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Do Wind Farm Developers Need Tax Rebates?

Wind turbines spin at a windpark
Sean Gallup/Getty Images

PIERRE – A bill recently introduced in the South Dakota Senate would attempt to make the state a more attractive locale by giving developers of wind farms not only a full refund of the state contractor’s excise tax but also 25% of the sales tax. Approximately 40% of the lost revenue would eventually come back to the state in the form of a 4% production tax on the farms when they are operational.

This industry specific measure is in part an attempt to compensate for the voters’ recent rejection of the Large Project Development Fund which was meant to allow a commission handpicked by the Governor to alleviate the excise tax burden for projects that met certain criteria. Developers argue that the bill is required in order to make South Dakota more competitive with neighboring states that do not have such an excise tax. The bill has strong bipartisan support not only because of the attractiveness of clean energy projects, but also because of the willingness of the developers’ lobbying arm to accept the back end production tax.

It is worth noting that just as with other real estate development, the eventual owners of the wind farms are not necessarily the developers who built them. Therefore, in the event that developers do sell the farms to other operators, this bill represents an avoidance of some tax by one party by agreeing to allow a second party to pay a new tax in the future that does not even make up half of the lost revenue to the state. Sounds like a pretty good deal for wind farm developers, doesn’t it?

Much of the current boom in wind power generation is owed to the federal tax credit that was just renewed as part of the so-called fiscal cliff bargain at the end of last year. This subsidy was meant to encourage the installation of wind power facilities by making them more cost competitive until such time as mass production lowers costs.

South Dakota has proven particularly attractive to the wind industry as it is ranked 5th highest in wind power potential. As of the end of 2011, wind power produced in South Dakota amounted to 22% of the overall electricity produced, which was tops in the nation.

There are few endeavors as beneficial in both the short and long term as is expanding wind power generation. Good jobs are created in construction, operation and maintenance of the equipment, while renewable energy contributes both to energy independence and reducing climate change. However, South Dakota’s wind potential is not going anywhere and the production costs are only headed down.

Why not wait and see if wind projects do actually dry up before committing to handing out precious general funds to developers when we have only the word of those very developers that doing so is necessary to keep the industry growing? We can always try the tax rebate again in the future if need be.

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