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MEMORANDUM

PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

TO: Jennifer Kwon, Responsible Partner, Capital Markets Brendan Walsh, Lead Associate, Capital Markets

FROM: Leonard Cross, Specialist Partner, Tax

CC: Natasha Forbes, Working Associate, Capital Markets

DATE: April 25, 2022

RE: State and Local Tax Nexus Analysis — Calloway-Briggs Renewables Inc. (C&H Matter No. 1015-00001)

CLIENT: Calloway-Briggs Renewables Inc. ("CBR" or the "Company")

MATTER: Proposed Initial Public Offering of Common Stock (~$600,000,000)

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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 addresses the stockholder-level SALT implications that arise in connection with the Company's proposed initial public offering (the "IPO" or the "Offering") of shares of common stock on the New York Stock Exchange under the ticker symbol "CBRI," with anticipated gross proceeds of approximately $600,000,000.

CBR is a corporation incorporated under the laws of the State of Delaware, classified as a C-corporation for federal income tax purposes, and headquartered at 4200 Ridgeline Parkway, Suite 1100, Austin, TX 78746 (Employer Identification Number 83-4027615). The Company is one of the largest independent renewable-energy platform operators in the southwestern United States, with a diversified portfolio of utility-scale wind, solar, and battery energy storage system ("BESS") assets.

The Company operates through a tiered subsidiary structure. CBR sits at the top as the issuer-level entity. Below it, CBR Holdings LLC, a Delaware limited liability company wholly owned by CBR, serves as an intermediate holding company. CBR Holdings in turn wholly owns Calloway-Briggs Operating Company LLC, a Texas limited liability company that functions as the primary operating entity. Beneath Calloway-Briggs Operating Company LLC sit the individual project-level special purpose vehicles ("SPVs") organized in Texas, Oklahoma, Arizona, and New Mexico, as well as a pipeline development entity.

For the fiscal year ended December 31, 2021 ("FY 2021"), the Company reported total revenue of approximately $487.3 million and total assets of approximately $3.94 billion. CBR employs approximately 1,240 persons across its headquarters and project sites. The Company's operating portfolio comprises approximately 3.8 gigawatts ("GW") of capacity across 22 projects in five states, with an additional 1.4 GW under construction — specifically, the Mesquite Wind project in Oldham County, Texas (420 MW, expected commercial operation date ("COD") Q3 2022) and the Cimarron Solar project in Doña Ana County, New Mexico (350 MW, expected COD Q1 2023). CBR also maintains a development pipeline of approximately 6.2 GW of additional projects at various stages of permitting and interconnection study.

This memorandum was prepared in coordination with Kessler McBride & Associates LLP, CBR's external tax advisor. Alan Kessler, Managing Partner, and Linda McBride, Partner — Tax Structures, at Kessler McBride provided the underlying state tax return data, filing history, and work papers that inform the jurisdictional analyses set forth below. We have relied upon the data and representations provided by Kessler McBride and by the Company's management, and we have not independently audited or verified such data except where specifically noted.

Key Conclusions. Our analysis yields the following principal conclusions:

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 energy sales in each jurisdiction), and statutory "doing business" thresholds.

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 Analysis of Financial Condition and Results of Operations ("MD&A") section. California's 8.84% corporate income tax rate and the mandatory combined unitary reporting requirement present the highest single-state rate exposure, and that exposure will increase materially as the Copper Basin Solar + Storage project (750 MW solar PV plus 300 MW / 1,200 MWh BESS) in Riverside County, California progresses toward its expected COD in Q2 2025. In addition, the expiration of property tax abatements and renewable-energy incentive programs in Texas and Oklahoma should be identified as risk factors.

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 statement footnotes and in the MD&A.

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 Tax Consequences" section of the S-1 should include appropriate caveats directing investors to consult their own tax advisors regarding state and local tax consequences.

The remainder of this memorandum sets forth, in detail, the basis for these conclusions on a jurisdiction-by-jurisdiction basis, followed by a discussion of federal tax matters that affect the state tax analysis, stockholder-level SALT considerations, effective tax rate disclosure recommendations, and a summary of filing obligations.

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 stock will be sold in the Offering.

CBR Holdings LLC (Delaware limited liability company, 100% owned by CBR Inc.) — Intermediate holding company with no independent operations or employees.

Calloway-Briggs Operating Company LLC (Texas limited liability company, 100% owned by CBR Holdings LLC) — Primary operating entity; holds all project-level SPVs; employs the majority of CBR's operational and development personnel.

Project SPVs (each 100% owned by Calloway-Briggs Operating Company LLC):

• Solaris West Solar LLC (Texas) — Solaris West, 450 MW solar photovoltaic ("PV"), Pecos County, TX; COD Q3 2020; subject to a tax-equity partnership-flip structure with Veltara Basin Financial LLC.

• Red Mesa Wind Energy LLC (Oklahoma) — Red Mesa Wind, 380 MW onshore wind, Custer County, OK; COD Q1 2019.

• Painted Rock Solar LLC (Arizona) — Painted Rock Solar, 320 MW solar PV, Maricopa County, AZ; COD Q4 2020.

• Pronghorn Wind LLC (Texas) — Pronghorn Wind, 510 MW onshore wind, Nolan County, TX; COD Q2 2021.

• Brazos Energy Storage LLC (Texas) — Brazos Storage, 200 MW / 800 MWh battery energy storage system ("BESS"), Fort Bend County, TX; COD Q4 2021.

• Mesquite Wind Holdings LLC (Texas) — Mesquite Wind, 420 MW onshore wind, Oldham County, TX; under construction; expected COD Q3 2022.

• Cimarron Solar Development LLC (New Mexico) — Cimarron Solar, 350 MW solar PV, Doña Ana County, NM; under construction; expected COD Q1 2023. Construction financed through a $143 million construction facility from Prairie Commercial Bank, N.A.

• CBR Development Co. LLC (Texas) — Pipeline development entity; manages early-stage and mid-stage development activities for the approximately 6.2 GW pipeline, including the Copper Basin Solar + Storage project in Riverside County, California.

B. Tax Treatment of LLCs

All subsidiary limited liability companies within the CBR organizational structure are single-member LLCs. For federal income tax purposes, each is treated as a disregarded entity pursuant to Treasury Regulations Section 301.7701-3(b)(1)(ii), meaning that for federal tax purposes, the assets, liabilities, income, and deductions of each subsidiary LLC are treated as those of its owner. The chain of disregarded entities ultimately results in all items being reported on the federal consolidated income tax return of CBR Inc. (as the sole corporate entity in the group).

For state tax purposes, however, the treatment of disregarded entities varies by jurisdiction. As discussed in detail in Sections IV through VIII below, some states follow the federal entity classification rules and treat single-member LLCs as disregarded entities, while others impose separate entity-level taxes (such as the Texas franchise tax, which applies to each "taxable entity" regardless of federal entity classification). The state-by-state analysis below identifies the applicable treatment in each jurisdiction.

CBR files as a C-corporation at the federal level, and state income tax treatment generally follows from the entity classification in each jurisdiction. Where a state requires or permits combined unitary reporting, CBR's entire chain of entities may be included in a single combined return filed by CBR Inc. as the common parent. Where separate-entity filing is the rule, the individual SPVs or their deemed owner (Calloway-Briggs Operating Company LLC or CBR Inc., depending on the applicable state's treatment of disregarded entities) may file separate state returns.

Solaris West Tax-Equity Partnership. The Solaris West Solar LLC project is subject to a tax-equity partnership-flip structure with Veltara Basin Financial LLC, which invested $280 million in the project. The partnership-flip is expected to occur in approximately 2028. This arrangement creates additional SALT considerations, including the allocation of partnership-level tax items between CBR (through Calloway-Briggs Operating Company LLC and Solaris West Solar LLC) and Veltara Basin Financial LLC for state income and franchise tax purposes. These issues are addressed in a separate memorandum (Tax-Equity Structure Memorandum — Partnership-Flip Compliance, C&H Matter No. 1015-00001), which is being prepared concurrently and will be circulated under separate cover.

C. Revenue Allocation Across States

The following table summarizes CBR's approximate FY 2021 revenue by state, based on project locations, PPA counterparties, and the situs of power delivery:

Headquarters operations and corporate overhead are allocated to Texas, where CBR maintains its principal offices and the majority of its employees. The revenue figures above are approximate and are based on the data provided by Kessler McBride & Associates LLP from the Company's internal financial records. Final apportionment calculations for each state's income or franchise tax return may differ based on the specific apportionment formula and sourcing rules applicable in each jurisdiction.

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 calculating the franchise tax:

(1) Authorized Shares Method. Under this method, the franchise tax is calculated solely based on the number of authorized shares of capital stock. The tax scales steeply as authorized share counts increase: for corporations with more than 10,000 authorized shares, the tax is $250 per 10,000-share increment (or fraction thereof), subject to a maximum of $200,000 per year. For a corporation with a large number of authorized shares — as CBR will have following the IPO — this method can produce a very high tax liability.

(2) Assumed Par Value Capital Method. Under this method, the tax is calculated based on the corporation's assumed par value capital, which takes into account the corporation's total authorized shares, par value per share, total gross assets (as reported on the federal income tax return), and total issued shares. This method generally produces a significantly lower tax liability for corporations with substantial assets and a low par value per share, and it is the method we expect CBR will elect.

CBR's post-IPO authorized share count and par value will be established in the Amended and Restated Certificate of Incorporation to be filed in connection with the Offering. We understand that the par value of CBR common stock will be $0.01 per share. The final authorized share count has not yet been determined, as it will depend on the ultimate terms of the Offering and the board's determination of an appropriate capitalization cushion, including shares reserved for the 2022 Omnibus Equity Incentive Plan (12,727,273 shares) and the 2022 Employee Stock Purchase Plan (2,545,455 shares).

Based on preliminary estimates, and assuming use of the Assumed Par Value Capital Method, we estimate CBR's annual Delaware franchise tax liability to be in the range of $180,000 to $200,000 per year. This estimate is subject to confirmation once the final authorized share count and post-IPO capitalization are established. We recommend that the final authorized share count be evaluated in consultation with Kessler McBride to optimize the Delaware franchise tax calculation. In some cases, structuring the authorized share count and par value to minimize the assumed par value capital calculation can yield meaningful savings.

The Delaware franchise tax report and payment are due annually on March 1. Failure to timely file and pay results in a $200 penalty plus 1.5% monthly interest on the unpaid balance. Additionally, failure to maintain good standing in Delaware could jeopardize CBR's ability to maintain its NYSE listing and could constitute an event of default under certain of the Company's credit agreements.

B. Delaware Corporate Income Tax

Delaware imposes a corporate income tax at a rate of 8.7% on the taxable income of corporations doing business in Delaware. However, a corporation that is merely incorporated in Delaware but does not conduct business within the state is not subject to the Delaware corporate income tax. The term "doing business" for purposes of the Delaware corporate income tax requires more than the mere maintenance of a registered agent and a corporate domicile in the state.

CBR has no operations, employees, office space, or tangible personal property in Delaware. Its only connection to Delaware is its state of incorporation and the maintenance of a registered agent at Capitol Statutory Services, Inc. CBR does not hold board meetings in Delaware, does not conduct business activities in Delaware, and does not derive revenue from sources within Delaware.

Conclusion: CBR is not subject to the Delaware corporate income tax. Its only Delaware tax obligation is the annual franchise tax described above, estimated at $180,000–$200,000 per year.

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, and other legal entities, but excludes certain entities such as sole proprietorships and certain passive entities. Single-member LLCs that are disregarded for federal income tax purposes are nonetheless treated as separate taxable entities for Texas franchise tax purposes.

Nexus. CBR has extensive nexus in Texas under any applicable standard. The Company's nexus-creating activities in Texas include:

• Corporate headquarters located at 4200 Ridgeline Parkway, Suite 1100, Austin, TX 78746, housing the Company's executive offices and principal administrative functions;

• Employees: Approximately 750 of the Company's approximately 1,240 employees are based in Texas, including executive officers Garrett Calloway (Chief Executive Officer), Elaine Briggs (President and Chief Operating Officer), Marcus Yoon (Chief Financial Officer), Dale Renfroe (Chief Development Officer), Priya Anand (Senior Vice President, Finance & Treasurer), Tomás Quintero (Senior Vice President, Construction & Engineering), and Sandra Haverford (General Counsel and Corporate Secretary), among others;

• Four operating project SPVs in Texas: Solaris West Solar LLC (450 MW, Pecos County), Pronghorn Wind LLC (510 MW, Nolan County), Brazos Energy Storage LLC (200 MW / 800 MWh, Fort Bend County), and Mesquite Wind Holdings LLC (420 MW, Oldham County, under construction);

• Development activities conducted by CBR Development Co. LLC from the Austin headquarters and at project sites throughout Texas; and

• Calloway-Briggs Operating Company LLC, the primary operating entity, which is organized as a Texas limited liability company.

Taxable Margin Calculation. The Texas franchise tax is imposed on a taxable entity's "taxable margin," which is the lesser of:

(a) 70% of total revenue;

(b) total revenue minus cost of goods sold ("COGS"); or

The taxable entity elects the method of computation that produces the lowest margin. "Total revenue" for Texas franchise tax purposes generally begins with the amounts reported on the entity's federal income tax return (or, for a disregarded entity, on the federal return of its owner), subject to certain modifications set forth in Texas Tax Code Section 171.1011.

Tax Rate. The standard franchise tax rate is 0.75% of taxable margin for most entities. A reduced rate of 0.375% applies to entities "primarily engaged in retail or wholesale trade." CBR's entities are engaged in electricity generation and sales, which does not qualify as retail or wholesale trade for purposes of this reduced rate. Accordingly, the 0.75% rate applies to CBR's Texas taxable entities.

An "E-Z computation" rate of 0.331% is available for entities with total revenue of $20 million or less; however, given CBR's revenue levels, this rate is not applicable. Similarly, a no-tax-due threshold of $1,230,000 in total revenue exempts very small entities from the franchise tax; CBR's entities far exceed this threshold.

Combined Reporting. Texas requires combined reporting for "combined groups," defined as taxable entities that are part of an affiliated group engaged in a unitary business and in which more than 50% of the ownership is held in common. CBR's entire chain of Texas entities — CBR Inc., CBR Holdings LLC, Calloway-Briggs Operating Company LLC, and each of the Texas SPVs — likely constitutes a combined group for Texas franchise tax purposes. Under combined reporting, the entities file a single combined franchise tax report, and the margin calculation is performed on a combined basis, with intercompany transactions eliminated.

Estimated Texas Franchise Tax Exposure. Based on approximately $295 million of revenue apportioned to Texas operations in FY 2021, the Texas franchise tax liability will depend on the margin calculation method elected (COGS deduction or compensation deduction). Assuming that CBR elects the method that minimizes its taxable margin — which, for a capital-intensive renewable-energy business with significant depreciation and equipment costs, is likely the COGS method — and assuming a resulting margin of approximately 25%–40% of total revenue, the estimated Texas franchise tax liability for FY 2021 would be in the range of approximately $550,000 to $885,000 on a combined basis. The exact liability is subject to confirmation by Kessler McBride based on the filed returns and the specific COGS or compensation figures applicable to CBR's combined group.

Filing Deadlines. Texas franchise tax reports are due annually on May 15. Extensions are available. Each taxable entity in the combined group must be identified in the combined report. Additionally, each Texas LLC must file a Public Information Report with the Texas Comptroller of Public Accounts in connection with the franchise tax report.

B. Texas — No State Income Tax on Individuals

Texas does not impose a state personal income tax. Article VIII, Section 24-a of the Texas Constitution prohibits the imposition of a tax on the net incomes of natural persons without voter approval. This is relevant to the SALT analysis in several respects:

• Officers and Directors. CBR's Texas-based officers and directors — including Garrett Calloway, Elaine Briggs, Dale Renfroe, Priya Anand, Tomás Quintero, Marcus Yoon, and Sandra Haverford, among others based in Austin — are not subject to Texas state income tax on their compensation, including salary, bonuses, and income from the exercise of stock options or settlement of restricted stock units ("RSUs") under the 2022 Omnibus Equity Incentive Plan and 2022 Employee Stock Purchase Plan.

• Withholding Obligations. CBR will have no Texas individual income tax withholding obligations for its Texas-based employees in connection with equity compensation events, including the exercise of incentive stock options ("ISOs"), the exercise of non-qualified stock options ("NQSOs"), the vesting of RSUs, or purchases under the 2022 Employee Stock Purchase Plan.

• Stockholder Implication. No Texas-level income tax will be imposed on dividends, capital gains, or other income from CBR common stock received by Texas-resident stockholders.

C. Property Tax

Texas imposes ad valorem property taxes on real property and tangible personal property. Property taxes are assessed and collected at the local level by county appraisal districts and taxing units (school districts, counties, municipalities, and special districts). Texas does not impose a state-level property tax (the state property tax was repealed effective January 1, 1982).

CBR's Texas project sites are located in Pecos County (Solaris West Solar), Nolan County (Pronghorn Wind), Fort Bend County (Brazos Storage), and Oldham County (Mesquite Wind, under construction). Each of these sites is subject to local ad valorem property taxes on the real property (land, land improvements, and structures) and tangible personal property (wind turbines, solar panels, inverters, BESS equipment, transformers, transmission lines, and other generation equipment) owned by the applicable project SPV.

Property Tax Abatements. Renewable-energy projects in Texas may qualify for property tax abatements under two principal statutory frameworks:

(1) Chapter 312 — Tax Abatement Act. Chapter 312 of the Texas Tax Code authorizes municipalities and counties to enter into tax abatement agreements with owners of real property in designated reinvestment zones. These agreements can abate all or a portion of the ad valorem taxes on improvements to real property and/or tangible personal property for a period of up to ten years. Several of CBR's Texas projects have existing Chapter 312 agreements; the specific terms and expiration dates of those agreements are detailed in the Due Diligence Memorandum — Real Property and Land Rights.

(2) Chapter 313 — Texas Economic Development Act. Chapter 313 of the Texas Tax Code provided a mechanism for limiting the appraised value of certain qualifying properties for school district property tax purposes. Chapter 313 agreements have been a significant incentive for renewable-energy projects in Texas, as school district taxes typically constitute the largest component of the overall property tax burden. However, Chapter 313 expired on December 31, 2022 (i.e., the authority for school districts to enter into new Chapter 313 agreements will lapse after that date). Existing Chapter 313 agreements will remain in effect through their stated terms, but new agreements will not be available for projects that have not already submitted applications and received approval. This expiration is a material development for CBR's development pipeline and should be disclosed as a risk factor in the S-1, as future Texas projects will face higher property tax burdens absent a legislative successor program.

Property tax exposure is borne at the project level by the individual SPVs. Aggregate property tax expense for CBR's Texas projects in FY 2021 was approximately $8.7 million (per Kessler McBride data); this figure is expected to increase as Mesquite Wind comes online and as any existing abatement agreements expire.

D. Texas Sales and Use Tax

Texas imposes a sales and use tax on the sale, lease, or rental of tangible personal property and certain services. The state sales tax rate is 6.25%, and local taxing jurisdictions may impose additional sales taxes of up to 2%, for a combined maximum rate of 8.25%.

Equipment and materials used in the construction of CBR's Texas renewable-energy projects are subject to Texas sales and use tax unless a specific exemption applies. Texas provides certain exemptions relevant to the energy sector, including:

• An exemption for tangible personal property that is directly used or consumed in the manufacturing process (Texas Tax Code § 151.318), which may apply to certain components of electricity generation equipment;

• An exemption for items used in the production of electricity for sale (which may extend to generation equipment, subject to the specific criteria of the applicable exemption); and

• An exemption for items sold in interstate commerce or delivered out of state.

The applicability of these exemptions to specific categories of renewable-energy equipment (e.g., wind turbine components, solar panels, inverters, battery storage systems) requires project-level analysis and has been addressed by Kessler McBride in connection with ongoing Texas sales and use tax compliance. Ongoing compliance obligations exist for each Texas SPV with respect to purchases of replacement parts, maintenance supplies, and other taxable items used at the project sites.

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 Constitution.

Nexus. CBR has clear nexus in New Mexico through its ownership and operation of Cimarron Solar Development LLC, which is constructing a 350 MW solar PV project in Doña Ana County, New Mexico. The Cimarron Solar project is being financed through a $143 million construction facility from Prairie Commercial Bank, N.A. Construction commenced in 2021, and COD is expected in Q1 2023. CBR also has development-stage activities in New Mexico related to its broader pipeline. The physical presence of real property, tangible personal property (construction equipment, materials, and partially completed solar infrastructure), and employees or contractors at the Doña Ana County site establishes nexus under both physical-presence and economic-presence standards.

Tax Rates. For tax years beginning on or after January 1, 2022, New Mexico imposes graduated corporate income tax rates as follows:

The top rate of 5.9% on net income above $500,000 apportioned to New Mexico applies to CBR. Prior to 2020, New Mexico used a three-factor apportionment formula; however, effective for tax years beginning on or after January 1, 2020, New Mexico transitioned to a single-sales-factor apportionment formula. Under this formula, a taxpayer's New Mexico-apportioned income is determined by multiplying the taxpayer's total net income by a fraction, the numerator of which is the taxpayer's New Mexico sales and the denominator of which is the taxpayer's total sales everywhere.

Combined Reporting. New Mexico may require combined reporting for affiliated groups of corporations engaged in a unitary business. Under NMSA 1978, § 7-2A-8.3, the Taxation and Revenue Department may require combined reporting where the activities of affiliated entities constitute a unitary business. CBR should anticipate that a combined return filing may be required or advantageous, depending on the relative income and loss positions of the entities in the combined group.

Current Exposure. CBR's New Mexico income tax exposure is relatively modest for FY 2021 and FY 2022, as Cimarron Solar is still under construction and has not yet begun generating significant revenue. The approximately $25 million of FY 2021 revenue attributable to New Mexico consisted primarily of pre-COD revenue from test energy and development-stage activities. Upon COD (expected Q1 2023), Cimarron Solar will begin generating revenue under its long-term PPA, and New Mexico-apportioned income will increase commensurately. This trajectory should be noted in the S-1 as part of the disclosure regarding the anticipated expansion of CBR's operations and the potential impact on the Company's effective tax rate.

B. Gross Receipts Tax

New Mexico imposes a gross receipts tax ("GRT") in lieu of a traditional retail sales tax. The GRT is imposed on the gross receipts of any person engaged in business in New Mexico from selling property, performing services, or leasing property in New Mexico. The GRT is technically imposed on the seller or service provider, though it is commonly passed through to the purchaser.

The statewide base GRT rate is 5.00%, and municipalities and counties impose additional increments. In Doña Ana County, the combined GRT rate is approximately 8.0% (subject to periodic adjustment based on local government impositions and the specific location within the county). The GRT rate in Las Cruces, the county seat of Doña Ana County, may differ from the rate at the project site depending on whether the project site falls within an incorporated municipality.

Key GRT considerations for CBR include:

• Wholesale Sales of Electricity. The sale of electricity at wholesale may be subject to GRT or may qualify for a deduction under NMSA 1978, § 7-9-65 (deduction for receipts from selling tangible personal property to a person in another state when the property is delivered to a point outside New Mexico) or other applicable deduction provisions. Whether wholesale electricity sales from Cimarron Solar to the PPA counterparty qualify for a GRT deduction depends on the terms of the PPA, the delivery point, and whether the purchaser is an out-of-state entity or a New Mexico utility. A detailed analysis of the applicable deductions for wholesale power sales should be conducted in coordination with Kessler McBride once the Cimarron Solar PPA terms and delivery arrangements are finalized.

• Construction-Phase Purchases. Equipment and materials purchased for the construction of Cimarron Solar may be subject to GRT if purchased within New Mexico or to compensating tax (the use-tax equivalent) if purchased out of state and brought into New Mexico for use. CBR should evaluate whether any high-technology or renewable-energy GRT deductions or exemptions apply to mitigate the tax burden on construction-phase purchases.

• Services Performed in New Mexico. Fees paid to contractors and service providers performing construction, engineering, and maintenance services at the Cimarron Solar site are generally subject to GRT.

C. Property Tax

Real property and personal property situated in New Mexico are subject to ad valorem property taxes assessed by the county in which the property is located. The Cimarron Solar project site in Doña Ana County will be subject to property taxes on the land, land improvements, and tangible personal property (solar panels, inverters, racking, transformers, and other equipment) once the improvements are in place.

New Mexico provides certain property tax incentives for renewable-energy facilities. Under NMSA 1978, § 7-36-36, the valuation of a solar energy system for property tax purposes may be limited; however, the applicability of this provision to utility-scale commercial solar installations (as opposed to residential or small commercial systems) requires confirmation. Additionally, New Mexico's Industrial Revenue Bond ("IRB") program may provide property tax abatement or exemption for qualifying projects located in participating municipalities or counties. CBR should evaluate whether an IRB structure is available for Cimarron Solar and, if so, whether the costs and restrictions associated with an IRB outweigh the property tax benefits.

Construction-phase property assessments should be monitored, as the county assessor may begin assessing the value of improvements during construction. CBR's project finance team should coordinate with Kessler McBride and local tax counsel in Doña Ana County to ensure timely and accurate property tax reporting.

D. Stockholder Implications

New Mexico imposes a personal income tax on residents and on nonresidents to the extent of income derived from New Mexico sources. However, New Mexico does not impose income tax on nonresident stockholders merely by reason of their holding shares of publicly traded stock in a corporation that operates in New Mexico. Nonresidents are subject to New Mexico income tax only on income that is "derived from" New Mexico sources, which generally requires a direct connection to a trade, business, or real or tangible personal property located in the state. Holding publicly traded stock does not create such a connection.

New Mexico-resident stockholders would be subject to New Mexico personal income tax on all income, including dividends and capital gains from CBR common stock, consistent with the general rule that residents are taxed on worldwide income.

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% applicable to earlier tax years). The legislature has enacted further scheduled rate reductions that may reduce the rate below 4.9% in future years, contingent upon revenue triggers being met.

Nexus. CBR has clear nexus in Arizona through the ownership and operation of Painted Rock Solar LLC, which operates a 320 MW solar PV project in Maricopa County, Arizona. The project has been in commercial operation since Q4 2020 and generated approximately $58 million in revenue during FY 2021. CBR's nexus in Arizona is established through the physical presence of real property and tangible personal property (the solar generation facility) in Maricopa County, as well as through the employment of operations and maintenance personnel at the site and the generation of revenue from the sale of electricity delivered to Arizona offtakers.

Apportionment. Arizona uses a single-sales-factor apportionment formula for corporations that have income from business activity both within and without Arizona. Under this formula, CBR's Arizona-apportioned income is determined by multiplying total net income by a fraction, the numerator of which is Arizona sales and the denominator of which is total sales everywhere. Sales of tangible personal property (including electricity, which is treated as tangible personal property for sourcing purposes in many jurisdictions) are generally sourced to the destination — i.e., the location where the property is delivered to the purchaser. For Painted Rock Solar, the PPA deliveries are to an Arizona utility at an Arizona delivery point, so the revenue is sourced to Arizona.

Based on the approximately $58 million of Arizona revenue and the single-sales-factor formula, CBR's Arizona-apportioned income and the resulting income tax liability are moderate. The exact liability depends on CBR's overall income, deductions, and the proportion of Arizona sales to total sales.

Combined Reporting. As of the date of this memorandum, Arizona does not require combined unitary reporting for affiliated groups of corporations. Each corporation that has Arizona nexus files its own separate Arizona corporate income tax return (Form 120). However, we note that the Arizona legislature has in recent sessions considered proposals to adopt mandatory combined reporting, consistent with the national trend toward combined reporting requirements. If Arizona were to adopt combined reporting, it could affect the amount of income apportioned to Arizona by CBR's unitary group, potentially increasing (or, in certain circumstances, decreasing) Arizona tax liability. We recommend monitoring Arizona legislative developments in this area.

Filing. The Arizona corporate income tax return (Form 120) is due on April 15 for calendar-year filers (or the fifteenth day of the fourth month after the close of the fiscal year for fiscal-year filers). Extensions of time to file are available.

B. Transaction Privilege Tax (TPT)

Arizona imposes a transaction privilege tax ("TPT"), which is economically similar to a sales tax but is technically imposed on the privilege of doing business in Arizona. The TPT applies to various classifications of business activities, including the utilities classification, which covers the business of producing, generating, or transmitting electricity for sale.

The state TPT rate for the utilities classification is 5.6%. Local jurisdictions (cities, counties, and special taxing districts) may impose additional TPT increments. Combined TPT rates in Maricopa County range from approximately 7.8% to 8.6%, depending on the specific city and taxing district in which the transaction occurs.

CBR should evaluate whether the generation of electricity at Painted Rock Solar for sale at wholesale under a long-term PPA is subject to Arizona TPT under the utilities classification or whether applicable exemptions apply. Certain sales of electricity by a generation facility to a regulated public service utility under a wholesale contract may be exempt from TPT, or the tax may be the responsibility of the purchaser (the utility) rather than the generator. The terms of the Painted Rock Solar PPA and the identity of the offtaker should be reviewed to determine the applicable TPT treatment. Kessler McBride has confirmed that this analysis is ongoing and that Painted Rock Solar LLC has been filing Arizona TPT returns on a monthly basis since COD.

C. Property Tax

Real property and personal property located in Arizona are subject to ad valorem property taxes assessed by the county assessor and collected by the county treasurer. The Painted Rock Solar project site in Maricopa County is subject to property taxes on both the real property (land and improvements) and the tangible personal property (solar panels, inverters, racking, and other equipment) owned by Painted Rock Solar LLC.

Arizona provides a significant property tax benefit for renewable-energy equipment. Under A.R.S. § 42-11054, certain property used for the generation of electricity from renewable energy resources (including solar, wind, and other qualifying sources) is classified as personal property and may be exempt from property taxation for a specified period. Specifically, A.R.S. § 42-11054 provides that qualifying renewable-energy equipment is exempt from property tax for the first five years after the equipment is placed in service, with a phase-in of taxable value thereafter. For Painted Rock Solar (COD Q4 2020), this exemption period — if applicable — would extend through approximately Q4 2025.

In addition, the personal property used for renewable-energy generation in Arizona is assessed at a lower percentage of full cash value (the assessment ratio for commercial and industrial personal property is 18.0% of full cash value, but certain utility property may be assessed centrally by the Arizona Department of Revenue at different ratios). The effective property tax rate for utility-scale solar in Maricopa County should be confirmed with Kessler McBride and local counsel.

D. Stockholder Implications

Arizona does not impose income tax on nonresident stockholders solely by reason of their holding stock in a corporation that has operations in Arizona. Under A.R.S. § 43-1091, a nonresident individual is subject to Arizona income tax only on income derived from Arizona sources, which generally requires a direct connection to a trade, business, or real or tangible personal property located in Arizona. The ownership of publicly traded stock in a multistate corporation does not create such a connection.

No withholding obligations arise with respect to dividends paid by CBR to nonresident stockholders at the Arizona level. Arizona-resident stockholders are subject to Arizona individual income tax on all income, including dividends and capital gains from CBR common stock.

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. The minimum franchise tax is $800 annually, and the corporate income tax rate is 8.84% — one of the highest state corporate income tax rates in the nation. The greater of the minimum franchise tax or the tax computed on net income is the amount due.

Nexus. CBR has nexus in California through multiple channels:

• PPA Deliveries to California Offtakers. CBR generated approximately $47 million in FY 2021 revenue from PPA deliveries to California utilities and other offtakers. Although the physical generation assets producing this electricity are located outside California (principally in Texas and Arizona), the delivery of electricity under PPAs to California purchasers constitutes an economic connection to California.

• Development-Stage Activities for Copper Basin Project. CBR, through CBR Development Co. LLC, is conducting development-stage activities for the Copper Basin Solar + Storage project (750 MW solar PV plus 300 MW / 1,200 MWh BESS) in Riverside County, California. These activities include site acquisition, permitting, interconnection applications, environmental review, engineering studies, and engagement of local contractors and consultants. While the Copper Basin project is not yet under construction (expected COD Q2 2025), the development activities in California contribute to establishing nexus.

• Potential Employee Presence. CBR may have employees or contractors who travel to or work in California in connection with PPA negotiations, development activities, or other business functions. Even occasional physical presence by employees can contribute to establishing nexus in California.

• California's Broad "Doing Business" Standard. Under CRTC § 23101(b) and the corresponding regulations, a taxpayer is "doing business" in California if any of the following conditions is met: (1) the taxpayer is organized or commercially domiciled in California; (2) the taxpayer's California sales exceed the lesser of $637,252 (as indexed for 2022) or 25% of total sales; (3) the taxpayer's California real and tangible personal property exceeds the lesser of $637,252 (as indexed for 2022) or 25% of total property; or (4) the taxpayer's compensation paid in California exceeds the lesser of $637,252 (as indexed for 2022) or 25% of total compensation. CBR clearly exceeds the sales threshold, with approximately $47 million of California-sourced sales in FY 2021, and therefore is "doing business" in California under the statutory standard.

Apportionment. California uses a single-sales-factor apportionment formula for most multistate business taxpayers. Under this formula, California-apportioned income equals total business income multiplied by the ratio of California sales to total sales everywhere. California employs market-based sourcing for the sale of services (i.e., services are sourced to the location of the recipient's benefit) and destination-based sourcing for sales of tangible personal property. The sale of electricity delivered to California purchasers under PPAs is sourced to California.

Based on the single-sales-factor formula and approximately $47 million of California sales out of approximately $487 million of total sales, the California apportionment percentage is approximately 9.6% for FY 2021. However, this percentage will increase substantially as the Copper Basin project comes online and begins generating California-sourced revenue. The significance of the California apportionment factor and the high 8.84% rate make California a key driver of CBR's blended effective state tax rate.

Mandatory Unitary Combined Reporting. California requires mandatory unitary combined reporting for affiliated groups of corporations engaged in a unitary business. Under CRTC § 25101 and the implementing regulations, all corporations that are members of the same commonly controlled group and are engaged in a unitary business must file a combined report in California, with intercompany transactions eliminated and a single combined apportionment factor applied to the combined income of the group. CBR's entire unitary group — including CBR Inc., CBR Holdings LLC (if treated as a corporation for California purposes), Calloway-Briggs Operating Company LLC, and each of the project SPVs — may be included in the California combined report. The treatment of disregarded entities in the California combined report context requires analysis under applicable Franchise Tax Board guidance.

A water's-edge election is available under CRTC § 25110, which allows a unitary group to exclude foreign (non-U.S.) entities from the combined report. The water's-edge election is not a material issue for CBR, as the Company's operations are entirely domestic.

Estimated California Corporate Tax Exposure. Given the 8.84% rate applied to California-apportioned income, the California corporate tax liability represents a significant component of CBR's overall state tax burden. For FY 2021, assuming a California apportionment percentage of approximately 9.6% and a combined unitary income subject to California taxation, the estimated California corporate tax liability is meaningful in absolute dollar terms and on a rate-basis. The exact amount depends on CBR's total combined unitary income, the specific items of income and deduction included in the California combined report, and any California-specific adjustments (e.g., California's non-conformity to certain federal provisions, as discussed below in Section IX).

Filing. The California corporate income/franchise tax return (Form 100) is due on April 15 for calendar-year filers (or the fifteenth day of the fourth month after the close of the fiscal year). Extensions of time to file are available.

B. California — Impact of Copper Basin Development Project

The Copper Basin Solar + Storage project represents a substantial expansion of CBR's presence in California. Upon reaching commercial operation (expected Q2 2025), the project will include:

• 750 MW of solar PV generation capacity;

• 300 MW / 1,200 MWh of battery energy storage system capacity;

• Significant real property and tangible personal property in Riverside County, California;

• Operations and maintenance employees stationed at or near the project site; and

• Revenue from the sale of electricity and storage services to California offtakers.

The addition of the Copper Basin project will substantially increase CBR's California-apportioned revenue, property, and payroll. Under the single-sales-factor formula, the California apportionment percentage will increase as California-sourced revenue from Copper Basin is added to the numerator of the sales factor. In addition, if California were to adopt a multi-factor formula or weight additional factors in the future, the physical presence of substantial property and payroll in California would further increase the apportionment percentage.

Pre-COD Deductions. Development expenditures incurred prior to COD — including site acquisition costs, permitting fees, engineering and environmental studies, and interest on construction financing — may create current-year deductions depending on the applicable capitalization rules under IRC § 263A and California's conformity thereto. Certain pre-operational costs may be required to be capitalized and amortized, while others may be currently deductible. The treatment of pre-COD expenditures should be coordinated with Kessler McBride as part of the ongoing California tax return preparation.

S-1 Disclosure. The S-1 should disclose the potential increase in CBR's effective state tax rate as California operations expand. Specifically, the MD&A section should address the anticipated impact of the Copper Basin project on the California apportionment factor and the resulting effect on the blended effective state tax rate. A risk factor should note that the Company's effective tax rate may increase as a greater proportion of revenue is apportioned to California, which imposes one of the highest corporate income tax rates in the nation.

C. California Sales and Use Tax

California imposes a sales and use tax on the sale, storage, use, or other consumption of tangible personal property in the state. The state sales tax rate is 7.25%, and local taxing jurisdictions impose additional district taxes that bring the combined rate to as high as approximately 10.25% in some locations. The applicable combined rate in Riverside County depends on the specific district taxes in effect at the project site.

Equipment and materials purchased for the construction of the Copper Basin project will be subject to California sales or use tax. Sales tax applies if the property is purchased within California; use tax applies if the property is purchased out of state and brought into California for use. CBR should evaluate whether partial exemptions are available for manufacturing or generating equipment under applicable California provisions, such as:

• The partial sales and use tax exemption for manufacturing and research equipment (CRTC § 6377.1), which provides a reduced tax rate for qualifying equipment purchased by qualified persons (generally manufacturers). The applicability of this exemption to electricity generation equipment for a renewable-energy facility is subject to analysis.

• Any industry-specific exemptions for energy generation equipment, though California's exemptions in this area are limited.

Ongoing compliance obligations will arise for purchases of replacement parts, maintenance supplies, and other taxable items used at the Copper Basin site once the project is operational.

D. California Property Tax

Real property and personal property in California are subject to ad valorem property taxes assessed by the county assessor and collected by the county tax collector. Under California Proposition 13 (Cal. Const. Art. XIII A), the assessed value of real property is generally limited to its base-year value (determined at the time of acquisition or new construction), increased by no more than 2% per year, unless a change in ownership or new construction occurs.

For the Copper Basin project, the initial assessed value of the land will be established upon acquisition by CBR (or the applicable SPV), and the assessed value of improvements will be established as new construction occurs. Upon completion of construction, the full fair market value of the completed improvements will be added to the assessment roll. Riverside County ad valorem property tax rates are approximately 1.0%–1.2% of assessed value (including any voter-approved bonded indebtedness and special district assessments).

Renewable Energy Property Tax Exemptions. California Revenue and Taxation Code § 73 provides an exclusion from property tax reassessment for "active solar energy systems" installed on qualifying real property. However, this exclusion was designed primarily for residential and small commercial rooftop solar installations and, as a general matter, does not apply to utility-scale commercial solar generation facilities. Utility-scale solar projects are classified as utility property and assessed at full fair market value. The applicability of any other renewable-energy property tax benefits to the Copper Basin project is project-specific and should be evaluated in consultation with Riverside County counsel and the State Board of Equalization.

E. Stockholder Implications

California's treatment of stockholders in publicly traded corporations involves several considerations:

• California-Resident Stockholders. California imposes income tax on California-resident individuals on all income from all sources, regardless of where the income is earned or the source of the income. Accordingly, California-resident stockholders will be subject to California income tax on dividends from CBR common stock (if any are paid) and on capital gains from the sale of CBR common stock.

• Nonresident Stockholders — General Rule. Nonresident stockholders are generally not subject to California income tax on gains from the sale of publicly traded stock. Under California sourcing principles, gains from the sale of intangible personal property (including publicly traded stock) are generally sourced to the stockholder's state of residence, not the state of the issuer's operations.

• California Clawback Provisions. California may assert taxing jurisdiction over gains from the sale of stock by nonresidents in certain narrow circumstances — for example, where the nonresident was a California resident at the time the stock was acquired and the gain is recognized on a deferred basis (such as under installment sale rules or certain deferred compensation arrangements). These provisions are generally not applicable to public-market purchases and sales of stock on a national securities exchange.

• No Withholding on Dividends. California does not require withholding on dividends paid to nonresident stockholders of publicly traded corporations.

The S-1 should include a general caveat in the "Material U.S. Federal Income Tax Consequences" section directing stockholders to consult their own tax advisors regarding the state and local tax consequences of purchasing, holding, and disposing of CBR common stock, including the specific rules applicable in their state of residence.

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 in the nation and has been trending downward.

Nexus. CBR has clear nexus in Oklahoma through the ownership and operation of Red Mesa Wind Energy LLC, which operates a 380 MW onshore wind generation facility in Custer County, Oklahoma. The project has been in commercial operation since Q1 2019 and generated approximately $62 million in revenue during FY 2021. CBR's nexus in Oklahoma is established through the physical presence of substantial real and tangible personal property (wind turbines, towers, foundations, substations, transmission lines, and related infrastructure) in Custer County, the employment of operations and maintenance personnel at the site, and the generation of revenue from the sale of electricity under a long-term PPA with an Oklahoma offtaker.

Apportionment. Oklahoma uses a three-factor apportionment formula consisting of property, payroll, and double-weighted sales (i.e., the sales factor is weighted twice, making it effectively a four-factor formula with sales counting double). For corporations that are part of a unitary business, the Oklahoma apportionment formula allocates a portion of the total unitary income to Oklahoma based on the relative proportion of the taxpayer's Oklahoma property, payroll, and sales to its total property, payroll, and sales everywhere.

CBR's Oklahoma property factor includes the real and tangible personal property located at the Red Mesa Wind site. The payroll factor includes the compensation paid to employees working at or assigned to the Red Mesa Wind project. The sales factor includes the revenue generated from the sale of electricity from Red Mesa Wind. The double-weighting of the sales factor gives greater weight to the revenue component, which is generally favorable for a capital-intensive business like CBR that has substantial property in Oklahoma but a significant proportion of total sales in other states (primarily Texas).

Combined Reporting. Oklahoma does not currently require combined unitary reporting as a general rule. Under the Oklahoma Tax Commission's regulations, each corporation that has Oklahoma nexus files its own separate Oklahoma corporate income tax return (Form 512). However, the Oklahoma Tax Commission retains the authority to require forced combination in cases where separate-entity reporting results in a distortion of income or does not fairly reflect the taxpayer's Oklahoma income. CBR should be prepared for the possibility that the Oklahoma Tax Commission could assert that combined reporting is required for CBR's unitary group, although in practice such forced combination is relatively uncommon.

Treatment of Disregarded Entities. Red Mesa Wind Energy LLC is a single-member LLC treated as a disregarded entity for federal income tax purposes. Oklahoma generally follows federal entity classification rules, meaning that Red Mesa Wind Energy LLC's income flows through to its owner (Calloway-Briggs Operating Company LLC) and ultimately to CBR Inc. for Oklahoma corporate income tax purposes. The confirmation of this treatment and the appropriate filing entity for Oklahoma purposes should be verified with Kessler McBride.

Filing. The Oklahoma corporate income tax return (Form 512) is due on or before the first day of the fourth month after the close of the tax year (i.e., April 1 for a calendar-year filer, though in practice the due date is often stated as March 15 or April 15 depending on the applicable statutory provisions and conformity to federal due dates). Extensions of time to file are available.

B. Sales and Use Tax

Oklahoma impos

MEMORANDUM
PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
TO: Jennifer Kwon, Responsible Partner, Capital Markets Brendan Walsh, Lead Associate, Capital Markets
FROM: Leonard Cross, Specialist Partner, Tax
CC: Natasha Forbes, Working Associate, Capital Markets
DATE: April 25, 2022
RE: State and Local Tax Nexus Analysis — Calloway-Briggs Renewables Inc. (C&H Matter No. 1015-00001)
CLIENT: Calloway-Briggs Renewables Inc. ("CBR" or the "Company")
MATTER: Proposed Initial Public Offering of Common Stock (~$600,000,000)
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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 addresses the stockholder-level SALT implications that arise in connection with the Company's proposed initial public offering (the "IPO" or the "Offering") of shares of common stock on the New York Stock Exchange under the ticker symbol "CBRI," with anticipated gross proceeds of approximately $600,000,000.
CBR is a corporation incorporated under the laws of the State of Delaware, classified as a C-corporation for federal income tax purposes, and headquartered at 4200 Ridgeline Parkway, Suite 1100, Austin, TX 78746 (Employer Identification Number 83-4027615). The Company is one of the largest independent renewable-energy platform operators in the southwestern United States, with a diversified portfolio of utility-scale wind, solar, and battery energy storage system ("BESS") assets.
The Company operates through a tiered subsidiary structure. CBR sits at the top as the issuer-level entity. Below it, CBR Holdings LLC, a Delaware limited liability company wholly owned by CBR, serves as an intermediate holding company. CBR Holdings in turn wholly owns Calloway-Briggs Operating Company LLC, a Texas limited liability company that functions as the primary operating entity. Beneath Calloway-Briggs Operating Company LLC sit the individual project-level special purpose vehicles ("SPVs") organized in Texas, Oklahoma, Arizona, and New Mexico, as well as a pipeline development entity.
For the fiscal year ended December 31, 2021 ("FY 2021"), the Company reported total revenue of approximately $487.3 million and total assets of approximately $3.94 billion. CBR employs approximately 1,240 persons across its headquarters and project sites. The Company's operating portfolio comprises approximately 3.8 gigawatts ("GW") of capacity across 22 projects in five states, with an additional 1.4 GW under construction — specifically, the Mesquite Wind project in Oldham County, Texas (420 MW, expected commercial operation date ("COD") Q3 2022) and the Cimarron Solar project in Doña Ana County, New Mexico (350 MW, expected COD Q1 2023). CBR also maintains a development pipeline of approximately 6.2 GW of additional projects at various stages of permitting and interconnection study.
This memorandum was prepared in coordination with Kessler McBride & Associates LLP, CBR's external tax advisor. Alan Kessler, Managing Partner, and Linda McBride, Partner — Tax Structures, at Kessler McBride provided the underlying state tax return data, filing history, and work papers that inform the jurisdictional analyses set forth below. We have relied upon the data and representations provided by Kessler McBride and by the Company's management, and we have not independently audited or verified such data except where specifically noted.
Key Conclusions. Our analysis yields the following principal conclusions:
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 energy sales in each jurisdiction), and statutory "doing business" thresholds.
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 Analysis of Financial Condition and Results of Operations ("MD&A") section. California's 8.84% corporate income tax rate and the mandatory combined unitary reporting requirement present the highest single-state rate exposure, and that exposure will increase materially as the Copper Basin Solar + Storage project (750 MW solar PV plus 300 MW / 1,200 MWh BESS) in Riverside County, California progresses toward its expected COD in Q2 2025. In addition, the expiration of property tax abatements and renewable-energy incentive programs in Texas and Oklahoma should be identified as risk factors.
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 statement footnotes and in the MD&A.
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 Tax Consequences" section of the S-1 should include appropriate caveats directing investors to consult their own tax advisors regarding state and local tax consequences.
The remainder of this memorandum sets forth, in detail, the basis for these conclusions on a jurisdiction-by-jurisdiction basis, followed by a discussion of federal tax matters that affect the state tax analysis, stockholder-level SALT considerations, effective tax rate disclosure recommendations, and a summary of filing obligations.
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 stock will be sold in the Offering.
CBR Holdings LLC (Delaware limited liability company, 100% owned by CBR Inc.) — Intermediate holding company with no independent operations or employees.
Calloway-Briggs Operating Company LLC (Texas limited liability company, 100% owned by CBR Holdings LLC) — Primary operating entity; holds all project-level SPVs; employs the majority of CBR's operational and development personnel.
Project SPVs (each 100% owned by Calloway-Briggs Operating Company LLC):
• Solaris West Solar LLC (Texas) — Solaris West, 450 MW solar photovoltaic ("PV"), Pecos County, TX; COD Q3 2020; subject to a tax-equity partnership-flip structure with Veltara Basin Financial LLC.
• Red Mesa Wind Energy LLC (Oklahoma) — Red Mesa Wind, 380 MW onshore wind, Custer County, OK; COD Q1 2019.
• Painted Rock Solar LLC (Arizona) — Painted Rock Solar, 320 MW solar PV, Maricopa County, AZ; COD Q4 2020.
• Pronghorn Wind LLC (Texas) — Pronghorn Wind, 510 MW onshore wind, Nolan County, TX; COD Q2 2021.
• Brazos Energy Storage LLC (Texas) — Brazos Storage, 200 MW / 800 MWh battery energy storage system ("BESS"), Fort Bend County, TX; COD Q4 2021.
• Mesquite Wind Holdings LLC (Texas) — Mesquite Wind, 420 MW onshore wind, Oldham County, TX; under construction; expected COD Q3 2022.
• Cimarron Solar Development LLC (New Mexico) — Cimarron Solar, 350 MW solar PV, Doña Ana County, NM; under construction; expected COD Q1 2023. Construction financed through a $143 million construction facility from Prairie Commercial Bank, N.A.
• CBR Development Co. LLC (Texas) — Pipeline development entity; manages early-stage and mid-stage development activities for the approximately 6.2 GW pipeline, including the Copper Basin Solar + Storage project in Riverside County, California.
B. Tax Treatment of LLCs
All subsidiary limited liability companies within the CBR organizational structure are single-member LLCs. For federal income tax purposes, each is treated as a disregarded entity pursuant to Treasury Regulations Section 301.7701-3(b)(1)(ii), meaning that for federal tax purposes, the assets, liabilities, income, and deductions of each subsidiary LLC are treated as those of its owner. The chain of disregarded entities ultimately results in all items being reported on the federal consolidated income tax return of CBR Inc. (as the sole corporate entity in the group).
For state tax purposes, however, the treatment of disregarded entities varies by jurisdiction. As discussed in detail in Sections IV through VIII below, some states follow the federal entity classification rules and treat single-member LLCs as disregarded entities, while others impose separate entity-level taxes (such as the Texas franchise tax, which applies to each "taxable entity" regardless of federal entity classification). The state-by-state analysis below identifies the applicable treatment in each jurisdiction.
CBR files as a C-corporation at the federal level, and state income tax treatment generally follows from the entity classification in each jurisdiction. Where a state requires or permits combined unitary reporting, CBR's entire chain of entities may be included in a single combined return filed by CBR Inc. as the common parent. Where separate-entity filing is the rule, the individual SPVs or their deemed owner (Calloway-Briggs Operating Company LLC or CBR Inc., depending on the applicable state's treatment of disregarded entities) may file separate state returns.
Solaris West Tax-Equity Partnership. The Solaris West Solar LLC project is subject to a tax-equity partnership-flip structure with Veltara Basin Financial LLC, which invested $280 million in the project. The partnership-flip is expected to occur in approximately 2028. This arrangement creates additional SALT considerations, including the allocation of partnership-level tax items between CBR (through Calloway-Briggs Operating Company LLC and Solaris West Solar LLC) and Veltara Basin Financial LLC for state income and franchise tax purposes. These issues are addressed in a separate memorandum (Tax-Equity Structure Memorandum — Partnership-Flip Compliance, C&H Matter No. 1015-00001), which is being prepared concurrently and will be circulated under separate cover.
C. Revenue Allocation Across States
The following table summarizes CBR's approximate FY 2021 revenue by state, based on project locations, PPA counterparties, and the situs of power delivery:
Headquarters operations and corporate overhead are allocated to Texas, where CBR maintains its principal offices and the majority of its employees. The revenue figures above are approximate and are based on the data provided by Kessler McBride & Associates LLP from the Company's internal financial records. Final apportionment calculations for each state's income or franchise tax return may differ based on the specific apportionment formula and sourcing rules applicable in each jurisdiction.
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 calculating the franchise tax:
(1) Authorized Shares Method. Under this method, the franchise tax is calculated solely based on the number of authorized shares of capital stock. The tax scales steeply as authorized share counts increase: for corporations with more than 10,000 authorized shares, the tax is $250 per 10,000-share increment (or fraction thereof), subject to a maximum of $200,000 per year. For a corporation with a large number of authorized shares — as CBR will have following the IPO — this method can produce a very high tax liability.
(2) Assumed Par Value Capital Method. Under this method, the tax is calculated based on the corporation's assumed par value capital, which takes into account the corporation's total authorized shares, par value per share, total gross assets (as reported on the federal income tax return), and total issued shares. This method generally produces a significantly lower tax liability for corporations with substantial assets and a low par value per share, and it is the method we expect CBR will elect.
CBR's post-IPO authorized share count and par value will be established in the Amended and Restated Certificate of Incorporation to be filed in connection with the Offering. We understand that the par value of CBR common stock will be $0.01 per share. The final authorized share count has not yet been determined, as it will depend on the ultimate terms of the Offering and the board's determination of an appropriate capitalization cushion, including shares reserved for the 2022 Omnibus Equity Incentive Plan (12,727,273 shares) and the 2022 Employee Stock Purchase Plan (2,545,455 shares).
Based on preliminary estimates, and assuming use of the Assumed Par Value Capital Method, we estimate CBR's annual Delaware franchise tax liability to be in the range of $180,000 to $200,000 per year. This estimate is subject to confirmation once the final authorized share count and post-IPO capitalization are established. We recommend that the final authorized share count be evaluated in consultation with Kessler McBride to optimize the Delaware franchise tax calculation. In some cases, structuring the authorized share count and par value to minimize the assumed par value capital calculation can yield meaningful savings.
The Delaware franchise tax report and payment are due annually on March 1. Failure to timely file and pay results in a $200 penalty plus 1.5% monthly interest on the unpaid balance. Additionally, failure to maintain good standing in Delaware could jeopardize CBR's ability to maintain its NYSE listing and could constitute an event of default under certain of the Company's credit agreements.
B. Delaware Corporate Income Tax
Delaware imposes a corporate income tax at a rate of 8.7% on the taxable income of corporations doing business in Delaware. However, a corporation that is merely incorporated in Delaware but does not conduct business within the state is not subject to the Delaware corporate income tax. The term "doing business" for purposes of the Delaware corporate income tax requires more than the mere maintenance of a registered agent and a corporate domicile in the state.
CBR has no operations, employees, office space, or tangible personal property in Delaware. Its only connection to Delaware is its state of incorporation and the maintenance of a registered agent at Capitol Statutory Services, Inc. CBR does not hold board meetings in Delaware, does not conduct business activities in Delaware, and does not derive revenue from sources within Delaware.
Conclusion: CBR is not subject to the Delaware corporate income tax. Its only Delaware tax obligation is the annual franchise tax described above, estimated at $180,000–$200,000 per year.
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, and other legal entities, but excludes certain entities such as sole proprietorships and certain passive entities. Single-member LLCs that are disregarded for federal income tax purposes are nonetheless treated as separate taxable entities for Texas franchise tax purposes.
Nexus. CBR has extensive nexus in Texas under any applicable standard. The Company's nexus-creating activities in Texas include:
• Corporate headquarters located at 4200 Ridgeline Parkway, Suite 1100, Austin, TX 78746, housing the Company's executive offices and principal administrative functions;
• Employees: Approximately 750 of the Company's approximately 1,240 employees are based in Texas, including executive officers Garrett Calloway (Chief Executive Officer), Elaine Briggs (President and Chief Operating Officer), Marcus Yoon (Chief Financial Officer), Dale Renfroe (Chief Development Officer), Priya Anand (Senior Vice President, Finance & Treasurer), Tomás Quintero (Senior Vice President, Construction & Engineering), and Sandra Haverford (General Counsel and Corporate Secretary), among others;
• Four operating project SPVs in Texas: Solaris West Solar LLC (450 MW, Pecos County), Pronghorn Wind LLC (510 MW, Nolan County), Brazos Energy Storage LLC (200 MW / 800 MWh, Fort Bend County), and Mesquite Wind Holdings LLC (420 MW, Oldham County, under construction);
• Development activities conducted by CBR Development Co. LLC from the Austin headquarters and at project sites throughout Texas; and
• Calloway-Briggs Operating Company LLC, the primary operating entity, which is organized as a Texas limited liability company.
Taxable Margin Calculation. The Texas franchise tax is imposed on a taxable entity's "taxable margin," which is the lesser of:
(a) 70% of total revenue;
(b) total revenue minus cost of goods sold ("COGS"); or
(c) total revenue minus total compensation paid.
The taxable entity elects the method of computation that produces the lowest margin. "Total revenue" for Texas franchise tax purposes generally begins with the amounts reported on the entity's federal income tax return (or, for a disregarded entity, on the federal return of its owner), subject to certain modifications set forth in Texas Tax Code Section 171.1011.
Tax Rate. The standard franchise tax rate is 0.75% of taxable margin for most entities. A reduced rate of 0.375% applies to entities "primarily engaged in retail or wholesale trade." CBR's entities are engaged in electricity generation and sales, which does not qualify as retail or wholesale trade for purposes of this reduced rate. Accordingly, the 0.75% rate applies to CBR's Texas taxable entities.
An "E-Z computation" rate of 0.331% is available for entities with total revenue of $20 million or less; however, given CBR's revenue levels, this rate is not applicable. Similarly, a no-tax-due threshold of $1,230,000 in total revenue exempts very small entities from the franchise tax; CBR's entities far exceed this threshold.
Combined Reporting. Texas requires combined reporting for "combined groups," defined as taxable entities that are part of an affiliated group engaged in a unitary business and in which more than 50% of the ownership is held in common. CBR's entire chain of Texas entities — CBR Inc., CBR Holdings LLC, Calloway-Briggs Operating Company LLC, and each of the Texas SPVs — likely constitutes a combined group for Texas franchise tax purposes. Under combined reporting, the entities file a single combined franchise tax report, and the margin calculation is performed on a combined basis, with intercompany transactions eliminated.
Estimated Texas Franchise Tax Exposure. Based on approximately $295 million of revenue apportioned to Texas operations in FY 2021, the Texas franchise tax liability will depend on the margin calculation method elected (COGS deduction or compensation deduction). Assuming that CBR elects the method that minimizes its taxable margin — which, for a capital-intensive renewable-energy business with significant depreciation and equipment costs, is likely the COGS method — and assuming a resulting margin of approximately 25%–40% of total revenue, the estimated Texas franchise tax liability for FY 2021 would be in the range of approximately $550,000 to $885,000 on a combined basis. The exact liability is subject to confirmation by Kessler McBride based on the filed returns and the specific COGS or compensation figures applicable to CBR's combined group.
Filing Deadlines. Texas franchise tax reports are due annually on May 15. Extensions are available. Each taxable entity in the combined group must be identified in the combined report. Additionally, each Texas LLC must file a Public Information Report with the Texas Comptroller of Public Accounts in connection with the franchise tax report.
B. Texas — No State Income Tax on Individuals
Texas does not impose a state personal income tax. Article VIII, Section 24-a of the Texas Constitution prohibits the imposition of a tax on the net incomes of natural persons without voter approval. This is relevant to the SALT analysis in several respects:
• Officers and Directors. CBR's Texas-based officers and directors — including Garrett Calloway, Elaine Briggs, Dale Renfroe, Priya Anand, Tomás Quintero, Marcus Yoon, and Sandra Haverford, among others based in Austin — are not subject to Texas state income tax on their compensation, including salary, bonuses, and income from the exercise of stock options or settlement of restricted stock units ("RSUs") under the 2022 Omnibus Equity Incentive Plan and 2022 Employee Stock Purchase Plan.
• Withholding Obligations. CBR will have no Texas individual income tax withholding obligations for its Texas-based employees in connection with equity compensation events, including the exercise of incentive stock options ("ISOs"), the exercise of non-qualified stock options ("NQSOs"), the vesting of RSUs, or purchases under the 2022 Employee Stock Purchase Plan.
• Stockholder Implication. No Texas-level income tax will be imposed on dividends, capital gains, or other income from CBR common stock received by Texas-resident stockholders.
C. Property Tax
Texas imposes ad valorem property taxes on real property and tangible personal property. Property taxes are assessed and collected at the local level by county appraisal districts and taxing units (school districts, counties, municipalities, and special districts). Texas does not impose a state-level property tax (the state property tax was repealed effective January 1, 1982).
CBR's Texas project sites are located in Pecos County (Solaris West Solar), Nolan County (Pronghorn Wind), Fort Bend County (Brazos Storage), and Oldham County (Mesquite Wind, under construction). Each of these sites is subject to local ad valorem property taxes on the real property (land, land improvements, and structures) and tangible personal property (wind turbines, solar panels, inverters, BESS equipment, transformers, transmission lines, and other generation equipment) owned by the applicable project SPV.
Property Tax Abatements. Renewable-energy projects in Texas may qualify for property tax abatements under two principal statutory frameworks:
(1) Chapter 312 — Tax Abatement Act. Chapter 312 of the Texas Tax Code authorizes municipalities and counties to enter into tax abatement agreements with owners of real property in designated reinvestment zones. These agreements can abate all or a portion of the ad valorem taxes on improvements to real property and/or tangible personal property for a period of up to ten years. Several of CBR's Texas projects have existing Chapter 312 agreements; the specific terms and expiration dates of those agreements are detailed in the Due Diligence Memorandum — Real Property and Land Rights.
(2) Chapter 313 — Texas Economic Development Act. Chapter 313 of the Texas Tax Code provided a mechanism for limiting the appraised value of certain qualifying properties for school district property tax purposes. Chapter 313 agreements have been a significant incentive for renewable-energy projects in Texas, as school district taxes typically constitute the largest component of the overall property tax burden. However, Chapter 313 expired on December 31, 2022 (i.e., the authority for school districts to enter into new Chapter 313 agreements will lapse after that date). Existing Chapter 313 agreements will remain in effect through their stated terms, but new agreements will not be available for projects that have not already submitted applications and received approval. This expiration is a material development for CBR's development pipeline and should be disclosed as a risk factor in the S-1, as future Texas projects will face higher property tax burdens absent a legislative successor program.
Property tax exposure is borne at the project level by the individual SPVs. Aggregate property tax expense for CBR's Texas projects in FY 2021 was approximately $8.7 million (per Kessler McBride data); this figure is expected to increase as Mesquite Wind comes online and as any existing abatement agreements expire.
D. Texas Sales and Use Tax
Texas imposes a sales and use tax on the sale, lease, or rental of tangible personal property and certain services. The state sales tax rate is 6.25%, and local taxing jurisdictions may impose additional sales taxes of up to 2%, for a combined maximum rate of 8.25%.
Equipment and materials used in the construction of CBR's Texas renewable-energy projects are subject to Texas sales and use tax unless a specific exemption applies. Texas provides certain exemptions relevant to the energy sector, including:
• An exemption for tangible personal property that is directly used or consumed in the manufacturing process (Texas Tax Code § 151.318), which may apply to certain components of electricity generation equipment;
• An exemption for items used in the production of electricity for sale (which may extend to generation equipment, subject to the specific criteria of the applicable exemption); and
• An exemption for items sold in interstate commerce or delivered out of state.
The applicability of these exemptions to specific categories of renewable-energy equipment (e.g., wind turbine components, solar panels, inverters, battery storage systems) requires project-level analysis and has been addressed by Kessler McBride in connection with ongoing Texas sales and use tax compliance. Ongoing compliance obligations exist for each Texas SPV with respect to purchases of replacement parts, maintenance supplies, and other taxable items used at the project sites.
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 Constitution.
Nexus. CBR has clear nexus in New Mexico through its ownership and operation of Cimarron Solar Development LLC, which is constructing a 350 MW solar PV project in Doña Ana County, New Mexico. The Cimarron Solar project is being financed through a $143 million construction facility from Prairie Commercial Bank, N.A. Construction commenced in 2021, and COD is expected in Q1 2023. CBR also has development-stage activities in New Mexico related to its broader pipeline. The physical presence of real property, tangible personal property (construction equipment, materials, and partially completed solar infrastructure), and employees or contractors at the Doña Ana County site establishes nexus under both physical-presence and economic-presence standards.
Tax Rates. For tax years beginning on or after January 1, 2022, New Mexico imposes graduated corporate income tax rates as follows:
The top rate of 5.9% on net income above $500,000 apportioned to New Mexico applies to CBR. Prior to 2020, New Mexico used a three-factor apportionment formula; however, effective for tax years beginning on or after January 1, 2020, New Mexico transitioned to a single-sales-factor apportionment formula. Under this formula, a taxpayer's New Mexico-apportioned income is determined by multiplying the taxpayer's total net income by a fraction, the numerator of which is the taxpayer's New Mexico sales and the denominator of which is the taxpayer's total sales everywhere.
Combined Reporting. New Mexico may require combined reporting for affiliated groups of corporations engaged in a unitary business. Under NMSA 1978, § 7-2A-8.3, the Taxation and Revenue Department may require combined reporting where the activities of affiliated entities constitute a unitary business. CBR should anticipate that a combined return filing may be required or advantageous, depending on the relative income and loss positions of the entities in the combined group.
Current Exposure. CBR's New Mexico income tax exposure is relatively modest for FY 2021 and FY 2022, as Cimarron Solar is still under construction and has not yet begun generating significant revenue. The approximately $25 million of FY 2021 revenue attributable to New Mexico consisted primarily of pre-COD revenue from test energy and development-stage activities. Upon COD (expected Q1 2023), Cimarron Solar will begin generating revenue under its long-term PPA, and New Mexico-apportioned income will increase commensurately. This trajectory should be noted in the S-1 as part of the disclosure regarding the anticipated expansion of CBR's operations and the potential impact on the Company's effective tax rate.
B. Gross Receipts Tax
New Mexico imposes a gross receipts tax ("GRT") in lieu of a traditional retail sales tax. The GRT is imposed on the gross receipts of any person engaged in business in New Mexico from selling property, performing services, or leasing property in New Mexico. The GRT is technically imposed on the seller or service provider, though it is commonly passed through to the purchaser.
The statewide base GRT rate is 5.00%, and municipalities and counties impose additional increments. In Doña Ana County, the combined GRT rate is approximately 8.0% (subject to periodic adjustment based on local government impositions and the specific location within the county). The GRT rate in Las Cruces, the county seat of Doña Ana County, may differ from the rate at the project site depending on whether the project site falls within an incorporated municipality.
Key GRT considerations for CBR include:
• Wholesale Sales of Electricity. The sale of electricity at wholesale may be subject to GRT or may qualify for a deduction under NMSA 1978, § 7-9-65 (deduction for receipts from selling tangible personal property to a person in another state when the property is delivered to a point outside New Mexico) or other applicable deduction provisions. Whether wholesale electricity sales from Cimarron Solar to the PPA counterparty qualify for a GRT deduction depends on the terms of the PPA, the delivery point, and whether the purchaser is an out-of-state entity or a New Mexico utility. A detailed analysis of the applicable deductions for wholesale power sales should be conducted in coordination with Kessler McBride once the Cimarron Solar PPA terms and delivery arrangements are finalized.
• Construction-Phase Purchases. Equipment and materials purchased for the construction of Cimarron Solar may be subject to GRT if purchased within New Mexico or to compensating tax (the use-tax equivalent) if purchased out of state and brought into New Mexico for use. CBR should evaluate whether any high-technology or renewable-energy GRT deductions or exemptions apply to mitigate the tax burden on construction-phase purchases.
• Services Performed in New Mexico. Fees paid to contractors and service providers performing construction, engineering, and maintenance services at the Cimarron Solar site are generally subject to GRT.
C. Property Tax
Real property and personal property situated in New Mexico are subject to ad valorem property taxes assessed by the county in which the property is located. The Cimarron Solar project site in Doña Ana County will be subject to property taxes on the land, land improvements, and tangible personal property (solar panels, inverters, racking, transformers, and other equipment) once the improvements are in place.
New Mexico provides certain property tax incentives for renewable-energy facilities. Under NMSA 1978, § 7-36-36, the valuation of a solar energy system for property tax purposes may be limited; however, the applicability of this provision to utility-scale commercial solar installations (as opposed to residential or small commercial systems) requires confirmation. Additionally, New Mexico's Industrial Revenue Bond ("IRB") program may provide property tax abatement or exemption for qualifying projects located in participating municipalities or counties. CBR should evaluate whether an IRB structure is available for Cimarron Solar and, if so, whether the costs and restrictions associated with an IRB outweigh the property tax benefits.
Construction-phase property assessments should be monitored, as the county assessor may begin assessing the value of improvements during construction. CBR's project finance team should coordinate with Kessler McBride and local tax counsel in Doña Ana County to ensure timely and accurate property tax reporting.
D. Stockholder Implications
New Mexico imposes a personal income tax on residents and on nonresidents to the extent of income derived from New Mexico sources. However, New Mexico does not impose income tax on nonresident stockholders merely by reason of their holding shares of publicly traded stock in a corporation that operates in New Mexico. Nonresidents are subject to New Mexico income tax only on income that is "derived from" New Mexico sources, which generally requires a direct connection to a trade, business, or real or tangible personal property located in the state. Holding publicly traded stock does not create such a connection.
New Mexico-resident stockholders would be subject to New Mexico personal income tax on all income, including dividends and capital gains from CBR common stock, consistent with the general rule that residents are taxed on worldwide income.
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% applicable to earlier tax years). The legislature has enacted further scheduled rate reductions that may reduce the rate below 4.9% in future years, contingent upon revenue triggers being met.
Nexus. CBR has clear nexus in Arizona through the ownership and operation of Painted Rock Solar LLC, which operates a 320 MW solar PV project in Maricopa County, Arizona. The project has been in commercial operation since Q4 2020 and generated approximately $58 million in revenue during FY 2021. CBR's nexus in Arizona is established through the physical presence of real property and tangible personal property (the solar generation facility) in Maricopa County, as well as through the employment of operations and maintenance personnel at the site and the generation of revenue from the sale of electricity delivered to Arizona offtakers.
Apportionment. Arizona uses a single-sales-factor apportionment formula for corporations that have income from business activity both within and without Arizona. Under this formula, CBR's Arizona-apportioned income is determined by multiplying total net income by a fraction, the numerator of which is Arizona sales and the denominator of which is total sales everywhere. Sales of tangible personal property (including electricity, which is treated as tangible personal property for sourcing purposes in many jurisdictions) are generally sourced to the destination — i.e., the location where the property is delivered to the purchaser. For Painted Rock Solar, the PPA deliveries are to an Arizona utility at an Arizona delivery point, so the revenue is sourced to Arizona.
Based on the approximately $58 million of Arizona revenue and the single-sales-factor formula, CBR's Arizona-apportioned income and the resulting income tax liability are moderate. The exact liability depends on CBR's overall income, deductions, and the proportion of Arizona sales to total sales.
Combined Reporting. As of the date of this memorandum, Arizona does not require combined unitary reporting for affiliated groups of corporations. Each corporation that has Arizona nexus files its own separate Arizona corporate income tax return (Form 120). However, we note that the Arizona legislature has in recent sessions considered proposals to adopt mandatory combined reporting, consistent with the national trend toward combined reporting requirements. If Arizona were to adopt combined reporting, it could affect the amount of income apportioned to Arizona by CBR's unitary group, potentially increasing (or, in certain circumstances, decreasing) Arizona tax liability. We recommend monitoring Arizona legislative developments in this area.
Filing. The Arizona corporate income tax return (Form 120) is due on April 15 for calendar-year filers (or the fifteenth day of the fourth month after the close of the fiscal year for fiscal-year filers). Extensions of time to file are available.
B. Transaction Privilege Tax (TPT)
Arizona imposes a transaction privilege tax ("TPT"), which is economically similar to a sales tax but is technically imposed on the privilege of doing business in Arizona. The TPT applies to various classifications of business activities, including the utilities classification, which covers the business of producing, generating, or transmitting electricity for sale.
The state TPT rate for the utilities classification is 5.6%. Local jurisdictions (cities, counties, and special taxing districts) may impose additional TPT increments. Combined TPT rates in Maricopa County range from approximately 7.8% to 8.6%, depending on the specific city and taxing district in which the transaction occurs.
CBR should evaluate whether the generation of electricity at Painted Rock Solar for sale at wholesale under a long-term PPA is subject to Arizona TPT under the utilities classification or whether applicable exemptions apply. Certain sales of electricity by a generation facility to a regulated public service utility under a wholesale contract may be exempt from TPT, or the tax may be the responsibility of the purchaser (the utility) rather than the generator. The terms of the Painted Rock Solar PPA and the identity of the offtaker should be reviewed to determine the applicable TPT treatment. Kessler McBride has confirmed that this analysis is ongoing and that Painted Rock Solar LLC has been filing Arizona TPT returns on a monthly basis since COD.
C. Property Tax
Real property and personal property located in Arizona are subject to ad valorem property taxes assessed by the county assessor and collected by the county treasurer. The Painted Rock Solar project site in Maricopa County is subject to property taxes on both the real property (land and improvements) and the tangible personal property (solar panels, inverters, racking, and other equipment) owned by Painted Rock Solar LLC.
Arizona provides a significant property tax benefit for renewable-energy equipment. Under A.R.S. § 42-11054, certain property used for the generation of electricity from renewable energy resources (including solar, wind, and other qualifying sources) is classified as personal property and may be exempt from property taxation for a specified period. Specifically, A.R.S. § 42-11054 provides that qualifying renewable-energy equipment is exempt from property tax for the first five years after the equipment is placed in service, with a phase-in of taxable value thereafter. For Painted Rock Solar (COD Q4 2020), this exemption period — if applicable — would extend through approximately Q4 2025.
In addition, the personal property used for renewable-energy generation in Arizona is assessed at a lower percentage of full cash value (the assessment ratio for commercial and industrial personal property is 18.0% of full cash value, but certain utility property may be assessed centrally by the Arizona Department of Revenue at different ratios). The effective property tax rate for utility-scale solar in Maricopa County should be confirmed with Kessler McBride and local counsel.
D. Stockholder Implications
Arizona does not impose income tax on nonresident stockholders solely by reason of their holding stock in a corporation that has operations in Arizona. Under A.R.S. § 43-1091, a nonresident individual is subject to Arizona income tax only on income derived from Arizona sources, which generally requires a direct connection to a trade, business, or real or tangible personal property located in Arizona. The ownership of publicly traded stock in a multistate corporation does not create such a connection.
No withholding obligations arise with respect to dividends paid by CBR to nonresident stockholders at the Arizona level. Arizona-resident stockholders are subject to Arizona individual income tax on all income, including dividends and capital gains from CBR common stock.
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. The minimum franchise tax is $800 annually, and the corporate income tax rate is 8.84% — one of the highest state corporate income tax rates in the nation. The greater of the minimum franchise tax or the tax computed on net income is the amount due.
Nexus. CBR has nexus in California through multiple channels:
• PPA Deliveries to California Offtakers. CBR generated approximately $47 million in FY 2021 revenue from PPA deliveries to California utilities and other offtakers. Although the physical generation assets producing this electricity are located outside California (principally in Texas and Arizona), the delivery of electricity under PPAs to California purchasers constitutes an economic connection to California.
• Development-Stage Activities for Copper Basin Project. CBR, through CBR Development Co. LLC, is conducting development-stage activities for the Copper Basin Solar + Storage project (750 MW solar PV plus 300 MW / 1,200 MWh BESS) in Riverside County, California. These activities include site acquisition, permitting, interconnection applications, environmental review, engineering studies, and engagement of local contractors and consultants. While the Copper Basin project is not yet under construction (expected COD Q2 2025), the development activities in California contribute to establishing nexus.
• Potential Employee Presence. CBR may have employees or contractors who travel to or work in California in connection with PPA negotiations, development activities, or other business functions. Even occasional physical presence by employees can contribute to establishing nexus in California.
• California's Broad "Doing Business" Standard. Under CRTC § 23101(b) and the corresponding regulations, a taxpayer is "doing business" in California if any of the following conditions is met: (1) the taxpayer is organized or commercially domiciled in California; (2) the taxpayer's California sales exceed the lesser of $637,252 (as indexed for 2022) or 25% of total sales; (3) the taxpayer's California real and tangible personal property exceeds the lesser of $637,252 (as indexed for 2022) or 25% of total property; or (4) the taxpayer's compensation paid in California exceeds the lesser of $637,252 (as indexed for 2022) or 25% of total compensation. CBR clearly exceeds the sales threshold, with approximately $47 million of California-sourced sales in FY 2021, and therefore is "doing business" in California under the statutory standard.
Apportionment. California uses a single-sales-factor apportionment formula for most multistate business taxpayers. Under this formula, California-apportioned income equals total business income multiplied by the ratio of California sales to total sales everywhere. California employs market-based sourcing for the sale of services (i.e., services are sourced to the location of the recipient's benefit) and destination-based sourcing for sales of tangible personal property. The sale of electricity delivered to California purchasers under PPAs is sourced to California.
Based on the single-sales-factor formula and approximately $47 million of California sales out of approximately $487 million of total sales, the California apportionment percentage is approximately 9.6% for FY 2021. However, this percentage will increase substantially as the Copper Basin project comes online and begins generating California-sourced revenue. The significance of the California apportionment factor and the high 8.84% rate make California a key driver of CBR's blended effective state tax rate.
Mandatory Unitary Combined Reporting. California requires mandatory unitary combined reporting for affiliated groups of corporations engaged in a unitary business. Under CRTC § 25101 and the implementing regulations, all corporations that are members of the same commonly controlled group and are engaged in a unitary business must file a combined report in California, with intercompany transactions eliminated and a single combined apportionment factor applied to the combined income of the group. CBR's entire unitary group — including CBR Inc., CBR Holdings LLC (if treated as a corporation for California purposes), Calloway-Briggs Operating Company LLC, and each of the project SPVs — may be included in the California combined report. The treatment of disregarded entities in the California combined report context requires analysis under applicable Franchise Tax Board guidance.
A water's-edge election is available under CRTC § 25110, which allows a unitary group to exclude foreign (non-U.S.) entities from the combined report. The water's-edge election is not a material issue for CBR, as the Company's operations are entirely domestic.
Estimated California Corporate Tax Exposure. Given the 8.84% rate applied to California-apportioned income, the California corporate tax liability represents a significant component of CBR's overall state tax burden. For FY 2021, assuming a California apportionment percentage of approximately 9.6% and a combined unitary income subject to California taxation, the estimated California corporate tax liability is meaningful in absolute dollar terms and on a rate-basis. The exact amount depends on CBR's total combined unitary income, the specific items of income and deduction included in the California combined report, and any California-specific adjustments (e.g., California's non-conformity to certain federal provisions, as discussed below in Section IX).
Filing. The California corporate income/franchise tax return (Form 100) is due on April 15 for calendar-year filers (or the fifteenth day of the fourth month after the close of the fiscal year). Extensions of time to file are available.
B. California — Impact of Copper Basin Development Project
The Copper Basin Solar + Storage project represents a substantial expansion of CBR's presence in California. Upon reaching commercial operation (expected Q2 2025), the project will include:
• 750 MW of solar PV generation capacity;
• 300 MW / 1,200 MWh of battery energy storage system capacity;
• Significant real property and tangible personal property in Riverside County, California;
• Operations and maintenance employees stationed at or near the project site; and
• Revenue from the sale of electricity and storage services to California offtakers.
The addition of the Copper Basin project will substantially increase CBR's California-apportioned revenue, property, and payroll. Under the single-sales-factor formula, the California apportionment percentage will increase as California-sourced revenue from Copper Basin is added to the numerator of the sales factor. In addition, if California were to adopt a multi-factor formula or weight additional factors in the future, the physical presence of substantial property and payroll in California would further increase the apportionment percentage.
Pre-COD Deductions. Development expenditures incurred prior to COD — including site acquisition costs, permitting fees, engineering and environmental studies, and interest on construction financing — may create current-year deductions depending on the applicable capitalization rules under IRC § 263A and California's conformity thereto. Certain pre-operational costs may be required to be capitalized and amortized, while others may be currently deductible. The treatment of pre-COD expenditures should be coordinated with Kessler McBride as part of the ongoing California tax return preparation.
S-1 Disclosure. The S-1 should disclose the potential increase in CBR's effective state tax rate as California operations expand. Specifically, the MD&A section should address the anticipated impact of the Copper Basin project on the California apportionment factor and the resulting effect on the blended effective state tax rate. A risk factor should note that the Company's effective tax rate may increase as a greater proportion of revenue is apportioned to California, which imposes one of the highest corporate income tax rates in the nation.
C. California Sales and Use Tax
California imposes a sales and use tax on the sale, storage, use, or other consumption of tangible personal property in the state. The state sales tax rate is 7.25%, and local taxing jurisdictions impose additional district taxes that bring the combined rate to as high as approximately 10.25% in some locations. The applicable combined rate in Riverside County depends on the specific district taxes in effect at the project site.
Equipment and materials purchased for the construction of the Copper Basin project will be subject to California sales or use tax. Sales tax applies if the property is purchased within California; use tax applies if the property is purchased out of state and brought into California for use. CBR should evaluate whether partial exemptions are available for manufacturing or generating equipment under applicable California provisions, such as:
• The partial sales and use tax exemption for manufacturing and research equipment (CRTC § 6377.1), which provides a reduced tax rate for qualifying equipment purchased by qualified persons (generally manufacturers). The applicability of this exemption to electricity generation equipment for a renewable-energy facility is subject to analysis.
• Any industry-specific exemptions for energy generation equipment, though California's exemptions in this area are limited.
Ongoing compliance obligations will arise for purchases of replacement parts, maintenance supplies, and other taxable items used at the Copper Basin site once the project is operational.
D. California Property Tax
Real property and personal property in California are subject to ad valorem property taxes assessed by the county assessor and collected by the county tax collector. Under California Proposition 13 (Cal. Const. Art. XIII A), the assessed value of real property is generally limited to its base-year value (determined at the time of acquisition or new construction), increased by no more than 2% per year, unless a change in ownership or new construction occurs.
For the Copper Basin project, the initial assessed value of the land will be established upon acquisition by CBR (or the applicable SPV), and the assessed value of improvements will be established as new construction occurs. Upon completion of construction, the full fair market value of the completed improvements will be added to the assessment roll. Riverside County ad valorem property tax rates are approximately 1.0%–1.2% of assessed value (including any voter-approved bonded indebtedness and special district assessments).
Renewable Energy Property Tax Exemptions. California Revenue and Taxation Code § 73 provides an exclusion from property tax reassessment for "active solar energy systems" installed on qualifying real property. However, this exclusion was designed primarily for residential and small commercial rooftop solar installations and, as a general matter, does not apply to utility-scale commercial solar generation facilities. Utility-scale solar projects are classified as utility property and assessed at full fair market value. The applicability of any other renewable-energy property tax benefits to the Copper Basin project is project-specific and should be evaluated in consultation with Riverside County counsel and the State Board of Equalization.
E. Stockholder Implications
California's treatment of stockholders in publicly traded corporations involves several considerations:
• California-Resident Stockholders. California imposes income tax on California-resident individuals on all income from all sources, regardless of where the income is earned or the source of the income. Accordingly, California-resident stockholders will be subject to California income tax on dividends from CBR common stock (if any are paid) and on capital gains from the sale of CBR common stock.
• Nonresident Stockholders — General Rule. Nonresident stockholders are generally not subject to California income tax on gains from the sale of publicly traded stock. Under California sourcing principles, gains from the sale of intangible personal property (including publicly traded stock) are generally sourced to the stockholder's state of residence, not the state of the issuer's operations.
• California Clawback Provisions. California may assert taxing jurisdiction over gains from the sale of stock by nonresidents in certain narrow circumstances — for example, where the nonresident was a California resident at the time the stock was acquired and the gain is recognized on a deferred basis (such as under installment sale rules or certain deferred compensation arrangements). These provisions are generally not applicable to public-market purchases and sales of stock on a national securities exchange.
• No Withholding on Dividends. California does not require withholding on dividends paid to nonresident stockholders of publicly traded corporations.
The S-1 should include a general caveat in the "Material U.S. Federal Income Tax Consequences" section directing stockholders to consult their own tax advisors regarding the state and local tax consequences of purchasing, holding, and disposing of CBR common stock, including the specific rules applicable in their state of residence.
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 in the nation and has been trending downward.
Nexus. CBR has clear nexus in Oklahoma through the ownership and operation of Red Mesa Wind Energy LLC, which operates a 380 MW onshore wind generation facility in Custer County, Oklahoma. The project has been in commercial operation since Q1 2019 and generated approximately $62 million in revenue during FY 2021. CBR's nexus in Oklahoma is established through the physical presence of substantial real and tangible personal property (wind turbines, towers, foundations, substations, transmission lines, and related infrastructure) in Custer County, the employment of operations and maintenance personnel at the site, and the generation of revenue from the sale of electricity under a long-term PPA with an Oklahoma offtaker.
Apportionment. Oklahoma uses a three-factor apportionment formula consisting of property, payroll, and double-weighted sales (i.e., the sales factor is weighted twice, making it effectively a four-factor formula with sales counting double). For corporations that are part of a unitary business, the Oklahoma apportionment formula allocates a portion of the total unitary income to Oklahoma based on the relative proportion of the taxpayer's Oklahoma property, payroll, and sales to its total property, payroll, and sales everywhere.
CBR's Oklahoma property factor includes the real and tangible personal property located at the Red Mesa Wind site. The payroll factor includes the compensation paid to employees working at or assigned to the Red Mesa Wind project. The sales factor includes the revenue generated from the sale of electricity from Red Mesa Wind. The double-weighting of the sales factor gives greater weight to the revenue component, which is generally favorable for a capital-intensive business like CBR that has substantial property in Oklahoma but a significant proportion of total sales in other states (primarily Texas).
Combined Reporting. Oklahoma does not currently require combined unitary reporting as a general rule. Under the Oklahoma Tax Commission's regulations, each corporation that has Oklahoma nexus files its own separate Oklahoma corporate income tax return (Form 512). However, the Oklahoma Tax Commission retains the authority to require forced combination in cases where separate-entity reporting results in a distortion of income or does not fairly reflect the taxpayer's Oklahoma income. CBR should be prepared for the possibility that the Oklahoma Tax Commission could assert that combined reporting is required for CBR's unitary group, although in practice such forced combination is relatively uncommon.
Treatment of Disregarded Entities. Red Mesa Wind Energy LLC is a single-member LLC treated as a disregarded entity for federal income tax purposes. Oklahoma generally follows federal entity classification rules, meaning that Red Mesa Wind Energy LLC's income flows through to its owner (Calloway-Briggs Operating Company LLC) and ultimately to CBR Inc. for Oklahoma corporate income tax purposes. The confirmation of this treatment and the appropriate filing entity for Oklahoma purposes should be verified with Kessler McBride.
Filing. The Oklahoma corporate income tax return (Form 512) is due on or before the first day of the fourth month after the close of the tax year (i.e., April 1 for a calendar-year filer, though in practice the due date is often stated as March 15 or April 15 depending on the applicable statutory provisions and conformity to federal due dates). Extensions of time to file are available.
B. Sales and Use Tax
Oklahoma impos

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