AP Survey: South Dakota Lawmakers unsure of wind energy tax cut

Source: CHET BROKAW • AP • Posted: Friday, January 6, 2012

PIERRE, S.D.

South Dakota lawmakers appear to be taking a wait-and-see attitude on a proposal to cut construction taxes on wind farms to help the state compete with its neighbors in attracting projects that generate electricity from wind.

In a survey by The Associated Press, about 51 percent of the lawmakers responding said they are undecided on the proposal to cut taxes on companies building wind farms. Some 37 percent said they would support such a measure, while only 12 percent were opposed.

A legislative task force recommended in October that the state reduce construction taxes on wind farms, but the panel left it up to Gov. Dennis Daugaard and the Legislature to decide exactly how to reduce the contractor’s excise tax and sales tax that apply to construction costs of wind farms.

Legislative leaders said many lawmakers are undecided on the issue because the study committee did not make specific recommendations for tax cuts

“I don’t think people have had a chance to study what the committee really did and aren’t terribly familiar with the current taxation scheme and how it compares with other states,” said House Republican Leader David Lust of Rapid City.

Seventy-three of the 105 members of the Legislature responded to the AP survey between Dec. 12 and Dec. 31, for a response rate of 70 percent. While 57 of the Legislature’s 80 Republicans responded, 16 of the 24 Democrats returned the survey. One lawmaker is an independent and did not return the survey, which asked lawmakers for their opinions on issues facing them in the 35-day legislative session that opens Tuesday.

Based on an analysis done by wind farm developers, the task force found that South Dakota’s total tax burden on wind project construction is substantially higher than taxes imposed in nearby states.

South Dakota charges a 4 percent sales tax on materials used in constructing wind farms and other projects. It also levies a 2 percent excise tax on a contractor’s gross receipts for a project.

The task force reported that the South Dakota sales tax and contractor’s excise tax on a 200-megawatt wind project, with an estimated price tag exceeding $300 million, would be $12.9 million under current law and could jump to $22 million after a tax rebate program expires at the end of 2012. Construction taxes on the same project would be $2 million in North Dakota, $2.8 million in Minnesota and $3.4 million in Iowa, according to the panel’s analysis.

The issue is complicated by uncertainty about South Dakota’s current tax refund programs for wind farms and other large construction projects. That law allows developers of large wind farms to get a 45 percent refund of construction taxes for projects costing $10 million to $40 million, and a 55 percent tax refund for projects exceeding $40 million

A law passed last year is supposed to replace the current refund system with a discretionary grant program run by the state Board of Economic Development, but the fate of that new law is uncertain because opponents have referred it to a statewide public vote in November.

In the task force meetings, a state official said a tax cut just for wind farms could cause problems because states are legally required to apply construction taxes equally to all projects, no matter what kind of company or government is building a project.

Lust said the Legislature might eventually embrace a plan to cut construction taxes on wind farms because lawmakers usually support economic development proposals that have merit.

Senate Democratic Leader Jason Frerichs of Wilmot said he would like to see the contractor’s excise tax eliminated entirely because it harms all kinds of development, not just wind projects. However, he noted the state would have to find some revenue to replace the tax, which brings in about $70 million a year.

“It’s just not good for economic development,”" Frerichs said of the tax.

House Democratic Leader Bernie Hunhoff of Yankton said he hopes the Legislature will find a way to make taxes on wind projects competitive with adjoining states.

“I sense that there’s good support for making South Dakota competitive in this new green economy,” Hunhoff said.

In the AP survey, a construction tax cut for wind farms got stronger support from Democrats than from the Republican majority. While 10 Democrats said they support such a tax cut, none opposed it and six were undecided. Among Republicans, 17 said they favor cutting taxes for wind farm construction, while 9 were opposed and 31 were undecided.