Wind turbines: What are they worth at tax time? 

UPPER THUMB – When it comes to determining how wind turbines should be taxed, the State Tax Commission showed its hand when it took action last fall that would significantly lower values. Now, local governments in a statewide coalition have shown their hand.

The coalition has obtained a legal opinion and information to support the position that the state commission’s ruling does not accurately reflect the true cash value of wind turbines.

Which hand will sway the ultimate decision of how turbines will be valued? That’s up to the local board of reviews and assessors.

Assessors and board of reviews are independent of county and state governing boards. Assessors are responsible for setting assessments at half the true cash value of a property, said Huron/Tuscola Equalization Director Walt Schlichting. The board of review then is responsible for reviewing the assessor’s work and adjusting the values if necessary.

The board is governed by the state Constitution, which requires it to work by fact when evaluating the taxable value of a property.

“This is something that’s been in Michigan law for a very long time,” he said. “They have to weigh the facts that they have and make a determination of what the value is.”

The State Tax Commission is responsible for providing a format to help assessors determine the true cash value to be placed on a property. But, assessors and boards of review can consider other facts when determining true cash values, Schlichting said.

In fact, both assessors and boards of review have the legal authority and obligation to deviate from the use of the State Tax Commission’s wind turbine assessment information if it determines the commission’s findings do not reflect true cash value for the turbines being assessed, according to the coalition’s legal opinion.

In making its changes last fall, the State Tax Commission determined the value of a one- to two-year-old turbine is much lower than previously considered. In determining the value, the commission ignored the income approach to valuating turbines because they are classified as personal property, according to a response to a Freedom of Information Act request that State Tax Commission Chairman Douglas B. Roberts sent the Michigan Township Association. The Michigan Township Association is part of the statewide coalition of local government officials from Huron, Tuscola, Sanilac, Gratiot and Mason counties.

The coalition had been working on obtaining the data the State Tax Commission used last fall when it made the changes that would lower the taxable value of wind turbines. An initial response to a FOIA request seeking “a copy of that research that led to the change” stated that no documentation exists with the Michigan Department of Treasury. In the response to a subsequent FOIA request, Douglas writes, “the basis for change was common sense,” because the commission could not find any sales studies for used wind turbines. Therefore, it couldn’t use the usual selling price to define the true cash value of used wind turbines.

So the commission looked at three factors that led it to believe used wind turbines are worth much less than they previously were considered.

“First, the federal tax credit – why buy a used wind turbine when a new one will receive a tax credit,” Roberts stated. “The second factor is the belief that wind turbines are very difficult to move. The cost of moving a wind turbine from one area to another clearly encourages the purchase of a new wind turbine and not a used one. The third factor is the observation that wind turbine technology is changing rapidly, in terms of size and efficiency. Why buy a used wind turbine when a new one is more efficient?”

Carl Osentoski, executive director of the Huron County Economic Development Corp. and a contact person for the statewide coalition, said the tax commission’s response doesn’t include any background research it used to make the changes last fall. The information submitted by the statewide coalition to local boards of review and assessors does include background information that the coalition feels supports the opportunity to use a different value structure to determine the cash value of wind turbines, Osentoski said.

The information includes documents from the Michigan Public Service Commission that show it approved annual depreciation rates of 3.39 percent for wind turbines used by Detroit Edison and Consumers Energy. That is significantly less than the rates set last fall by the tax commission, which were 20 percent the first year, down to 30 percent within the next five years. The previous rates started at 100 percent and decreased to 30 percent over 15 years.

“We think that we’ve been able to provide a good resource for local board of reviews to make a decision on, as opposed to the lack of information coming from the State Tax Commission,” Osentoski said.

Huron County Commissioner Ron Wruble said the coalition’s plan strictly is to provide assessors and boards of review information – it’s not to ask them to do anything.

“That’s key,” he said. “ … All we did was give them some data and factual information that they could use to formulate their own opinion on how (turbines) should be valuated. Then they have to make the decision themselves.”

Wruble disagreed with the tax commission chairman’s reasoning for why older turbines should be valued much less than they previously were. He said companies do not build wind developments with the intent to sell turbines and have them moved to another location. Also, Wruble noted, if it’s truly the case that the value of a turbine that costs more than $1 million decreases 20 percent after the first year it’s in operation, then “why would somebody invest that kind of money if the value of their investment dropped as rapidly as they (the commission) indicated it does?”

The coalition included an international study for investors of wind developments to show wind developments are a sound investment. The coalition included the study because it bases the values on megawatts, which reinforces the coalition’s believe that valuation based on megawatts is a reasonable alternative in establishing a turbine’s true cash value. No one method of valuation has been prescribed by state law, according to the coalition’s legal opinion.

The opinion states that if the board of review decides to deviate from the tax commission’s information and it changes the assessments to reflect higher values, a wind developer could appeal the matter at a board of review meeting or go directly to the Michigan Tax Tribunal. If there are multiple appeals, as there is more than one board of review assessing wind turbines in different projects around the state, then it’s possible the appeals could be consolidated, as has been done in the past.

However, the opinion notes, appeal costs should not dissuade the boards of review from doing whatever is necessary to make the assessment rolls comply with the General Property Act, which requires assessing officials to only use their assessor’s manual and information from the State Tax Commission as a guide when preparing assessments.

“This has been interpreted to mean, on a practical level, that (tax commission information) would be used, as a starting point, and then modifications could be made based upon other circumstances in order to comply with the constitution and statutory mandate that personal property be valued at its true cash value,” the attorney’s opinion states. “ … The assessor and boards of review are not required to blindly follow the (commission’s information).”