State and Federal Taxes

ICON_Under-Construction

This topic describes SAM 3.0 and has not been revised for SAM 2009 Beta.

You may find useful information, especially if you are new to SAM, but some of the information may be inconsistent with the new version.

All projects pay state and federal taxes on the total taxable income for each year when the state and federal annual tax rates on the Financials page are non-zero. Federal and state tax cash flows are displayed in two separate sections of the cash flow spreadsheet, under the rows labeled Tax Effect on Equity (Federal) and Tax Effect on Equity (State). The tax amount for each year appears in the Tax Savings (Liability) row under each section.

For both federal and state taxes, a positive value of Tax Savings (Liability) indicates a tax savings or cash inflow. A negative value indicates a tax liability or cash outflow. It is calculated as follows:

Tax Savings (Liability) [State or Federal] =
Income Taxes [State or Federal] - Production Tax Credit - Investment Tax Credit

•	The production tax credit (PTC), if it applies, is calculated for each year by multiplying the tax credit percentage shown on the Incentives page by the value shown in the Electric Output (kWh) row of the cash flow spreadsheet.

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When an investment tax credit (ITC) applies, it is subtracted only in year one of the project; it is not subtracted in year two and subsequent years. The ITC is either equal to the fixed amount on the Incentives page, or calculated by multiplying the ITC percentage on the Incentives page by the applicable basis.

A note about incentives. Some incentives have caps that limit their maximum value, while others have escalation rates that increase their value from year to year. Others have term limits that end payments after a given number of years. In some cases the incentive income is taxable at the federal or state level, and in other cases it is not. Finally, investment and capacity based incentives may or may not reduce the basis on which the investment tax credit (ITC) is calculated. All of these factors are defined on the Incentives page.

Federal and state income taxes are calculated as follows:

Income Taxes [State or Federal] =
Total Taxable Income x Tax Rate [State or Federal]

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The total taxable income is the project income less deductible expenses. Deductible expenses include operating expenses, depreciation, interest payments, and sales tax payments. In year one, projects may pay sales tax on the total capital costs incurred in year zero. The sales tax rate is on the Financials page.

•	For residential, commercial, and utility projects, income includes receipts from incentive payments. For utility projects, income also includes revenues from electricity sales.

•	Cash inflow from state tax (state tax savings) is included in the federal taxable income. State tax outflow (liability) is deducted from the federal taxable income.