It concluded that because the PPA influences the purchase price a willing buyer would pay for the real property, the proper value of should reflect its (the PPA’s) effect. The value of a LIHTC property would be reduced due to an intangible agreement i.e., deed restrictions.Īpplying what it described as parallel reasoning, the appeals court held that a willing buy would consider the PPA’s impact on the economic viability of the plant in determining the value of the real estate. It agreed that these agreements were intangible and untaxable nonetheless, no willing buyer would ignore the deed restrictions when establishing a purchase price. It had previously affirmed giving consideration to properties within the LIHTC program because they are subject to deed restrictions that result in lower rents and lower values. The appeals court found that its treatment of the low-income housing tax credits (LIHTC) program was analogous to this case.
Thus, Arizona is not alone in giving weight to an existing PPA. Moreover, some states also allow an assessor to consider an existing PPA in determining the fee simple value of a power plant even if intangible property is not taxable. A recent, arm’s-length sale of the subject property is good evidence of value. At a 30,000 foot level, this makes intuitive sense. The appeals court focused on this difference – a wide gap – and found that Mesquite had to explain the difference.Īccording to the court, even if the PPA holds value that is separate and distinct from the real property, Mesquite failed to explain the $400 million gap. Its appraiser valued the real property using the cost approach at $105 million. The property owner, Mesquite Power, LLC, purchased the subject property with an existing PPA for more than $550 million. A property’s PPA is instructive in determining the value of the property because it influences what a willing buyer would pay for the real property. The Arizona Department of Revenue successfully argued that a power purchase agreement (PPA) between the plant owners and a utility should be considered in valuing the real property. An Arizona taxpayer must overcome the presumption that the taxing authority’s valuation was excessive when derived by standard appraisal methods and techniques. Identifying and valuing intangible as distinct from tangible property is different. The real property and fixtures are constructed to generate business income. But, power plants are difficult properties to value for tax purposes. These agreements are considered intangible property.
Intangible assets, like leases, contracts and other business agreements, that benefit the business operated at a property are non-taxable under Arizona property law. Valuation HeadlinesĪrizona Appeals Court Allows Non-Taxable, Intangible Assets to Increase Taxable Value of Power Plant This article appeared in the Winter 2023 edition of The Evaluator. Tax and Economic Development Incentives.
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