A bipartisan group of state legislators are backing a measure that would offer a tax break for the wind energy industry.
Senate Bill 195, introduced Friday with 41 sponsors, would allow developers to collect a full refund of contractor’s excise taxes incurred for wind farms, and 25 percent of the state sales tax.
Ron Rebenitsch, executive director of the South Dakota Wind Energy Association, said the foregone revenue would be made up on the back end with production and local taxes once the wind farm was in operation.
The legislation comes shortly after a key federal tax credit for the wind industry was extended for one year. But developers interested in erecting turbines in South Dakota have been focused on what they say is an even more pressing need: finding a tax incentive program to replace the one voters defeated in November.
The problem is that although South Dakota is a windy state – it has 784 megawatts online and the fifth best potential for generation, according to the American Wind Industry Association – its tax structure makes it less attractive to developers, Rebenitsch said.
For example, assuming a cost of $2 million per megawatt, a 100-megawatt wind farm in South Dakota would cost $200 million and incur taxes of $12 million. That’s an additional $12 million a developer wouldn’t have to pay in Iowa, North Dakota or Minnesota, Rebenitsch said – so why would would they choose to build here?
“I doubt that you’ll see any new wind projects” with the current system, he said.
SB195’s prime sponsors are Sen. Larry Rhoden, R-Union Center, and Rep. Roger Solum, R-Watertown. Solum was chairman of an interim committee that met in 2011 to discuss wind energy policy in South Dakota.
Given the bill’s broad sponsorship, House Minority Leader Bernie Hunhoff, D-Yankton, predicted SB195 would draw support from both parties.
Hunhoff said lobbyists have asked him why he supports tax rebates for wind energy but not for other industries.
“There’s a really clear reason for that,” he said. “(For) wind energy, there will be a four percent gross tax on their receipts. … You could see a very good return on investment on that. Any company that wants to come into South Dakota and pay a four percent gross tax on their receipts, we could probably do business.”
Tony Venhuizen, a spokesman for Gov. Dennis Daugaard, said the governor recognizes the need to provide incentives for the wind industry but demurred when asked whether Daugaard supports the bill.
At any rate, Venhuizen said in an email, “the wind industry’s willingness to pay greater taxes on the back end in return for reduced taxes upfront does make the bill more attractive.”
In November, voters defeated Daugaard’s Large Project Development Fund, a grant program that would have replaced a construction tax rebate for large projects. Wind developers were among the top recipients of rebates under that program, according to Department of Revenue data.
Rebenitsch said the legislation brought Friday is a compromise measure drafted on the theory that “half a loaf is better than none.”
“If you look at where South Dakota is at (if SB195 passes), we’re still not going to be at the level of other states. But we’re trying to close that gap,” he said. “What we’ve targeted is what we thought we’d get passed. Politics is the art of the possible.”
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