Supreme court ruling takes air out of county wind tax windfall
Wind power offers significantly less property tax windfall to schools and counties after a unanimous state supreme court decision last week.
The ruling decided an appeal by Kingfisher and Canadian county assessors against Kingfisher Wind LLC by finding that federal production tax credits are intangible property not subject to ad valorem taxation.
That’s a difference of more than $283 million in Kingfisher Wind’s combined property valuation in both counties, but that number could be just a tip of the iceberg statewide.
The taxability of production tax credits is at issue in state court ad valorem challenges filed by wind companies in 15 other counties, including Blaine, Caddo, Carter, Dewey, Ellis, Garfield, Grady, Grant, Kay, Kiowa, Murray, Noble, Roger Mills, Washita and Woodward.
It’s also an issue in another pending Kingfisher County lawsuit, filed by Red Dirt Wind, as well as Canadian County lawsuits filed by Minco Wind III and Minco Wind IV.
“If it (the supreme court decision) affects the entire state, this just put a big old hole in state aid,” Andy Evans, finance director at the Oklahoma Public School Resource Center, said Monday.
He elaborated in an email OPSRC sent to district superintendents Tuesday, after receiving confirmation from one of the lawyers that the supreme court’s decision sets a precedent for all pending and future challenges involving production tax credits.
“There are 20-30 wind energy systems that are currently in protest and will fall under this finding.
“A reduction of 48% of value will push districts that were off the (state aid) formula back on to the formula.”
How Property Tax Works
Unless exempt by law, real and personal property in Oklahoma is subject to ad valorem taxation in the county in which it’s located at a percentage of its fair cash value.
Fair cash value is generally described as the value at which a willing buyer would purchase property from a willing seller, both of whom are knowledgeable about the property.
Each county assessor is tasked with determining the fair cash value of all taxable property located within his or her county.
However, property owners can challenge those valuations and the subsequent tax bills, first by filing a protest with the county board of adjustment and then by filing a district court lawsuit.
Among the beneficiaries of county ad valorem taxes are school districts, which receive a hefty percentage of taxes collected on the property located within their borders.
The amount of money schools can borrow through voter-approved bond issues also is based on the assessed value of that property.
The state constitution limits that amount to 10% of the net assessed property valuation located within the school district’s boundaries.
Kingfisher Wind History
Kingfisher Wind LLC began construction of a 149-turbine wind farm in 2015, with 100 of the turbines located in Kingfisher County and 49 located across the border in Canadian County.
The property, which also includes electrical equipment, a maintenance facility, substation and transmission lines, were assessed at $182 million in Canadian County and nearly $276 million for the Kingfisher County property, after board of adjustment hearings.
Kingfisher Wind filed district court challenges in both counties, which were eventually consolidated in Canadian County District Court.
As a part of its argument, Kingfisher Wind sought to have production tax credits determined to be exempt from ad valorem taxation.
The credits are subtracted from federal taxes owed based on the energy produced by the wind farm and can actually be sold to other entities to raise financing for construction of the facility, which is exactly what Kingfisher Wind did.
Assessors argued that the resulting equity added value to the wind farm and should be included in an estimation of its fair cash value for tax purposes.
District Court Ruling
The trial court decided that the production tax credits are not really property at all, but incidental benefits that could still add value for taxation purposes.
However, at a trial to determine the valuation, the court ruled that because the tax credits were contracted out to finance construction and the experts who testified “lacked a convincing explanation” as to how to treat them, they would not be included in the valuation.
The court set the valuation at $175,000,000 total – $105,385,000 for the Kingfisher County property and $69,615,000 for Canadian. Assessors of both counties appealed the decision.
Supreme Court Ruling
While upholding that valuation, the supreme court disagreed with the finding that the credits were not property at all and instead ruled that the credits had elements of both tangible and intangible property.
However, the court relied on a 2012 constitutional amendment approved by voters holding that no intangible property is subject to property tax and found that the tax credits fall into that category.
The court left open the possibility of a legislative fix, noting that the legislature has the authority to statutorily define the credits as tangible property, thus making them subject to county taxation.
What’s the Impact?
Heath Dobrovolny, chairman of the Kingfisher County board of commissioners, told the Times and Free Press that commissioners are still reviewing the decision and will be talking to their lawyer to determine exactly how the county is impacted.
In his email to school superintendants, Evans wrote: “This will negatively impact counties where wind energy systems are located.
“The county 4-mill tax will have less valuation to distribute tax from.
“If you are in a county with wind energy systems, prepare to lessen your revenue budget to accommodate this change.”
Evans also noted that because certain districts may be returning to the state aid formula due to revenue reductions related to the ruling, the entire state will be impacted.
His office currently is working to crunch those numbers.
“This issue affects everyone,” he said. “It is a serious blow to state aid.”
Coming next: Comments from affected county superintendents and officials.