HF4082

Purpose

This bill would create a temporary state income tax credit to encourage the purchase and installation of solar energy systems. The credit applies to solar PV devices, solar water heaters, and solar thermal systems (including setups that may include energy storage). It is designed to reduce the cost of adopting solar systems for eligible taxpayers, with a sunset in early 2029.

Key definitions and terms

• Solar energy system: a photovoltaic device (PV) up to 40 kilowatts, a solar water heater, or a solar thermal system, installed alone or with an energy storage system.
• Photovoltaic device: as defined in state law.
• Energy storage system: as defined in state law.
• Homestead: residential property (class 1a or 1b) or agricultural homestead (class 1a/1b or 23).
• Business property: class 3a property.
• Solar water heater: an active closed-loop system that transfers heat to water.
• Solar thermal system: a solar heating system as defined in state law.
• Eligible taxpayer: must receive electric service at retail from a municipal utility or cooperative electric association and place the solar energy system in service in Minnesota during the taxable year.

How the credit works (eligibility and calculation)

• Eligibility: available to taxpayers with retail electric service from a municipal utility or cooperative electric association who purchase and place in service a solar energy system in Minnesota during the tax year.
• Credit against tax: equal to the lesser of (a) the applicable percentage of the system’s purchase and installation costs, or (b) the maximum allowable credit.
• Applicable percentage by time period:
  • 15% for systems first placed into service after 12/31/2024 and before 1/1/2026.
  • 13% for systems first placed into service after 12/31/2025 and before 1/1/2027.
  • 11% for systems first placed into service after 12/31/2026 and before 1/1/2029.
• Maximum allowable credit per site:
  • $2,500 for a solar energy system installed on a homestead site.
  • $15,000 for a solar energy system installed on each business property site.
• Allocation for nonresidents/part-year residents: credit must be allocated based on the applicable percentage and the resident’s share of Minnesota tax liability (per existing tax rules).
• Pass-through entities: credits for partnerships, LLCs taxed as partnerships, S corporations, or multi-owner properties pass through pro rata to each partner, member, shareholder, or owner as of the last day of the taxable year or per governing agreements.

Refundability and funding

• Refundability: if the credit amount exceeds the taxpayer’s Minnesota tax liability, the commissioner must refund the excess.
• Funding for refunds: an appropriation from the general fund is provided to cover these refunds.

Expiration and sunset

• The credit program is temporary and expires January 1, 2029.

Significant changes and impact

• Establishes Minnesota’s temporary solar energy system credit, a new tax incentive with a defined sunset.
• Sets explicit credit percentages that step down over time and cap amounts per property type.
• Limits eligibility to customers of municipal utilities or cooperative electric associations.
• Includes energy storage, PV up to 40 kW, solar water heaters, and solar thermal systems, either alone or in combination.
• Incorporates flow-through treatment for certain business structures and allocation rules for nonresidents, emphasizing consistency with existing Minnesota tax provisions.

Relevant Terms - solar energy system - photovoltaic device - energy storage system - solar water heater - solar thermal system - homestead (class 1a/1b) - business property (class 3a) - municipal utility - cooperative electric association - tax credit - refundable credit - Minnesota tax liability - 40 kilowatts - 15% / 13% / 11% credit percentages - $2,500 (homestead cap) - $15,000 (business property cap) - nonresident / part-year resident allocation - pass-through entities (partnerships, LLCs, S corporations) - expiration date: January 1, 2029 - general fund appropriation