Arizona Supreme Court: Mesquite Power, LLC v. Arizona Department of Revenue
Case No.: CV-23-0016-PR Filed July 22, 2024
ISSUES:
- Whether income from a Power Purchase Agreement can be considered under the income approach to valuation for property tax purposes.
- Whether the “current usage” requirement in A.R.S. §42-11054(C)(1) mandates consideration of the Power Purchase Agreement in property valuation.
DECISION:
- Income from the Power Purchase Agreement may be considered under the income approach to valuation if it constitutes income derivable from the Mesquite Power Plant itself as a base load power plant. The tax court must consider relevant factors to determine if and to what extent the income falls within this category.
- The “current usage” requirement does not mandate consideration of the Power Purchase Agreement, as the agreement does not alter or restrict the manner in which the property is used as a base load power plant.
Synopsis:
This case involves the valuation of an electric generation facility (Mesquite Power Plant) for property tax purposes. The Arizona Department of Revenue (ADOR) used a statutory cost-based approach to value the property, which Mesquite challenged using the income approach. The key dispute was whether income from a Power Purchase Agreement should be considered in the valuation. The case applies important principles of property tax law, including the distinction between taxing tangible property and intangible assets, the proper application of the income approach to valuation in rebuttal to ADOR, and the interpretation of “current usage” in property tax statutes.
Outcome of the Case:
The Arizona Supreme Court reversed the tax court’s judgment and remanded the case for further proceedings. The Court vacated the court of appeals’ opinion.