Arizona homeowners who go solar benefit from two state tax exemptions that most people don't fully appreciate: a sales tax exemption on solar equipment and a property tax exemption on the added home value. Together, these exemptions save Arizona solar customers thousands of dollars on top of the federal ITC and state income tax credit.
To see all Arizona solar incentives in one place, read our complete Arizona solar incentives guide. For how the state income tax credit works, see our Arizona $1,000 state tax credit guide.
Arizona Solar Sales Tax Exemption
What It Is
Under Arizona Revised Statutes § 42-5061(A)(37), the purchase of solar energy devices is exempt from Arizona's state transaction privilege tax (TPT, commonly called "sales tax"). Arizona's combined state + local sales tax typically runs 8–10% — so this exemption is meaningful.
How Much It Saves
| System Cost | AZ Sales Tax Rate (Avg) | Sales Tax You'd Pay | You Pay |
|---|---|---|---|
| $10,000 | 8.5% | $850 | $0 |
| $17,040 | 8.5% | $1,448 | $0 |
| $25,000 | 8.5% | $2,125 | $0 |
| $30,000 (solar + battery) | 8.5% | $2,550 | $0 |
What Qualifies for the Sales Tax Exemption
- Solar photovoltaic (PV) panels and components
- Inverters (string, microinverter, power optimizers)
- Racking and mounting systems
- Electrical components included in the solar installation
- Home batteries that are part of a solar energy system
- Solar water heating systems
How It's Applied
The sales tax exemption is applied automatically by your solar installer at the time of purchase — you don't need to file any paperwork. A compliant installer will not charge you sales tax on qualifying solar equipment. If your installer's quote includes sales tax on the solar components, ask them to clarify — in Arizona, this should not appear on your final invoice.
Note: Local municipality taxes and the application of the exemption can vary slightly. If you see a tax line on your solar invoice, ask your installer to specify exactly what it covers.
Arizona Solar Property Tax Exemption
What It Is
Under Arizona Revised Statutes § 42-11054, the added value to your home from a solar energy device is excluded from your home's assessed value for property tax purposes. This means that even though your home is worth more with solar panels, your annual property tax bill does not increase.
Why This Matters
Solar panels add an average of 3–4% to Arizona home values — typically $15,000–$30,000 on a typical home. Without the property tax exemption, that value increase would translate to higher annual property taxes indefinitely. With the exemption, you capture the home value benefit with no tax penalty.
How Much It Saves Over Time
| Home Value Added | AZ Property Tax Rate (~0.6%) | Annual Tax Without Exemption | 25-yr Savings |
|---|---|---|---|
| $15,000 | 0.6% | $90/yr | $2,250 |
| $20,000 | 0.6% | $120/yr | $3,000 |
| $30,000 | 0.6% | $180/yr | $4,500 |
What Qualifies
- Solar photovoltaic systems at your primary or secondary residence
- Solar water heating systems
- Solar-charged battery storage systems
- The exemption applies as long as you own the home and the system is in service
How It's Applied
The property tax exemption is automatic — you do not need to file any application with the county assessor. The Maricopa County and Pima County assessors both honor this exemption as a matter of standard practice. If you believe your assessment is incorrect, you can appeal through the county assessor's office.
See Your Total Incentive Package
Our calculator shows your combined federal ITC + AZ state credit + tax exemption savings in one complete picture.
Calculate My Total Savings →Complete Arizona Solar Incentive Stack
Here's the full incentive picture for a typical Arizona 8 kW system on a $500,000 home:
| Incentive | Value | How Captured |
|---|---|---|
| Federal ITC (30%) | $5,112 | Federal tax return (Form 5695) |
| Arizona state credit (25%, cap $1,000) | $1,000 | AZ tax return (Form 310) |
| Sales tax exemption | $1,448 | Automatic at purchase |
| Property tax exemption (25-yr value) | $2,500–$4,500 | Automatic — no forms required |
| Total incentive value | ~$10,000–$12,000 | Multiple channels |
Do These Exemptions Apply to Leased Systems?
The sales tax exemption typically still applies to leased systems — the transaction for solar equipment is exempt regardless of who ultimately owns it. However, the property tax exemption may be more nuanced for leased systems (the leasing company owns the panels, not you), and the income tax credits (federal ITC and AZ state credit) go to the leasing company, not you. For maximum incentive capture, system ownership (cash or loan) is strongly preferred.
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