A South Dakota Senate committee endorsed a measure Thursday that would provide financial incentives to encourage the stalled construction of wind power projects in the state.
The Commerce and Energy Committee voted 6-1 to pass the measure after lawmakers and industry representatives said construction of wind farms has drawn to a standstill in South Dakota because the state imposes much higher taxes during construction than neighboring states do.
"Let's keep South Dakota open for business in wind energy," said Sen. Larry Rhoden, R-Union Center, the main sponsor of the bill. "Let's give these developers and utilities wanting to build multi-million dollar projects in our state a chance to succeed."
Rhoden and others said South Dakota currently would charge $7 million to $11 million in sales taxes and contractor's excise taxes during the construction phase of a typical wind farm. North Dakota, Minnesota and Iowa would charge only $1 million to $2 million, they said.
Rhoden's bill originally sought to give wind projects refunds of the sales taxes and contractor's excise taxes they paid during construction, but the committee approved a new version worked out by the wind energy industry and Gov. Dennis Daugaard's office.
The new version would give a wind project an incentive payment roughly equal to 2 percent of its final cost. For example, a $5 million project would get a $100,000 incentive payment. One costing $100 million would get a $2 million incentive payment.
Dusty Johnson, the governor's chief of staff, said the incentive projects would be equal to about two-thirds of the sales taxes paid during construction by a wind power project
In return for the reduction in construction taxes, new wind farms would no longer get rebates of a gross receipts tax that is applied after they begin operating, Johnson said. Companies now use rebates of the gross receipts tax during the first decade of operation to help build transmission lines.
Johnson said South Dakota now is at a disadvantage to other states because it has no overall economic incentive program for large industrial projects. A former tax refund program has expired, and a new program intended as a replacement was rejected by voters in the November election.
"Under the current tax regime, it's pretty hard to envision any large scale wind development in the foreseeable future," Johnson said.
Representatives of the wind energy industry said South Dakota's tax structure puts it at a disadvantage because it levies a 2 percent excise tax on contractor's gross receipts for a project, a tax other states do not have. South Dakota also charges a 4 percent sales tax on materials used in constructing wind farms and other projects.
Rob Rebenitsch, director of the South Dakota Wind Energy Association, said South Dakota has 784 megawatts of installed wind power, while North Dakota has twice as much. Iowa has 4,536 megawatts of wind power installed, according to the U.S. Energy Department.
Rebenitsch said more than 13,000 megawatts of wind generation was installed across the nation last year in 192 projects costing $25 billion.
"Unfortunately, none of that generation was installed in South Dakota," Rebenitsch said.
Wind energy officials said the bill is a good start, but they believe larger incentives are needed to attract wind farms to South Dakota. They said they hope the measure will be changed to provide larger incentives as it moves through the Legislature.
Sen. Mark Johnston, R-Sioux Falls, said he objected to the bill because it deals with only one industry.
Johnson, the governor's chief of staff, said state officials and legislators are making progress in devising an overall incentive program that would cover agricultural processing and all other kinds of large construction projects.
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