Contract analysis

I. Executive Summary This memorandum sets forth our analysis of the state and local tax ("SALT") nexus, filing obligations, and tax exposure of Calloway-Briggs Renewables Inc. ("CBR" or the "Company") in each jurisdiction where it owns or operates renewable-energy projects — Texas, New Mexico, Arizona, California, and Oklahoma — as well as in Delaware, its state of incorporation. In addition, this memorandum addresse

1. Nexus in All Operating States. CBR has clear income tax and/or franchise tax nexus in all five operating states (Texas, New Mexico, Arizona, California, and Oklahoma) as well as in Delaware as the Company's state of incorporation. The bases for nexus include physical presence (real property, tangible personal property, and employees), economic presence (revenue derived from power purchase agreements ("PPAs") and e

2. Manageable but Disclosable Exposure. The Company's overall state tax exposure is manageable in the near term given the favorable concentration of operations in Texas (which imposes a franchise tax on margin rather than a traditional corporate income tax) but warrants disclosure in the Registration Statement on Form S-1 (the "S-1"), particularly in the Risk Factors section and the Management's Discussion and Analys

3. Blended Effective State Tax Rate. We estimate CBR's blended effective state tax rate at approximately 2.5%–3.5% of consolidated pre-tax income for FY 2021, reflecting the heavy weighting of operations toward Texas. As California operations expand, the blended rate is expected to increase toward 3.5%–4.5%, and this trend should be disclosed in the effective tax rate reconciliation in the Company's financial stateme

4. Stockholder-Level Implications Are Limited. Stockholder-level SALT implications are limited for most purchasers of publicly traded common stock, as gains from the sale of publicly traded stock are generally sourced to the stockholder's state of domicile, and dividends (to the extent paid, though the Company does not currently anticipate paying cash dividends) are taxed similarly. The "Material U.S. Federal Income

II. Background — Corporate Structure and Operating Footprint A. Entity Organizational Chart The following summarizes CBR's corporate organizational structure relevant to this SALT nexus analysis. Each entity, its jurisdiction of organization, its ownership, and the project or function it supports are identified below. Calloway-Briggs Renewables Inc. (Delaware C-corporation) — Top-level issuer; the entity whose common

III. Delaware — State of Incorporation A. Franchise Tax CBR was incorporated in the State of Delaware and maintains a registered agent at Capitol Statutory Services, Inc., 1209 Orange Street, Wilmington, DE 19801. As a domestic corporation organized under the laws of Delaware, CBR is subject to the Delaware annual franchise tax imposed under Title 8, Section 503 of the Delaware Code. Delaware offers two methods for c

IV. Texas — Headquarters and Principal Operating State A. Texas Franchise Tax (Margin Tax) Texas does not impose a traditional corporate income tax. Instead, Texas imposes a franchise tax (commonly referred to as the "margin tax") on all "taxable entities" doing business in Texas, as set forth in Chapter 171 of the Texas Tax Code. A "taxable entity" includes corporations, limited liability companies, partnerships, an

V. New Mexico A. Corporate Income Tax New Mexico imposes a corporate income tax on the net income of corporations doing business in the state, as set forth in the New Mexico Corporate Income and Franchise Tax Act (NMSA 1978, §§ 7-2A-1 through 7-2A-14). The term "doing business" in New Mexico is broadly defined to include any activity that is sufficient to establish nexus under the Commerce Clause of the United States

VI. Arizona A. Corporate Income Tax Arizona imposes a corporate income tax on the taxable income of corporations doing business in Arizona, as set forth in Arizona Revised Statutes ("A.R.S.") Title 43. Effective for tax years beginning after December 31, 2021, Arizona's corporate income tax rate has been reduced to a flat rate of 4.9%, down from the prior rate of 4.9% (which itself was a reduction from 6.968% applica

VII. California A. Corporate Franchise/Income Tax California imposes both a corporate franchise tax and a corporate income tax on corporations doing business in the state, pursuant to the California Revenue and Taxation Code ("CRTC") §§ 23151 and 23501, respectively. The corporate franchise tax is measured by net income and is, in effect, the primary tax imposed on corporations that are doing business in California.

VIII. Oklahoma A. Corporate Income Tax Oklahoma imposes a corporate income tax on the taxable income of corporations transacting business in or deriving income from sources within the state, pursuant to 68 O.S. § 2358. The current corporate income tax rate is a flat 4%, having been reduced from 6% through a series of legislative reductions in recent years. Oklahoma's corporate income tax rate is among the lower rates