Roughly half of U.S. states offer a solar sales tax exemption, and depending on the state, the break applies to the panels, the inverters and wiring, the batteries installed with the system, and often the installation labor too.1Tax Foundation. State and Local Sales Tax Rates, 2026 Combined state and local sales tax rates run as high as 10% in parts of the country, so on a typical residential installation the exemption is worth anywhere from several hundred to several thousand dollars. You get the savings at the register, not later on a tax return.
With the federal residential clean energy credit no longer available for systems installed after December 31, 2025, the state-level exemption is now the main tax-side incentive most homeowners have left.
How the Exemption Actually Saves You Money
When your state exempts renewable energy equipment, your installer simply leaves sales tax off the invoice. There is usually no separate application to the state, no waiting period, and no refund process. You give the installer a completed exemption certificate, they price the job without tax, and that is the end of it.
The math is direct. On a $30,000 residential solar installation in a jurisdiction with a 7% combined sales tax rate, the exemption keeps $2,100 out of the total. That is cash you never spend, not a credit you claim months later, which matters when you are budgeting the project or financing it.
Which States Waive Sales Tax on Solar
Approximately 25 states currently exempt solar energy equipment from sales tax, though the count shifts as legislatures add, amend, or sunset programs. Five states — Alaska, Delaware, Montana, New Hampshire, and Oregon — have no general sales tax, so the question does not arise there. The remaining states tax solar equipment the same as any other purchase.
Among states that do offer an exemption, the coverage differs in ways worth checking before you sign a contract:
- Some exempt only the equipment, not the labor.
- Some cap the exemption at a certain system size or dollar amount.
- Some phase the benefit in or out over a set number of years.
- Some cover retrofits and add-ons; others limit the exemption to the original installation.
Your state’s department of revenue website is the most reliable place to confirm current rules. A program that existed last year may look different this year.
What Equipment and Labor Qualify
Solar photovoltaic panels are the most commonly exempted technology, and most states with a solar exemption extend it to related renewable systems as well:
- Solar thermal equipment for heating water or providing space heating.
- Small wind turbines, along with their generators and towers.
- Geothermal heat pumps.
- Battery storage installed alongside a qualifying renewable system.
Beyond the generating equipment itself, the exemption typically covers every component the system needs to function: inverters, racking and mounting hardware, wiring, disconnect switches, charge controllers, and monitoring equipment. The consistent test across most states is whether the component’s primary purpose is producing or directly supporting renewable energy generation. A general construction item that happens to sit near the system usually does not qualify.
Installation Labor
Many states that exempt the equipment also exempt the professional labor to install it, which matters because labor is a large share of any solar job. The exemption generally covers only work directly tied to the renewable energy system. Reroofing, unrelated electrical panel upgrades, or landscaping around a ground-mounted array typically stay taxable. Your installer’s invoice should separate the exempt solar work from any taxable construction work as distinct line items. A single lumped charge leaves neither you nor the installer with a way to prove what was exempt if the state ever asks.
Battery Storage: Paired vs. Standalone
Batteries installed together with a solar or wind system generally qualify in states that offer an exemption, because the battery is part of the renewable system. A standalone battery installed without an accompanying generating source often does not qualify, because most state statutes define eligible equipment as components that produce energy from renewable sources, and a battery stores rather than generates. This catches people who install panels one year and add batteries later. Some states accommodate that kind of retrofit; others do not. Confirm your state’s treatment before you assume the add-on will get the same tax break as the original system.
How to Claim the Exemption
Before or at the time of purchase, you complete a sales tax exemption certificate. The form name varies by state, but the function is identical everywhere. You give the certificate to your installer or equipment vendor, and they invoice you at the pre-tax price.
The certificate asks for your name and address, the vendor’s information, a description of the equipment, and a reference to the statute that authorizes the renewable energy exemption in your state. You sign a certification statement confirming the purchase qualifies. Experienced solar installers handle these forms routinely and will usually know which one applies in your jurisdiction. Some states allow or prefer digital submission through an online tax portal.
Keep copies of the completed certificate, your signed installation contract, and fully itemized invoices showing the split between equipment and labor. Those documents are your proof if the state reviews the transaction later.
If You Were Charged Tax by Mistake
If your installer charged sales tax on equipment that should have been exempt, you can file a refund claim with your state’s department of revenue. The federal refund window is generally three years from the date of filing or two years from the date of payment, and most states run on a similar timeline.2Internal Revenue Service. Time You Can Claim a Credit or Refund File as soon as you notice the error. Late claims are almost always denied regardless of the merits.
How the Exemption Interacts With Federal Tax Credits
The federal residential clean energy credit under Section 25D, which provided a 30% income tax credit for home solar installations, does not apply to expenditures made after December 31, 2025.3Office of the Law Revision Counsel. 26 U.S. Code 25D – Residential Clean Energy Credit Systems installed in 2025 or earlier can still claim the credit on that year’s return. New residential installations in 2026 and beyond no longer qualify for this federal benefit.
For anyone who did install before that cutoff, one question comes up repeatedly: does a state sales tax exemption reduce the qualifying expenses you can claim for the federal credit? No. A sales tax exemption means you never paid the tax in the first place, so there is no rebate or purchase-price adjustment to subtract from your basis. The IRS treats rebates from a manufacturer or installer differently — those do lower your credit basis — but a state policy that removes the tax obligation from the transaction does not.4Internal Revenue Service. Residential Clean Energy Credit The state exemption and the federal credit stacked fully for eligible purchases.
Business installations are on a separate track. The clean electricity investment credit under Section 48E remains available and does not lose value because of a state sales tax exemption.5Office of the Law Revision Counsel. 26 USC 48E – Clean Electricity Investment Credit
Leased Systems and Power Purchase Agreements
If you lease solar panels or sign a power purchase agreement instead of buying the equipment, the leasing company is the actual purchaser. Whether the exemption applies depends on your state’s rules and how the deal is structured. In some states, the leasing company claims the exemption and passes the savings through as a lower monthly payment. In others, leased systems do not qualify, either because the exemption is written for end users who own the equipment or because the transaction is classified as a service rather than a sale of tangible goods.
Ask the provider directly whether the sales tax exemption is factored into your pricing before you sign. If the answer is vague, press for specifics. The exemption can represent a real portion of the total system cost, and you want to know whether the benefit is reaching you or staying with the leasing company.
Maintenance, Repairs, and Replacement Parts
Sales tax treatment after the initial installation varies more than most homeowners expect. Some states exempt repair services whenever the underlying equipment is itself exempt. Others draw the line at the original purchase and installation, meaning a replacement inverter you buy five years later gets taxed even though the original one did not. Replacement panels, a new battery added to an existing system, or a technician’s labor for a repair may or may not qualify depending on how the state statute is worded.
When you are running numbers on the 25-to-30-year life of a solar system, assume future maintenance and replacement costs may include sales tax unless your state confirms otherwise. Check with your state’s department of revenue before assuming post-installation work receives the same treatment as your original purchase.
Keep the Records That Survive an Audit
Hold onto your exemption certificate, installation contract, itemized invoices, and any confirmation from the state tax authority for at least the period your state allows for audits, typically three to four years, sometimes longer. Your installer should keep their copy on file as well; many states require the seller to retain it for at least five years.
The most common audit problem is not fraud. It is paperwork. An invoice that lumps solar installation labor together with unrelated roofing work leaves no way to verify which portion was exempt. A missing exemption certificate leaves the vendor with no documentation for omitting the tax. If an audit finds that equipment claimed as exempt did not qualify, you owe the unpaid sales tax plus interest, and some states add a penalty on top. For a straightforward solar purchase with clean records, the audit risk is minimal. The records just have to exist.