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Tax exemption hits local governments  

Sales tax exemptions designed to encourage alternative energy development in Wyoming may be hurting local communities’ ability to cope with the impacts.

But the tax incentives are also bringing such projects to Wyoming, and communities should consider the long-term benefits, including good jobs and new opportunities, a state lawmaker says.

The tax exemption “sunset” date was extended from 2008 to June 2012 during last year’s legislative session.

Companies building alternative energy projects, such as wind farms, enjoy an exemption from paying sales taxes on materials during construction. That can represent big savings, such as the kind PacifiCorp will gain on its Glenrock and Rolling Hills wind projects. Despite an estimated construction cost in excess of $400 million, the company anticipates paying no sales taxes, according to PacifiCorp’s application for a construction permit filed with the Department of Environmental Quality’s Industrial Siting Division.

PacifiCorp representatives have said the sales tax exemption on wind has helped pave the way for its foray into Wyoming wind farms.

“That does help Wyoming. It helps make it a more attractive site for companies to locate wind projects,” said Jeff Hymas, a PacifiCorp spokesman.

Even higher-dollar projects, such as the recent Industrial Siting Council approval of a coal-to-gasoline plant in Carbon County, may be exempt from paying sales taxes for portions of the project falling under an alternative energy description – such as converting coal to gas, said Tom Schroeder of the Industrial Siting Division.

Complicating matters

Communities have traditionally been able to count on impact fees distributed through the industrial siting process. But without increases in sales tax revenues, those fees may not materialize, Schroeder said.

New industrial projects with more than $163 million in construction costs must acquire permits from the Industrial Siting Division. Through extensive filings by the company, a distribution ratio is developed based on the communities primarily affected by the construction.

Those communities receive impact fees based on economic growth resulting from the construction. When construction starts, the division notifies the state Department of Revenue, which then establishes a baseline by considering the past 12 months of sales and use taxes in affected communities. Month-to-month growth of sales and use tax collections above that baseline during the construction period determines the amount of assistance payments to communities.

When alternative energy projects are exempt from paying sales taxes, impacts may not register at the Department of Revenue.

That’s something of a double-hit, Converse County Commission Chairman Jim Willox said, with communities missing out on sales tax increases and state impact fees.

Incentives work, senator says

Communities should consider the long-term impacts of major alternative energy developments and realize tax incentives are necessary for the state to be competitive, said Sen. Jim Anderson, R-Glenrock.

“These tax incentives came about at a time we were working to bring about economic development and to bring jobs,” Anderson said.

Noting Wyoming’s deficiencies in incentives offered on wind development compared to other states, lawmakers exempted companies from sales taxes during construction – and it paid off.

“Upon offering that, we had an absolute explosion of interest in wind in Wyoming,” Anderson said.

Coincidentally, or not, he added, transmission took off around the same time, as if the wind opportunities were enough to spur action on increasing electrical export capability.

He cited a letter to U.S. Sen. John Barrasso from a group of Wheatland-area ranchers and wind developers stating that wind energy is offering a tremendous opportunity to diversify agriculture and to provide alternative revenues that help keep family farms and ranches sustainable.

Anderson also referenced a University of Wyoming analysis of the benefits wind brings long-term. For every 100 megawatts of wind produced, county revenues would grow $500,000 to $1 million through taxes other than sales tax. Plus, every 100 megawatts generated creates 10 to 200 jobs during construction and two to six permanent jobs, he said.

Up-front expenses

Despite the potential long-term benefits, proposals such as the Glenrock-area wind farms have up-front costs communities have to shoulder, including bringing roads up to par and increasing some social service and law enforcement programs. Usually, increases in sales taxes boost local governments’ coffers as projects take hold.

Joe Evans, director of the Wyoming Association of County Commissioners, said his organization is watching the issue.

“They say it (the money) is going to come back in other ways, but a lot of that is speculative and it’s down the road,” Evans said. “They are all up-front expenses when you talk about development, and counties don’t get their money until a long ways after. The roads have to be fixed today to do the development.”

In the case of PacifiCorp’s proposed wind farms at Glenrock, the amount of traffic planned to bring materials for turbines and the accompanying infrastructure to the site is high, and on roads that are in “less than marginal” condition, Willox said.

PacifiCorp plans to use 10 to 12 miles of 55 Ranch Road, a county route, to access the wind sites. Bringing the road up to industrial-grade would cost about $1 million per mile, Willox said. Yet, the county operates on a $14 million annual budget.

Other county services are also affected, including hospitals, the criminal justice system and courthouse offices, the commissioners said.

“There isn’t a single public service entity that isn’t experiencing growth,” Willox said. Many offices will require additional manpower.

Rebate instead?

Rather than sales tax exemptions, the commissioners and city officials favor a rebate system, where companies would pay the mandated sales taxes. Counties would get their share, and the state could refund money to companies from other funds. Schroeder, with the Industrial Siting Division, also suggested rebates as a fairer incentive for alternative energy.

Douglas city administrator Bobbe Fitzhugh pointed out another legislative perk for companies that means workers staying in hotels for longer than 30 days or under company contracts don’t pay the county lodging tax. Compounding the situation, those rooms are no longer available for tourists who do pay out the lodging tax, she said.

Anderson recognized the problem communities face but said those need to be looked at as part of the larger picture.

“There are going to be some sacrifices made in order to provide the infrastructure necessary to bring these things in,” he said.

Lawmakers often make tough decisions in hope of greater impacts down the road, he said.

“Look further into the future in regard to what the Wyoming we want to be looks like, and the Wyoming we want to leave for our children,” Anderson said. “Wyoming is so blessed in regard to having this absolute treasure of natural resources when the world is absolutely demanding more and more energy.”

By Rena Delbridge

Jackson Hole Star-Tribune

17 December 2007

This article is the work of the source indicated. Any opinions expressed in it are not necessarily those of National Wind Watch.

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