Sales Tax and Income Tax Deductions

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Paul Gilman
Sales Tax and Income Tax Deductions

Sales tax is part of the total installed cost of a project that you specify on the System Costs page. The amount of sales tax depends on the sales tax rate from the Financing page, and the "percent of direct costs" value on the System Costs page.

For example, for a project with a 5% sales tax rate (Financing page), $1,000,000 total direct cost (System Costs page), and for which sales tax applies to 85% of the total direct cost (Financing page), the sales tax amount would be:

$1,000,000 x 0.05 x 0.85 = $42,500

SAM adds that amount along to the other indirect costs and the direct cost amount to calculate the total installed cost.

For tax purposes, SAM treats the sales tax as part of the cost of property. For projects with depreciation (Commercial PPA and Utility financing options only), sales tax is included in the depreciable basis. See IRS Publication 551 Basis of Assets for more details. For other projects (Residential financing options, or when you specify depreciation of zero), SAM does not treat sales tax as a deductible expense.

In SAM 2010.10.8 and earlier, SAM deducted the sales tax as a lump sum in Year 1 rather than spreading it over the depreciation period.

Best regards,

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