Dear Jon,
How SAM handles income taxes depends on the financial model. Because the residential and commercial financial models are the only ones that calculate a payback period, I will limit my discussion here to those models.
The residential and commercial models assume that a single entity owns and operates the project and receives all benefits from the project, and are intended to model a scenario where the project owner is the building or home owner. The models also assume that the owner has sufficient "tax appetite" to use all of the project benefits. That means that the owner earns sufficient income to be able to deduct the full value of any tax incentives from the renewable energy project in the year that they apply. (SAM does not have any information about the owner's income.) SAM does not roll tax benefits over to future years.
The owner pays income tax on any incentives that are taxable (on the Incentives page in SAM, you check a box to determine whether or not an incentive is taxable). The electricity generated by the system represents a cash savings to the owner because the system reduces the owner's annual electricity bill. In other words, electricity sales are not considered taxable income. However, for a commercial project, SAM also assumes that electricity purchases are a tax-deductible operating expense (for both Federal and State tax purposes), so the owner must pay tax on the portion of its income that it would have deducted if the system were not in place.
I wish this were simpler, but I'm afraid anything to do with taxes is bound to be complicated! ;)
Best regards,
Paul.
