The State Tax Commission has retracted what had been a dire report that sales tax rebates for wind energy developments would take an unexpected $47 million bite out of Idaho tax revenue over the next two fiscal years.

The agency told legislative budget writers Tuesday the rebates will be a "net neutral event, as far as impact on general fund revenues."

Wind energy developers who had feared this purported budget hit could scuttle their hopes of extending the tax rebates past their June 30 expiration said this latest turn of events was great news.

And Sen. Dean Cameron, co-chair of the Joint Finance Appropriation budget writing committee, said the about-face means that budget cuts for fiscal year 2012 likely won't be as deep as feared just days ago.

"It still will be difficult. It still will be painful," Cameron said. "But it won't be as severe as we thought two weeks ago."

Two weeks ago, the state announced that wind-energy developers including the likes of General Electric Co. were rapidly and unexpectedly making good on a 2005 tax incentive meant to spur the industry by seeking rebates of the 6 percent in sales taxes paid on equipment that produces electricity.

That revenue hit, combined with lackluster December tax revenue and up to $70 million in costs for Idaho to conform to the new federal tax code, had opened what Gov. C.L. "Butch" Otter had predicted in January would be a $35 million deficit to $185 million. As a consequence, Cameron then warned public schools and Medicaid to brace themselves for deep, deep cuts.

This latest news about the wind-energy rebates, as well as legislation that substantially mitigated the cost of federal tax conformity, leaves the projected deficit at about $92 million.

And it's a number that could still drop, should Idaho have better-than-expected tax returns during the remaining months of fiscal year 2011.

So what happened? In its letter Tuesday, the Tax Commission wrote that a further review of tax payments determined that the wind energy companies' payments and their accompanying rebate claims were submitted almost simultaneously.

"The submittal of the claim, the receipt of tax from the vendor and the actual payment of the rebate all occur within a small window of time," wrote Commissioner Sam Haws. "The bottom line is that based on our experience so far from existing claims and our processes, it should be a net neutral event, as far as impact on general fund revenues."

This is good news for wind energy companies like Exergy Development, General Electric, Ridgeline Energy and Shell that want the 2011 Legislature to extend the 6 percent tax rebates beyond this year.

Many industry proponents say the rebates, along with other state and federal incentives like cash grants from the U.S. Treasury Department, are critical in helping them harness Idaho's modest wind resources at terms in which they can compete with traditional forms of electricity produced by hydroelectric dams, coal fired power plants or natural gas.

Legislators deciding whether to extend the rebates will have something else to consider, too.

On Tuesday, economists including John Church from Boise State University released a report showing that $300 megawatts of energy being developed by Exergy would produce $120 million in tax revenues from all sources over the next quarter century, as well as another $50 million in royalties to the private owners of rural property where turbines are being erected.

"To have the rebate continue only means it will create more jobs, more clean energy and hopefully a better future for the state of Idaho," said Exergy President James Carkulis, whose company funded the study.

Wayne Hammon, Otter's budget chief, had said on Jan. 28 - when the original news of the rebates' purported hit to tax revenue was made public - that the Republican chief executive could no longer support an extension of the rebate in its current form, in light of the budget implications.

Hammon didn't immediately return a phone call Tuesday seeking comment on whether the Tax Commission's letter would change Otter's mind.