Solar Incentives in Arizona

Arizona's state income tax credit (ARS 43-1090) is available to individuals who install a solar energy device at a residence in Arizona. The credit is 25% of the cost after any utility rebates are subtracted, capped at $1,000. If the credit exceeds the taxpayer's liability, the excess carries forward for up to five years. The device must be certified by the Arizona Department of Revenue. Battery storage systems installed with solar may qualify as part of the overall system. The credit is claimed on Arizona Form 310.

Arizona Revised Statutes 42-5061 and 42-5159 provide a sales tax exemption for solar energy devices. On a $25,000 system, this saves $1,400 in state transaction privilege tax. Note that county and municipal taxes (which vary by location) may still apply on top of the exempted state portion. The exemption applies to equipment purchases by both homeowners and contractors installing on behalf of customers.

APS moved away from full retail-rate net metering following an Arizona Corporation Commission decision. Excess energy exported to the grid is credited at the Excess Generation Credit (EGC) rate, which is below retail. This makes self-consumption and battery storage particularly valuable for APS customers. APS offers a separate Solar Partner Program and Residential Battery Storage rate. System size is generally limited to 125% of 12-month historical usage. The high 6.5 average peak sun hours in Arizona mean well-sized systems can still offset the majority of consumption.

SRP (Salt River Project) serves the Phoenix metro area outside APS territory. SRP's solar rate plan includes a demand charge component based on peak 30-minute interval usage, which can be significant for solar customers without battery storage. The export compensation for excess generation is below retail. Battery storage helps SRP solar customers manage peak demand charges and maximize self-consumption. Arizona's exceptional 6.5 peak sun hours per day — among the highest in the nation — mean solar systems in the Phoenix area generate substantially more energy annually than equivalent systems in most other states.

Arizona Revised Statute 42-11054 excludes the value of solar energy devices from the property's full cash value for property tax assessment. This prevents a solar installation from increasing annual property tax bills. The exemption applies automatically — no separate application is required in most Arizona counties. Given Arizona's strong property value appreciation, this exemption can represent ongoing savings of several hundred dollars per year depending on the county tax rate.