Appraisal Economics has provided litigation support to attorneys representing a Michigan taxing authority regarding wind farms and tax incentives. Specifically, we considered whether the availability of specific tax incentives necessarily indicates that the value of the property is less than its cost, which would indicate that economic obsolescence exists. Typically, newly constructed wind farms receive federal incentives for renewable energy such as the (i) Production Tax Credit; (ii) Investment Tax Credit; and (iii) Section 1603 Cash Grants. Wind farms typically also benefit from state-level renewable portfolio standards (RPS) that require utilities to purchase a minimum percentage of electricity from renewable sources, generally at higher rates than hydrocarbon-based sources of energy. The federal incentives and the terms of the power purchase agreement must therefore be examined in tandem to identify whether economic obsolescence exists immediately upon completion of construction. Any reduction to the value of the property affects the taxes assessed on the property, and is therefore of significant importance to both the taxpayer that owns the property and the taxing authority.
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