but only has  $4,000 of taxable income that year, the unused $1,000 of credits may be carried for- ward and used in one  of the subsequent five years. The  credits are  not refundable––the credits are  only payable as a reduction of taxable income.

If the solar energy equipment is installed by  a  condominium  management  associa- tion or a cooperative housing corporation, a resident may attribute a proportionate share of solar energy equipment expenditures with respect to his/her unit. The credits cannot be earned with respect to second homes.

When a taxpayer produces electricity using solar energy equipment, the taxpayer must enter into a “net energy metering” contract with the taxpayer’s utility company or other- wise  comply with the utility company’s net metering schedule. Without such compli- ance, tax credits will not be conferred. A “net energy meter” is a meter that measures the reverse flow of electricity from a taxpayer to a utility company for purposes of determin- ing how much electricity the utility company has  provided to the taxpayer.

New  York State taxpayers who  would also like  to  claim the federal solar tax  credit for homeowners may “double dip”  by  claiming both state and federal credits. The  federal tax  credit of 30% of the eligible cost  of solar equipment purchased by homeowners is not reduced by  state tax  credits, and the New York State tax credit is not reduced by federal tax  credits. That is, a New  York State home- owner may claim both the federal tax  credit of 30% and the state tax credit of 25%, subject to  the state’s $5,000 tax  credit ceiling, for  a total of 55%.

Sales Tax Exemption

The  New  York State Tax Law section 1115 describes the state’s sales tax  (and use  tax) exemptions.  It  notes: “[t]he  following shall be  exempt from tax  . . . [r]eceipts from the retail sale  of  . . . residential solar energy sys- tems equipment . . . [and]  [r]eceipts from the retail sale  of . . . commercial solar energy systems equipment.”