The Unexpected Connection Between Sales Tax and Sustainability
What do sales tax and sustainability have in common? On the surface, you may think the answer is nothing, but in reality, both aim to incentivize responsible choices.
Whether through tax exemptions that encourage eco-friendly investments or policies promoting economic and ecological balance, sales tax and sustainability efforts are working in tandem to create a greener, more efficient future.
In celebration of Earth Day 2025, whose theme this year is Our Power, Our Planet, let’s explore how sales tax empowers a more sustainable future.
Sales Tax Fuels the Shift to Cleaner Transportation
The rise of electric vehicles (EVs) as a solution to combat greenhouse gas emissions has been a significant trend since around 2010. Compared to their internal combustion engine counterparts, EVs offer zero tailpipe emissions, leading to improved air quality and lower energy consumption.
State sales tax rules have helped support consumers’ transition away from traditional vehicles. California, for example, offers a sales tax exemption for qualified hybrid and zero-emission vehicles. Starting January 1, 2023, the state introduced a sales and use tax exemption for qualified hybrid and zero-emission vehicles (ZEVs) sold to eligible buyers as part of its Clean Cars 4 All Program.
This program is designed to increase access to eco-friendly vehicles in low-income and disadvantaged communities. Under the program, a “qualified motor vehicle” is a vehicle that a buyer is approved to purchase with a grant through the Clean Cars 4 All Program. The buyer must fall under the definition of a “qualified buyer,” meaning an individual with the proper award letter or documentation issued by the program. The program incentivizes the adoption of hybrid and zero-emission vehicles. It also allows low-income residents to improve air quality and reduce greenhouse gas emissions by shifting to cleaner transportation options.
However, these EVs wouldn’t get far without charging equipment, making sales tax exemptions for chargers equally important. In California, Assembly Bill 156, which was enacted in 2022, created a partial sales and use tax exemption for qualifying zero-emission technology, including EV charging equipment, effective from January 1, 2023, through December 31, 2027. This exemption covers the retail sale of tangible personal property utilized in the construction, repair, or upkeep of electric vehicle charging stations, whether for residential or commercial use. The goal of the exemption is to reduce installation costs and promote the extensive development of charging infrastructure throughout the state.
New York has similar rules, as New York Tax Law Section 1115(ee), established by Assembly Bill A.10183 and Senate Bill S.8830 in 2022, provides sales tax exemptions for residential electric vehicle charging equipment. This legislation introduced a statewide sales and use tax exemption for the retail sale and installation of qualifying EV charging equipment, effective from September 1, 2022, through September 1, 2025.
Additionally, local jurisdictions in New York can implement their own exemptions, offering broader coverage in certain areas. This framework supports both state-level and local-level sales tax exemptions for residential EV charging equipment, reducing costs for consumers and promoting the growth of charging infrastructure.
Be sure to check with your local state resources for details on specific exemptions in your state and how they can support your transition to electric vehicles.
Sunsetting Old Rules: The Changing Landscape of Solar Tax Exemptions
The adoption of solar energy systems is another key initiative in the move toward a more sustainable future, and many states have introduced policies meant to make renewable energy systems more financially accessible. Washington is one such state, as it has revised and expanded its tax exemptions in an attempt to offset the upfront costs of solar energy adoption.
Initially, Washington provided a sales and use tax exemption on machinery and equipment used in solar energy systems generating 10 kilowatts (kW) or less. Larger systems were eligible for a 75% refund of the tax paid, with the same refund offered to renewable energy systems generating at least 1kW. These exemptions extended to installation labor charges and covered state and local sales tax.
However, these incentives came with expiration dates. The exemption for smaller systems ended on June 30, 2018, and the refund program for larger systems ended on January 1, 2020. Purchasers were required to submit an annual tax incentive survey to the Washington Department of Revenue to claim a 75% refund.
As of July 1, 2019, Washington replaced those earlier rules with a full sales tax exemption on the purchase and installation of qualified solar energy systems generating up to 100 kW of electricity. This exemption is only valid if the buyer provides a completed Buyer’s Retail Sales Tax Exemption Certificate to the seller at the time of purchase. Sellers must retain these certificates for five years. To qualify for the exemption on installation labor, sellers must also meet specific state registration and compliance criteria, including holding a unified business identifier (UBI) number and having no wage or hour violations in the past two years.
Beginning January 1, 2020, systems generating between 101 and 500 kW became eligible for the exemption as well. Although in these cases, tax is collected at the time of sale, and purchasers must apply for a refund through the Department of Revenue.
These evolving exemptions show how states can adjust their tax codes over time to encourage wider adoption of renewable energy while balancing administrative oversight.
When Green Incentives Meet Legal Gray Areas for Recycling Machinery Exemptions
Sales tax exemptions for recycling equipment are another way states support environmental initiatives while stimulating industrial activity. These exemptions are typically extended to businesses investing in machinery used to process recyclable materials, oftentimes under manufacturing or industrial processing categories. But as with many sales tax provisions, definitions and interpretations vary from state to state, and even from court to court.
Florida takes a straightforward and generous approach. In 2016, the state made its sales and use tax exemption for industrial machinery and equipment permanent, removing the repeal date. Notably, Florida expanded the definition of “industrial machinery and equipment” to include equipment used in metal recycling, provided it has a depreciable life of three years or more. The exemption applies not only to the equipment but also to repair parts and labor. In addition, Florida introduced an exemption for “postharvest machinery and equipment,” showing the state’s willingness to broaden sales tax relief to support key industry activities tied to sustainability and production.
Michigan, on the other hand, illustrates the complexity that can arise when interpreting these types of exemptions. The state offers a sales and use tax exemption for machinery used in “industrial processing,” but applying that exemption can be murky. In a case involving TOMRA of North America, the company argued that they should get a sales and use tax refund because its machines were part of industrial processing under Michigan’s tax laws. The Court of Claims initially ruled against TOMRA because the recycling activities occurred before the industrial had process officially begun.
When TOMRA appealed, the Court of Appeals reversed the decision with the understanding that the Michigan law did not include a strict timeline to determine when the recycling activities would be considered part of the industrial processing. The case was escalated to the Michigan Supreme Court, which ruled that the container recycling machines did qualify for the exemption, arguing that the machines perform one of the specifically listed industrial processing activities, even though this occurs outside the general time frame outlined in the statute.
Together, these examples highlight how states may promote recycling efforts through tax policy while showing that exemption eligibility often hinges on detailed legal interpretation and proper documentation.
Powering the Planet One Exemption at a Time
When you think of government efforts to aid sustainability, sales tax may not be the first thing that comes to mind. However, it plays a decisive role behind the scenes by leveraging exemptions to support renewable energy and greener systems. From lowering the cost of electric vehicles and solar installations to supporting recycling operations, sales tax exemptions offer meaningful incentives for individuals and businesses to make environmentally responsible choices.
As states continue to adapt their rules and regulations, sales tax will remain a practical tool for advocating for our planet—one exemption at a time.
Want to dive deeper into how sales tax is bringing the focus back to our Earth? Read this article to discover how tax holidays encourage eco-friendly purchases, bag fees reduce waste and sales tax exemptions help combat pollution to drive positive environmental change.