The South Dakota House failed Monday to override Gov. Dennis Daugaard's veto of a bill that would have refunded about half the construction taxes for large wind energy projects and an environmental upgrade at Big Stone Power Plant.

As the 2012 legislative session came to a close, the House voted 44-23 in favor of the bill, falling three votes short of the two-thirds majority needed to pass a measure over a governor's objection.

Opponents of the bill said the veto should be upheld because the bill would have discriminated against smaller wind energy projects, which would not have been eligible for tax refunds.

Rep. Larry Lucas, D-Mission, said the Legislature should encourage smaller wind farms that will provide electrical power to residents and businesses located in South Dakota. The larger projects will seek to sell power to customers outside the state, he said.

"I believe smaller plants will be more effective in powering our businesses and homes," Lucas said.

But Rep. Tom Brunner, R-Nisland, said the refunds for large projects are needed because South Dakota's taxes on construction are far higher than those imposed in neighboring states. Without a tax break in South Dakota, companies may choose to build wind farms in other states, he said.

"Because of our tax structure, we continue to fall behind in comparison with our neighbors," Brunner said.

The bill would have provided tax refunds beginning in January 2013 for wind energy projects or environmental upgrades at power plants costing more than $50 million. Supporters said it would help usher along some wind energy projects and help Big Stone Power Plant, on the South Dakota-Minnesota border, make environmental upgrades required by the federal Environmental Protection Agency.

The bill wouldn't have interfered with a November vote on a more general economic incentive plan, but Daugaard said the Legislature should not pass a new tax refund applying only to energy projects until voters decide whether to accept or reject the more general plan.

The Republican governor said he believes the state needs incentives in place for wind projects, but it should be part of a more general plan to encourage all kinds of large projects. Daugaard also faulted the bill for discriminating against wind farm projects that cost less than $50 million and using South Dakota money to benefit Big Stone Power Plant customers who live in Minnesota, North Dakota and Montana.

But in Monday's debate, Rep. Roger Solum, R-Watertown, said a tax break for Big Stone would help 200,000 South Dakota customers who get electrical power from the plant. If Big Stone gets no tax break, its customers will have to pay higher rates to cover the plant's higher tax bill, he said.

South Dakota currently gives partial refunds of sales taxes and contractor's excise taxes to large construction projects, but that law expires at the end of the year. A year ago, the Legislature passed a plan Daugaard proposed to replace the refund with a new program taking 22 percent of the receipts from the contractor's excise tax, or about $16 million a year, and putting the money into a fund a state board could use to give grants to large projects that would not otherwise be built in South Dakota.

The state Democratic Party collected enough petition signatures to put the grant program on the November ballot, arguing that the money should instead be used to fund schools and other priorities.