Plug-in solar systems (also known as balcony solar or apartment solar) have been legalized by seven states this year. This opens up new markets to the sellers of small solar panels, microinverters, and their related equipment. Companies that look to take advantage of this opportunity should be mindful up front of the tax obligations that come with expansion into new states. This is an area where a little up-front work can reduce risk on the back end. But even where mistakes have been made, quick attention to them can reduce liability.
Background – States Play Catch-Up with Other Countries
The United States has lagged, from a regulatory perspective, in approving plug-in solar technology. As of January 1, 2026, only one state, Utah, had legislation allowing the use of these systems. But this is changing rapidly: in 2026, 8 additional states (Colorado, Connecticut, Maine, Maryland, New Hampshire, New York, Vermont, and Virginia) have passed bills legalizing the technology, with legislation pending in other states. At a minimum, by the end of 2026, about 50 million Americans will live in states that allow the use of plug-in solar technology.
The opportunity involved is significant. The leader in adoption of this technology is arguably Germany, where approximately 1.3 million of these systems had been installed as of June 2025. This figure represents over 3% of all German households and installed capacity of over 1 GW; while that is only a small fraction of the country’s power needs, this is capacity that is not subject to fluctuating energy prices and which requires no upgrades to the grid to take advantage of. Similar rates of adoption in the United States would suggest a market for at least 4 million systems, with more generation potential, because such systems are limited to 800 watts in Germany, versus 1200 watts per the model legislation that has passed various states.
Expanding Into New States Requires Attention to Tax Requirements
Any time a company enters into business in new states, it needs to be mindful of the tax consequences of doing so. One thing we see frequently is that as a business grows rapidly, it fails to timely consider whether this expansion requires it to file and pay sales tax or income tax returns in new states. Businesses frequently assume that their return preparers or accountants are monitoring these issues for them, but as with any professional, if they are not specifically engaged for this task, it’s not safe to assume they’re looking at these issues. As a result, these businesses may later discover that they should have been collecting sales tax, or that they have been apportioning their income to the wrong states for income tax purposes. Remedying these problems on the back end may require significant time and attention, in addition to the tax penalties and interest that come with it. There are two primary areas that sellers should be concerned about – income tax and sales tax.
Income Tax – Payroll, Property, and Sales May Create Requirements
Many businesses assume that if they have their offices, warehouses, and facilities in a single state, they only have to pay income tax in that state. But this is not the case. For income tax purposes the question is whether a business has “nexus” between its income-producing activities and a state. Physical presence in a state — not just of facilities, but of employees — is one way to create such nexus. But there are other factors that can be considered, as well. The Multistate Tax Commission’s model statute on nexus uses a “factor presence” standard, where whether a company has property, payroll, or sales in a state may create nexus. Colorado, one of the states that recently legalized plug-in solar, considers a company to have income tax nexus if it has $50,000 of property located in Colorado, $50,000 in payroll in the state, or $500,000 of sales in the state (or if any of these three categories constitutes more than 25% of the company’s total property, payroll, or sales)—so even a single installer or local representative could create income tax nexus in the state. If nexus exists, then a company must apportion some of its income to the state and pay taxes on it.
Sales Tax Compliance – Economic Thresholds and Exemption Monitoring
The second area of concern is sales tax. The good news for sellers is that every state that imposes a sales tax has what is known as a “marketplace facilitator” law. If a seller sells through an online marketplace such as Amazon, the marketplace, not the seller, is required to collect sales tax and remit it to the state. But if a seller is directly selling into states that have a sales tax, in general it will have to collect and remit sales tax to those states unless the sales volume is de minimis. This is a concept known as “economic nexus.” But the important thing that sellers should know is that even completely remote sales over certain thresholds (for example, for Utah, $100,000 in sales or 200 separate transactions) trigger a requirement to collect and file sales taxes to the state.
Related to this, sellers also need to be aware of the status of sales tax exemptions in the states into which they sell. In general, as the law stands today, states will treat plug-in solar systems that are being sold to consumers as taxable. Many states have tax exemptions for commercial solar (often treating it as exempt manufacturing or pollution-control equipment), or even residential solar sales tax exemptions. Few, if any, of these would apply to plug-in solar, because these exemptions generally require that power be generated for sale or that the customer have, at minimum, a net metering arrangement. At the same time, however, it is likely that even the states that have already adopted legislation on plug-in solar may not have fully considered whether to expand their sales tax exemptions in order to promote adoption. Sellers should consult their tax advisors on whether their products are taxable or not in the states into which they’re selling.
Even Where Mistakes Have Been Made, Being Proactive is Key
Even if sellers realize after the fact that they haven’t been compliant with the tax laws in a state, there may be ways to avoid significant interest and penalties. Many states have “voluntary disclosure” programs for out-of-state sellers who have failed to register for and pay income or sales taxes. These programs generally require a seller to pay back taxes for a limited period, but generally limit or waive penalties and, occasionally, even interest. In return for the payment, the state agrees not to seek any further collections on the past tax liabilities at a later date. However, the key for these programs is that they are generally only available before a state spots the issue on its own and starts an audit — so a company that identifies a problem should move quickly to resolve it.
Conclusion
As sellers of these systems expand into new markets, they need to keep in mind that with these new markets come new tax compliance obligations. Sellers should make sure that their tax advisors monitor these issues for them and that they are properly collecting sales tax and apportioning income to the right states. Ideally, active compliance will help sellers avoid issues, but even if they discover a problem after it’s already occurred, voluntary disclosures and other steps may be taken to limit the financial impact of such mistakes. When in doubt, however, sellers should reach out to their tax advisors to understand what the implications are of beginning to sell into any new market.