On Oct. 18, the Oklahoma Supreme Court unanimously held in Kingfisher Wind LLC v. Wehmuller that federal manufacturing tax credit are intangible private property and thus aren’t topic to property tax. In this case, Kingfisher developed and constructed two wind farms in Oklahoma that included over 100 wind turbine mills, electrical tools, a upkeep facility, substation, and transmission traces. The county assessor valued the wind farms at $458 million, whereas Kingfisher argued that they have been value solely $169 million. The sole discrepancy in valuations resulted from the county assessor together with—and Kingfisher excluding—the PTCs’ worth.
The county assessors contended that the PTCs have been tangible private property topic to taxation as a result of they “are of such an economic benefit to owning, operating, and determining the full fair cash value of the wind farm and its real property, they must be included to determine a fair and accurate taxable ad valorem valuation of the wind farm.” Kingfisher argued that PTCs are intangible private property and expressly precluded from taxation by statute.
The Oklahoma Supreme Court noticed that the state taxes all actual and private property not expressly excluded, and that Southwestern Bell Telephone Co. v. Okla. State. Bd. of Equalization held that intangible property was to be categorised as private property. Therefore, the query was whether or not intangible property was expressly excluded. Several years after Southwestern Bell, Oklahoma voters handed a referendum modifying the state’s structure to expressly present that as of Jan. 1, 2013, “intangible personal property shall not be subject to ad valorem tax or to any other tax in lieu of ad valorem tax within this State.”
The subsequent query was whether or not PTCs are intangible property of the type that the Oklahoma structure prohibits from being taxed starting Jan. 1, 2013. To reply this query, the court docket referred to its personal precedent and guidelines of statutory development.
In Globe Life and Accident Ins. Co., v. Okla. Tax Com’n, the Oklahoma Supreme Court held, “‘Intangible personal property’ encompasses property rights which—though represented by tangible objects (e.g., stock certificates, bonds and notes)—are essentially incorporeal in that they have limited intrinsic value and ultimately can only be claimed or enforced by a legal action.” Oklahoma guidelines of statutory development dictate that “all [statutory] ambiguity must be resolved in favor of the taxpayer.”
The PTCs, just like the property at situation in Globe Life (buyer lists on magnetic tapes), contained “aspects of both tangible and intangible property.” When thought-about in gentle of the aforementioned rule of statutory development, nevertheless, the Oklahoma Supreme Court was compelled to carry that the “PTCs are intangible personal property exempt from ad valorem taxation—even if they have both tangible and intangible aspects.”
The court docket additionally noticed that whereas this was a case of first impression in Oklahoma, different state courts have determined whether or not the worth of PTCs was topic to property tax. The differing constitutional and statutory provisions in these different states essentially prompted these state courts to succeed in totally different conclusions.
For occasion, differing constitutional and statutory provisions have prompted courts in Illinois, Michigan, Pennsylvania South Dakota, and Tennessee to carry that the worth of tax credit is correctly topic to property tax. On the opposite hand, courts in Arizona, Georgia, Missouri, Ohio, Oregon, and Washington have held that the worth of tax credit will not be topic to property tax. This number of outcomes creates the potential for ambiguity and alternative.
Since 1992, the Internal Revenue Code has supplied for PTCs, that are a federal tax credit score that’s generated primarily based on the kilowatt hours of electrical energy produced by sure forms of renewable or zero-emission tasks similar to wind farms. A wind farm developer could not, nevertheless, have ample federal tax legal responsibility to make use of the PTCs generated by a wind farm undertaking. Many wind undertaking builders (similar to Kingfisher) use PTCs to finance the constructing and improvement of tasks. In such circumstances, a developer constructions the undertaking so {that a} companion—generally known as a tax fairness investor—within the undertaking will contribute capital (money) in trade for receiving the PTCs.
PTCs are a cloth financial element of a wind farm undertaking, so together with or excluding the worth of PTCs materially impacts the quantity of property tax a wind farm pays. Consequently, together with or excluding the worth of PTCs within the property tax base can have a big impression of the return on funding of a wind farm undertaking.
The Kingfisher case’s significance lies in, most narrowly, its holding that PTCs aren’t topic to Oklahoma property tax. Further, the court docket correctly noticed that the number of constitutional and statutory frameworks states have adopted could prohibit the taxation of PTCs in some states whereas allowing taxation in others.
Finally, Kingfisher underscores the perfect observe of reviewing relevant legal guidelines and assessments to find out whether or not PTCs—in addition to different intangibles, similar to goodwill, contracts and mental property—could also be being improperly included in a property tax base.
This article doesn’t essentially replicate the opinion of Bloomberg Industry Group, Inc., the writer of Bloomberg Law and Bloomberg Tax, or its homeowners.
Author Information
Mike Semes is of counsel at BakerHostetler and is a professor of observe at Villanova University Charles Widger School of Law within the graduate tax program.
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