For the residential and commercial financial models, SAM assumes that the value of the electricity generated by the system is in the savings from avoided electricity purchases. It does not consider electricity sales to be taxable revenue.
For both models, the project's only taxable income is from taxable incentives. If a project has no taxable incentives, it owes no taxes.
Deductible operating expenses, interest payments (residential mortgage and commercial only), and depreciation (commercial only) are tax deductions, so generally, the project has a tax benefit rather than liability.
The effective tax rate term in the after-tax cash flow equation is based on the assumption that without the renewable energy system, the commercial entity (owner) would have treated the electricity purchases it did not make because of the renewable energy system to be a tax-deductible operating expense. With the system, the owner must pay tax on the portion of its income that it would have deducted.