DOR rules that wind turbines are exempt from the sales tax

Thinking of developing a wind farm, or building a single wind turbine?

In a letter ruling issued earlier this month at the request of a taxpayer, DOR ruled that sales of machinery used to construct a wind turbine, tower and components, and the supporting foundation are exempt from Massachusetts sales tax under G.L. c64H Sec. 6(s).

The reason? The turbine, tower and components and supporting foundation qualify as machinery that is used directly and exclusively in furnishing electricity that is delivered to consumers through mains, lines or pipe. Such machinery, according to 64H Sec. 6(s), is exempt from sales tax.

The ruling on wind turbines breaks new ground in that DOR has never before been asked the question about the applicability of this exemption to wind turbines.  It probably won't be the last time.

While the letter ruling applies only to the individual taxpayer, it also sets a precedent which well might apply to which other taxpayers engaged in a similar project. Such taxpayers are urged to contact DOR for clarification rather than to assume the exemption.

The ruling in its concluding paragraph notes that "with respect to other machinery required to build the wind turbine, tower or foundation, such machinery is exempt only if it becomes a part of the integrated and synchronized system that furnishes the electricity to consumers ... for example, machinery such as erection cranes, support cranes and bulldozers are subject to tax." 

But the blade, turbine, tower and the equipment used to capture the energy and sent it on its way are exempt from the sales tax. 

With interest growing in harnessing the wind to provide clean and renewable energy, this letter ruling may provide some additional financial incentive to wind energy developers.

Comments

[Robert Bliss]

Carlene, great question ... As long as the wind turbine sold some power back to the grid, DOR would be inclinded to apply the tax exemption. But I would point out that this is an evolving area of tax policy, and that letter rulings such as this one apply strictly only to the case and circumstances discussed in the ruling.

[Carlene Millett]

I wonder, does this tax exemption apply if the wind turbine is being used to furnish electricity to the taxpayer or facility itself and not consumers? We have just approved a wind turbine to be installed at a ski resort in our town, and the electricity generated will be primarily used to power the resort. Any residual would be sold back to the grid.