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South Dakota vs New York ‘Wind Farm Tax’ Comparison

Posted on: May 12th, 2014
by David Ganje

South Dakota

New York

Property Tax Exemption &

Alternative Taxation Scheme

 

Facilities with less than 5MW

-$50,000 or 70% (whichever is greater) of assessed value of new property is exempt from real property tax

 

Facilities with more than 5MW

-Annual tax on est. capacity calculated at $3 per k/Wh

-Annual 2% tax payable on gross receipts

-Rebate eligibility

-50% of construction of transmission lines

-90% rebate of gross receipts paid for 5 years

-50% rebate of gross receipts paid for next 5 years

 

Translation

For facilities with less than 5MW of capacity

SD offers a property tax exemption of either $50,000 or 70%, whichever is greater, of the increased assessed value of the property as a result of the construction/installation of renewable energy production facilities.

 

Example

Value of property before installation of wind energy system: $10,000

Value of property after installation of wind energy system: $100,000

Increased value of the property: $90,000

Property Tax Exemption: $63,000

(70% of the increased value of the property)

 

For facilities with more than 5MW of capacity

SD offers an alternative taxation scheme in lieu of all taxes on real property which requires the generator to pay (1) an annual tax of the k/Wh capacity of the farm and (2) an annual tax on gross receipts of the wind farm. Following the payment of these taxes the company may be eligible for a rebate of up to 90% of the gross receipts for an initial 5 year time period and then a 50% rebate of the gross receipts paid for the next five years. No company may receive a rebate after this 10 year period. The SD Secretary also has the discretion to simply provide a tax credit to the developer as opposed to complying with the taxation scheme. This would be equivalent to the determined rebate eligibility calculated by the tax scheme as to avoid the complexity of the process, and cut down on the amount of transactions between the developer and the government.

 

Example

Company pays two sets of taxes:

(1)-annual tax on the k/Wh capacity of the farm

(2)-annual tax on all gross receipts

 

Rebate eligibility is only available for the second set of taxes paid – the annual tax on all gross receipts. 90% for the first five years of operation, and 50% for the next five years. (10 year maximum rebate eligibility)

 

For example:

 

Within the first 5 years of operation:

Total annual tax on gross receipts paid: $100,000

Total Rebate Eligibility: $90,000/year

 

The next consecutive 5 years of operation:

Total annual tax on gross receipts paid: $100,000

Total Rebate Eligibility: $50,000/year

 

*No rebate eligibility beyond 10 years

Property Tax Exemption

 

-Exemption on property containing solar or wind energy systems designed to generate energy*

-100% property tax exemption

-Localities may opt-out of offering exemption

-15 year exemption limitation

 

Translation

NY offers a 100% property tax exemption of the increased assessed value of the property as a result of the construction/installation of approved wind energy farms. There is a 15 year limitation on this exemption.

 

*Solar or wind energy system means an arrangement or combination of solar or wind energy equipment designed to provide heating, cooling, hot water, or mechanical, chemical, or electrical energy by the collection of solar or wind energy and its conversion, storage, protection and distribution. (NY CLS RPTL §487)

Reinvestment Payment Program

For Renewable Energy Sector  

 

Project Qualification Amounts

-New/expanded facilities: must exceed $20 million

-Equipment upgrades: must exceed $2 million

 

Eligible Reinvestment Payment

-Up to 100% of the 4% sales and use tax paid on the project by the project owner

 

Translation

Companies who either expand/build new facilities or invest in equipment upgrades can apply for a reinvestment payment of up to 100% of the sales and use tax they paid on the project. This is a one-time reinvestment payment based on the receipts of the project.

 

 

 

Renewable Portfolio Standard Program

 

Main Tier – Large Commercial Wind Farms

-Competitive bidding process

-NYSERDA publishes a RFP which any commercial generator can bid on and once all bids are collected and assessed, NYSERDA will award as many contracts as the RFP requires to fulfill the RFP

 

Customer Tier – Wind Turbine Incentive Program 

-Facilities with less than 2MW capacity

-Maximum $1 million/site/customer

-Standard incentives paid to eligible installers for annual energy output under a fixed payment structure

-First 10,000k/Wh paid at $3.50 per k/Wh

-Next 115,000k/Wh paid at $1 per k/Wh

-Above 125,000k/Wh paid at $0.30 per k/Wh

 

Translation

For commercial wind farm energy producers

NYSERDA offers a competitive bidding process which allows companies to bid on projects to fulfill State energy needs. Once NYSERDA collects all the bids for a specific project, they will award contracts to companies who satisfy their requirements, so long as funding is available to compensate each company.

 

Example

(1)-NYSERDA publishes requests for proposals (RFP’s), stating the need for 50MW of energy with a $5 million budget (budget is unknown to the companies)

(2)-Companies submit proposals/bids to NYSERDA containing how much energy they can produce and at what cost.

(3)-NYSERDA awards contracts to fulfill the 50MW with a maximum spending allowance of $5 million

 

For Example:

 

If five companies submit bids with the ability to produce 10MW of energy for $1million – each company will be awarded a contract from NYSERDA to satisfy their proposal. If one company submits a bid with the ability to produce 10MW of energy for $4million – that company would most likely receive the benefit of the entire contract.

 

For facilities with less than 2MW’s of capacity

NYSERDA provides a standard offer under which they will pay customer-generators a certain dollar amount for every k/Wh of energy produced from the installed system.

 

Example

Customer wishes to build a system which can produce 10,000k/Wh of energy. Customer finds an approved, eligible installer who installs equipment. NYSERDA offers standard payment of $3.50/kWh for the first 10,000k/Wh produced. Customer would be entitled to a benefit of $35,000. Under the program requirements this payment is paid to the installer, who in turn, must pass the incentive, in its entirety, to the customer-generator.

 

 

Corporate Tax Rate: NONE

 

Corporate Tax Rate: 7.1%

 

Personal Income Tax Rate: NONE

 

Personal Income Tax Rate: Scaled from 4%-8.82%

Sales & Use Tax Rates

 

Base: 4%

Maximum Local Rate: 4%

 

Sales & Use Tax Rates

 

Base: 4%

Maximum Local Rate: No maximum set

The Wind is Transient, Taxes Are Nearly So. A Look At The World Of Wind Taxes.

Posted on: May 12th, 2014
by David Ganje

 The Wind Is Transient, Taxes Are Nearly So. A Look At The World Of Wind Taxes.

 

In 2012, wind power was the largest single source of new electric power generating capacity in the country and contributed roughly 43% of all U.S. new capacity generations. From 1999 through 2012, 69% of the wind power capacity built in the U.S. was located in states with renewable portfolio standards (RPS). States set levels – some of which are mandatory and others non-binding – which the State must reach regarding an increased production of energy from renewable energy sources. As of June 2013, New York (NY) has a mandatory RPS of 30% by 2015 and South Dakota (SD) has set a non-binding goal of 10% by 2015. Taxation and economic incentives are an important driving force behind an investor’s decision to invest resources and ultimately construct a commercial wind farm.

When assessing both NY’s and SD’s taxing schemes, it is important to note the general differences between the basic tax structures between the two. In SD, there is no corporate income tax, and no personal income tax. In NY, there is a 7.1% corporate income tax and a scaled personal income tax structure which can vary from a low of 4% to a high of 8.82%. In addition, both states have a 4% base sales and use tax rate. SD sets its maximum additional local rate at 4% while NY has no maximum local rate.

NY begins by offering a fifteen year real property tax exemption for property containing approved solar or wind energy systems designed to generate energy as defined by the State Energy Research and Development Authority. The statute specifically provides for a 100% exemption to be granted for the increase in the assessed value of the real property attributable to the installation of the wind energy system. An important caveat to this exemption is that each locality can, by resolution, provide no exemption. A list of local laws and resolutions which have executed this opt-out option can be found on the NY State Department of Taxation and Finance website. Although the statute currently requires construction of the system to begin by January 1, 2015, there is pending legislation to amend and extend that date to January 1, 2025.

In accordance with the RPS adopted by the NY Public Service Commission, the NYS Energy Research and Development Authority (NYSERDA) maintains a large funding program to encourage the investment and construction of renewable energy including wind power. This program is structured at two tiers of incentives. This will continue so long as there is funding in the program or the term of the offer expires. The first is for large commercial renewable energy generators and consists of a competitive bidding process which is administered by NYSERDA. Under this program, when energy is desired for the wholesale market, NYSERDA will publish a request for proposal (RFP), which any renewable energy power producer can apply for. Once all the bids are collected, NSERDA will award as many necessary contracts as they need and can afford to fulfill the requirements of the RFP. Under this incentive program, there is no guarantee of a contract; it is simply a competitive bidding process which contracts may be awarded from.

Under the second tier, entitled the “On-Site Wind Turbine Incentive Program” (PON 2439), eligible incentives are available of up to $1 million per site/customer who install new approved wind energy systems which generate less than 2 MW of energy. This program is available through December 31, 2015. In this program, incentives are paid to the certified installers who in turn must pass the entirety of the incentive to the customer who they contract with. The incentive levels come in the form of standard offers to pay a certain amount of money for each k/Wh of energy produced.  The standard incentives are based on the expected annual energy output (AEO) of the generator and are calculated in three tiers; Tier I – the first 10,000 kWh or less will be compensated at $3.50/kWh; Tier II – the next 115,000 kWh of AEO is compensated at $1/ kWh; and Tier III – any production above 125,000 kWh is compensated at $0.30/kWh all cumulating in a maximum financial incentive of $1 million per installation.

When discussing development and construction in NYS, even so called “green” development must be in compliance with the State Environmental Quality Review Act (SEQRA) requiring an assessment of each project and an ultimate determination as to any adverse environmental impacts resulting from the proposed development. This added layer of bureaucratic assessment can in some cases pose obstacles and delay projects which otherwise would be able to proceed without such a process. SD has no similar separate comprehensive state review, but does require the developer to submit a report assessing the existing environment at the time of the proposed project and, also to address any potential adverse impact their project may have on both the human and natural environment.

In SD we see a different landscape when it comes to economic incentives and tax benefits regarding commercial wind energy. SD maintains a statutory exemption from taxation on property constructed for the purpose of producing electricity via renewable energy, namely wind energy. Under this exemption, renewable energy facilities and properties with less than 5MW of nameplate capacity, or the maximum energy output the system can produce, are exempt from the real property tax under certain criterion. All property used or constructed for the purpose of producing electricity is still assessed under the existing structure, however, the first $50,000 or 70% of the assessed value of the new property, whichever is greater, will be exempt from the real property tax.

The second SD statutory incentive, for large commercial wind farms producing electric power for the first time, contains an alternative taxation scheme in lieu of all taxes on real property which have a nameplate capacity of five MW or greater. The first component is an annual tax based on the nameplate capacity of the wind farm and consists of an annual tax equal to $3/kWh on the capacity of the wind farm. This tax is imposed starting the first calendar year the wind farm generates gross receipts, however, for the first year the company is in business the tax is prorated according to when the wind farm begins operation during that year. The second component is an annual 2% tax payable on gross receipts of the wind farm. The gross receipts are calculated as the number of kilowatt-hours produced multiplied by a base electricity rate of $0.0475/kWh, with the base rate increasing by 2.5% annually thereafter.

Under the taxation scheme described above, any company requiring transmission lines or wind farm collector systems in SD for a wind farm or power generation facility is eligible for a partial rebate of the tax paid under SDCL §10-35-19. The maximum rebate is 50% of the cost of the transmission lines. In addition, there is a rebate available for the gross receipts tax; the total maximum rebate in one year is 90% of the taxes paid for the first five years of eligibility, and a 50% rebate of the taxes paid for the next five years. No wind farm may receive a rebate under these sections following this ten year period. Lastly, the SD Revenue Secretary may provide a tax credit in lieu of the full rebate payment of the gross receipts tax. This preference would operate so that instead of collecting the taxes on the gross receipts and then having to pay a developer back through the rebate program, the Secretary, at his discretion, may simply provide a tax credit up front as to simplify the process and cut down on the number of monetary transactions between the developer and the government.

SD also offers the Renewable Energy Facility Sales and Use Tax Reinvestment Program which commenced in 2013. Under this reinvestment program, applicants can apply for up to a 100% rebate of the sales and use tax paid on eligible project costs. Requirements for eligibility are that if the project is either a new project or an expansion of a facility, the total cost must exceed $20 million, and if the project consists of equipment upgrades, the total cost must exceed $2 million. Eligible project costs can include, but are not limited to, the amount paid by the project owner for the acquisition of property, costs that are associated with land, labor, equipment, and/or generator components. For rebate consideration, an application must be filed with the Governor’s Office of Economic Development within ninety days of starting construction and be in compliance with criteria listed under §26 of this special legislation. The exact rebate percentage awarded is at the sole discretion of the review board who oversees all of the projects and applications.

One last issue. Net-metering is a program which allows customers who generate excess energy to either offset their meter or in some instances receive a cash payment for the excess energy they generate back into the grid. Net-metering programs are geared toward residential customers in an effort to promote and reward individual renewable energy generators. Currently, NY has a net-metering policy requiring utility providers to offer payment or offset a customer’s bill at the avoided cost – or customer contract rate – per k/Wh of energy generated. This program applies only to units which are no larger than 2 MW in size. SD, following the passage of the Energy Policy Act of 2005, made a determination that they will not pursue a state-wide net-metering policy and most recently another effort to establish a net-metering policy was defeated in the 2014 legislature. There are no implications of these policies on a commercial wind farm as the net-metering relationship is between the residential-customer and their utility provider. These policies are not extended to the larger energy generators who simply provide power to the utility companies.