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Commission recommends modifying solar‑energy sales‑and‑use tax exemption amid concerns over costs and targeting
Summary
After debate about grid costs, retail sellback rates and whether incentives should target manufacturing versus installation, the commission voted to recommend modifying the solar energy systems sales‑and‑use tax exemption (4.1.27). The motion passed 4–3 (2 excused).
The Tax Expenditure Review Commission voted on Jan. 28 to recommend modification of the solar energy systems sales‑and‑use tax exemption (tax expenditure 4.1.27), which the Legislative Budget Office estimates will forego about $10 million in FY2026 revenue.
Director Christian Larson summarized the exemption’s purpose and fiscal estimate, noting it was adopted in 2005 and is not conformed to the federal tax code. LBO tabulations showed mixed member views on whether the expenditure’s fiscal cost is justified and which taxpayers primarily benefit.
Senator Karan delivered an extended critique focused on how the commission’s evaluation did not measure broader grid impacts, retail rate effects for small producers, or the relative efficacy of incentives for manufacturing versus installation. “I have a huge challenge with… supporting any of them,” he said, arguing that subsidies for retail sellback and some solar garden models can increase costs for other ratepayers and that industry‑attraction incentives depend more on overall business climate than small subsidies.
Other members pressed for clearer targeting approaches, including caps, prorated incentives by project size, or separate provisions to favor in‑state manufacturing rather than installation alone. Senator Clark and others suggested sending a modification recommendation so tax committees can consider specifics.
Senator Clark moved that the commission recommend modification of tax expenditure 4.1.27; roll call recorded four yes, three no, and two excused. The motion prevailed. The commission instructed LBO to include evaluation tabulations, member comments and vote records in materials for the tax committees and the 2026 report.
Next steps: LBO will package the evaluation data and discussion highlights to help tax committees weigh targeted statutory changes, caps or alternative incentive structures.
