Kingfisher Wind, LLC v. Wehmuller

• Decision Date: 18 October 2022
• Docket Number: 119,837
• Citation: 521 P.3d 786
• Parties: KINGFISHER WIND, LLC, Plaintiff/Appellee, v. Matt WEHMULLER, Canadian County Assessor, and Carolyn Mulherin, Kingfisher County Assessor, Defendants/Appellants.
• Court: Oklahoma Supreme Court

521 P.3d 786

KINGFISHER WIND, LLC, Plaintiff/Appellee,

v.Matt WEHMULLER, Canadian County Assessor, and Carolyn Mulherin, Kingfisher County Assessor, Defendants/Appellants.

No. 119,837

Supreme Court of Oklahoma.

Filed October 18, 2022

Rehearing Denied December 2, 2022

William K. Elias, Jay Dobson, Brittany N. Dowd, Oklahoma City, Oklahoma, for Appellee.

Mart Tisdal, Luke Adams, Clinton, Oklahoma, Mike Fields, Canadian County District Attorney, El Reno, Oklahoma, Pat O'Hara, Patrick O'Hara, Jr. W. Jason Hartwig, Oklahoma City, Oklahoma, for Appellants.

David A. Elder, Matthew W. Brockman, Katherine R. Colclazier, Oklahoma City, Oklahoma, for Amici Curiae, Arbuckle Mountain Wind Farm, L.L.C., et al.

KAUGER, J.:

¶1 We retained this cause to resolve the first impression question of whether Production Tax Credits (PTCs) utilized to finance the building of a wind farm are "property" which can be used to determine the fair cash value of the wind farm for ad valorem taxation purposes.¹ We hold that PTCs are intangible personal property, and are not subject to ad valorem taxation pursuant to the Okla. Const. art. 10, § 6A.² Because the trial court's findings regarding valuation were not otherwise against the weight of the evidence, we affirm the trial court.

FACTS

¶2 In 2015, the plaintiff/appellee, Kingfisher Wind, L.L.C. (Kingfisher Wind) began construction of a wind farm, which included one hundred forty-nine wind turbine generators, electrical equipment, a maintenance facility, substation, and transmission lines. One hundred of the turbine generators are located in Kingfisher County, Oklahoma, and forty-nine are located in Canadian County, Oklahoma. For 2016 ad valorem tax purposes,³ the Canadian County Assessor determined the fair cash value of the property located in Canadian County to be $157,476,788.00.⁴

¶3 Kingfisher Wind filed a formal protest of the valuation with the Canadian County Board of Equalization.⁵ At the July 11 and July 29, 2016, protest hearings, the Canadian County Assessor presented an adjusted/altered cash value of $182,164,150.00, which the Canadian County Board accepted.

¶4 On August 8, 2016, Kingfisher Wind filed an appeal in the District Court of Canadian County, seeking trial de novo to correct the cash value of the property.⁶ It asserted that the actual fair cash value of the property was $84,666,000.00 or less. During the same time period, the Kingfisher County Assessor also valued the portion of the wind farm located in Kingfisher County at $321,381,200.00 for ad valorem tax purposes.

¶5 Kingfisher Wind also filed a protest with the Kingfisher County Board of Equalization and the Kingfisher Assessor presented an adjusted/altered cash value of $275,839,357.00 which the Kingfisher County Board accepted. Thus, the total fair cash value in both counties together was $458,003,507.00. Kingfisher Wind filed an appeal on August 8, 2016, in the District Court of Kingfisher County, seeking a trial de novo , asserting that the actual fair cash value was $169,331,000.00 or less.

¶6 On September 21, 2018, the Kingfisher Assessor and Kingfisher Wind jointly requested that the Kingfisher case be consolidated with the Canadian County case in the Canadian County District Court. The District Court of Kingfisher County issued an order on September 24, 2018, transferring the cause to Canadian County for purposes of consolidation and the causes were consolidated on October 12, 2018, by the District Court of Canadian County.

¶7 On April 26, 2019, Kingfisher Wind filed a Motion for Partial Summary Judgment in the now consolidated Canadian County case. It sought to have Production Tax Credits (PTCs) and certain contracts determined to be exempt from ad valorem taxation. PTCs are a federal tax equity financing concept which allowed Kingfisher Wind to finance the building of their facilities in exchange for a tax credit directly related to the kilowatt hour of electricity generated.⁷ In other words, they are a tax incentive, and they allow the owner of the PTCs to claim a tax credit on the energy produced thus saving on the payment of taxes.

¶8 PTCs are not real estate/real property, although they may be, as argued by the assessors, intrinsically tied to real estate because wind farms would likely not be built without them. Kingfisher Wind relied on:

1) The Okla. Const. art. 10 § 6A which provides that "[b]eginning January 1, 2013, intangible personal property shall not be subject to ad valorem tax or to any other tax in lieu of ad valorem tax within this State;" and

2) StillwaterHousingAssociates v. Rose, 2011 OK CIV APP 51, 254 P.3d 726 which held that tax credits are exempt from ad valorem taxation because they are intangible personal property and not income.

The parties also disputed whether certain expert testimony, documents and depositions could be considered at trial. Each side presented expert witnesses' reports with differing methods of evaluation to determine the fair cash value of the subject property. Kingfisher Wind's experts excluded the PTC's in their valuation of the property, but the County Assessors did not.

¶9 After a hearing, the trial court filed a memorandum opinion on July 26, 2019, in which it found that Stillwater Housing, supra, was unpersuasive, and an improper application of the law. Consequently, the trial court held that PTCs were subject to ad valorem taxation. Regarding the contracts which Kingfisher Wind sought as exempt from taxation, the trial court said that "[t]he Defendants conceded at the hearing that the contracts, as outlined by the Plaintiff in its brief, were in fact exempt under Oklahoma law and the Court affirms that finding and sustains that part of Plaintiff's Motion for Partial Summary Judgment." The trial court also denied Kingfisher Wind's motion regarding expert testimony and exclusion of documents and depositions.

¶10 On October 28, 2019, Kingfisher Wind filed for leave of court to file another Motion for Summary Judgment. This time it sought a clarification by the trial court as to whether it had determined that the PTCs were taxable because they were income, but not intangible personal property, or because PTCs were actually tangible personal property. On November 22, 2019, the trial court granted Kingfisher Wind's request to file another Motion for Summary Judgment.

¶11 On March 6, 2020, the trial court issued another memorandum opinion in which it determined that the PTCs are not really property of any kind — intangible or tangible. Rather, it said PTCs are incidental benefits received by investors as a result of their participation in an investment made in the future production of the wind farm that should not be treated as property. Nevertheless, it left open the issue of the "value" of PTCs to be used for taxation purposes as a matter for trial.

¶12 The trial court held a non-jury trial on April 12-14, 2021, to determine the overall fair market value of Kingfisher Wind for tax assessment purposes. On August 5, 2021, the trial court filed an order, reflecting its ruling in the non-jury trial. It ruled that:

1) the PTCs were contracted out by Kingfisher Wind to a third party prior to construction of the wind farm;⁸

2) because the PTCs were contracted out to finance construction, coupled with the fact that the experts in this cause lacked a convincing explanation as to how to treat the PTCs, the PTCs were not taxable, and were not particularly part of any value in this cause; and

3) the Kingfisher Wind farm was valued at $175,000,000 for taxation purposes with 39.78% attributable to Canadian County and 60.22% to Kingfisher County (which translated to $69,615,000 taxable value for Canadian County and $105,385,000 for Kingfisher County).

¶13 On September 7, 2021, the County Assessors appealed, and filed a motion to retain the appeal in this Court. We granted the motion and retained the cause on October 6, 2021. On April 18, 2022, fifteen wind farm limited liability companies filed a request to file an amicus curiae brief in this cause. We granted the request on May 3, 2022, and they filed the amicus curiae brief on May 31, 2022.⁹ After the briefing cycle was complete, the cause was assigned on June 29, 2022, for an opinion from the Court.

PRODUCTION TAX CREDITS ARE INTANGIBLE PERSONAL PROPERTY EXEMPT FROM AD VALOREM TAXATION UNDER THE OKLA. CONST. ART. 10 § 6A.

¶14 The commissioners label PTCs as tangible personal property subject to taxation. The gravamen of their argument is that the PTCS are of such an economic benefit to owning, operating, and determining the full fair cash value of the wind farm and its real property, they must be included to determine a fair and accurate taxable ad valorem valuation of the wind farm. Kingfisher Wind argues that PTCs are intangible personal property and are precluded from taxation by the Okla. Const. art 10, § 6A.¹⁰

a. Standard of Review

¶15 When an ad valorem tax appeal is taken to a district court, the proceeding is governed by equitable principles and the district court's review is de novo .¹¹ It is well settled that the burden of proving entitlement to an exemption is on the individual seeking the exemption, and constitutional provisions are strictly construed against those claiming exemption.¹² While we review a district court's judgment in determining fair cash value of property as to whether it is contrary to the clear weight of the evidence,¹³ questions of law, or mixed questions of law and fact are reviewed de novo .¹⁴

b. Exempted Intangible Personal Property and the PTCs.

¶16 All real and personal property in this State is generally subject to ad valorem taxation at a percentage of its fair cash value,¹⁵ unless it is expressly exempted by law.¹⁶ Fair cash value means the value or price at which a willing buyer would purchase property and a willing seller would sell property if both parties are knowledgeable about the property and its uses.¹⁷ Such property is further classified as real property, personal property, personal...