NAC362.368. Determination of gross yield.

     1. To assess and tax the net proceeds of an operating facility which extracts geothermal resources, the gross yield of the geothermal resources must be determined pursuant to this section.

     2. If the transaction involves the direct, arms-length sale of the geothermal resource, the gross yield of the geothermal resource equals the proceeds of the sale of the geothermal resource.

     3. If the transaction involves the indirect sale of the geothermal resource, the gross yield of the geothermal resource is the total revenue received from the sale of any electricity, heat or other by-product of the geothermal resource that is agreed upon by the parties to the sale, less any processing allowance or transportation allowance. If the selling price includes any costs for processing or transportation, the person extracting the geothermal resource shall report those costs on a form prescribed by the Department. The Department shall consider those costs in determining the gross yield of the geothermal resource.

     4. In the case of an indirect sale of a geothermal resource that is used to produce electricity, all energy, capacity and other payments received, if any, must be included in the gross yield of the geothermal resource.

     5. If the costs associated with the processing allowance or transportation allowance are included in a bona fide arms-length contract, the costs shall be deemed to be an appropriate deduction from the selling price. Such costs may include the negotiated costs for the operation, maintenance and replacement of the plant which are paid by the operator of the field, reduced by any negotiated costs for the operation, maintenance and replacement of the field which are paid by the operator of the plant. The negotiated costs must be set forth in a written contract or other document specified by the Department and may include, but are not limited to:

     (a) A negotiated sharing by percentage of the operating and maintenance costs of the field and the plant; or

     (b) A negotiated agreement that the operator of the field will pay for necessary improvement to the plant.

     6. If the costs associated with the processing allowance or transportation allowance are not included in a bona fide arms-length contract, the Department must consider the following:

     (a) The annual total cost of operating and maintaining the plant, transmission line and any other facility or equipment used to transport the geothermal product after all mining functions and processing are complete, including, but not limited to, any reasonable and prudent costs incurred for direct wages, benefits, workers’ compensation, supplies, materials and charges for overhead, general liability insurance incurred because of the plant and transmission line and costs for obtaining and maintaining any permit for a site, permit relating to air quality or any other permit or license required to operate the plant or transmission line. The transportation allowance for a transmission line is allowed only in direct proportion to the relationship of the field operator’s investment to the total cost of the transmission line.

     (b) The depreciation of the capital investment in the plant and transmission line using the straight-line method over the useful life of the asset established in accordance with the Personal Property Manual.

     (c) Any charges for wheeling electricity or for loss of power in the transmission line.

     (d) Amortization of each long-term contract to purchase power using the straight-line method over the stated life of the contract. Any amount amortized pursuant to this paragraph must not exceed 60 percent of the original book value of the plant and transmission line.

     (e) An allowance for return on the investment in the plant and transmission line, calculated by multiplying the cost of acquiring the plant and transmission line, as recorded in the books and records of the operator, by the overall rate of return on capital. The overall rate of return on capital must be based on the appropriate electric industry cost of capital study conducted by the Department pursuant to NAC 361.408 and 361.425.

     7. For the purpose of paragraph (e) of subsection 6:

     (a) If an agreement for the purchase of power is in effect, the Department may grant an allowance for a return on the investment for a period that is equal to the remaining term of the agreement or 15 years, whichever is less. If such an agreement is not in effect, the Department may grant the allowance for a period that is equal to the remaining useful life of the plant and transmission line or 15 years, whichever is less.

     (b) If the plant or transmission line is repowered or a reinvestment in the plant or transmission line occurs, the taxpayer may apply to the Department for an extension of the allowance specified in paragraph (a). The Department may grant an extension pursuant to this paragraph for a period that is equal to the remaining life of the assets purchased for the repowering or reinvestment or 15 years, whichever is less. The remaining life of those assets must reasonably reflect the useful life of those assets established in accordance with the Personal Property Manual.

     (c) To calculate the allowance specified in paragraph (a), the Department may require the taxpayer to submit any additional information specified by the Department, including, without limitation:

          (1) A statement setting forth the amount of any recapitalization or repowering of the plant or transmission line;

          (2) A statement setting forth the established life of the assets purchased; or

          (3) An audit of the books and records of the taxpayer.

     (d) If the Department grants an extension pursuant to paragraph (b), the amount of the return on the investment must not exceed the amount of the recapitalization or repowering of the plant or transmission line.

     8. As used in this section, “Personal Property Manual” has the meaning ascribed to it in NAC 361.1361.

     (Added to NAC by Tax Comm’n, eff. 10-9-87; A 9-13-91; R012-07, 10-31-2007; R172-12, 12-23-2013)—(Substituted in revision for NAC 362.015)

Notation

REVISER’S NOTE.

      The regulation of the Nevada Tax Commission filed with the Secretary of State on December 23, 2013 (LCB File No. R172-12), which amended this section, contains the following provision not included in NAC:

      “Sec. 4.  Sections 1, 2 and 3 of this regulation [NAC 362.040 and 362.368] do not apply to or affect:

      1.  Any depreciation of assets approved by the Nevada Tax Commission before December 23, 2013; or

      2.  Any powers or duties of the Department of Taxation or any mining operator relating to any depreciation of assets approved by the Nevada Tax Commission before December 23, 2013.”