Since my
last post on this issue, I presented my concern, that the utilities wind
assets might be undervalued; to the Calhoun county supervisors (8 turbines from
this project are located in Calhoun County). No action was taken, but a couple
of the supervisors suggested the matter should be looked into further. The
assessor suggested that I contact the Department of Revenue (D.O.R.) regarding
this issue. The staff at D.O.R. was nice enough to meet and spend quite a bit
of time discussing my concerns. They explained that since the property taxes
were assessed at the county level, contesting the valuations would be done at
the county assessor’s board. There is also a state property tax review board
with subpoena power. After that, citizens who still are contesting the rulings
in these venues would have to proceed to district court.
The D.O.R.
explained that since the property taxes were assessed locally, their job was to
provide information and assistance to the county assessors. The D.O.R. sent a Feb. 2010 memo – “Cost Reporting for Wind Towers” - to
county assessors.
Here is the
memo, along with comments inserted by me.
Property Tax Division
1305 E Walnut
Des Moines, IA 50319
515-281-4040
February 10, 2010
TO: Iowa Assessors & Deputy Assessors
FROM: Dale Hyman, Administrator
Property Tax Division
RE: Cost Reporting for Wind Towers
Iowa Code §427B.26 provides for a special valuation
of wind energy conversion property based on “net acquisition cost.” Some
assessors asked for clarification on what is to be included in “net acquisition
cost.”
Should
soft costs be included in net acquisition cost?
Yes. Soft costs are typically included in determining
the value of improved property under the cost approach. The 2008 Iowa Real
Property Appraisal Manual (page 3-2) specifically includes soft costs in
valuing improved property. In addition, the 1990 “Property Appraisal and
Assessment Administration” book by the IAAO, page 207, states: “In appraisal,
costs consist of all expenditures necessary to complete construction of an
improvement and place it in the hands of the buyer. Costs are either direct or indirect.
Direct costs include materials, labor, supervision, equipment rentals, and utilities.
Indirect costs include architectural and engineering fees, insurance, interest on
construction loans, taxes incurred during construction, advertising and sales expenses,
and reasonable overhead and profit.
“Accurate cost estimates will include all direct and
indirect costs. Accordingly, when developing cost schedules, appraisers should
be sure that all costs are accounted for.” Nothing in the definition of “net
acquisition cost” excludes soft or indirect costs from being part of the
valuation of the wind tower conversion property.
My Comment – In my opinion, the reason
the information MEC provided me does not match their filings to the county
might be explained by this section. It’s possible that not all the soft costs
are accounted for by utility and assessor. The utility filings only list turbine,
met tower, substation and land. There are 50 plus pages of invoice copies, but I
can’t determine if they have been included in the “net acquisition cost”. The easiest way for assessors to obtain this information
for MEC projects would be to access records at the Iowa Utilities Board. It also appears that some of the costs above
were instead included under the Iowa Utility Replacement
excise tax, which is taxed at a rate per KWH formula.
Part of the definition of net acquisition cost is an exclusion
for “any excess cost adjustment.” An example would be if cost are accrued at
the end of the year and the actual cost comes in lower, then there would be
excess cost adjustment to report.
Is land part of the entire wind energy
plant to be valued and subject to the special valuation?
No. The definitions of net acquisition cost and wind
energy conversion property in
427B.26(4) are relative to improvements and not land
or real property. Therefore, the intent is to value the land separately and
give the special valuation only to the improvements on the land.
My comment- Since land is listed in the
county valuations; I’m going to contact the assessor for an explanation.
Would
a general ledger summary be helpful?
Yes. A summary of the general ledger for the wind
tower project would be helpful if it shows a breakdown of the cost of the
project. Items that are in the general ledger but not in the net acquisition
cost should be itemized and reviewed by the assessor.
My comment - The invoice copies provided
to the county would seem to cover this, but again, I can’t determine if they
are in the net acquisition cost.
It’s also interesting
to note that the Iowa utility replacement excise tax was adopted in 1998 because “The Legislature found that with the advent of restructuring of the
electric and natural gas utility industry, a competitive environment would most
likely replace the regulated monopoly environment.
Previously, utility companies were
subject to property taxes levied on their production and transmission
facilities. If those property tax levies would have continued in a restructured
environment, the property tax costs would have put Iowa-based utility companies
at a competitive disadvantage because out-of-state suppliers of energy would
not have paid the Iowa property tax.”
My
understanding is that Iowa did deregulate the wholesale side of the utility
business in 2003, but not the retail side, leaving the utility monopolies in
place, perhaps legislators should revisit the excise tax. At any rate, it looks
like we might have to go a little further down the rabbit hole to sort this out.
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