Thursday, April 05, 2007

Vermont Legislature Debates Wind Energy Tax

The Burlington Free Press reports today on the debate in the Vermont legislature over property tax rates for wind energy projects. Vermont is considering legislation which would establish a standard tax rate for all energy projects in the state (H.520). As proposed, the tax rate would be based on the energy production of the facility, not the value of the facility's infrastructure. According to the Free Press, the legislation is currently bogged down while two different committees fight over the over the appropriate tax rate:
The dispute between the House Natural Resources Committee and the tax-writing Ways and Means Committee was one of the complaints the advocates registered with the leadership. The Natural Resources Committee recommended setting statewide property tax rates of roughly a third of a penny for every kilowatt produced by a wind project. Lobbyists said that tax rate would result in a state tax bill for the proposed Sheffield wind farm of $336,000 a year. The Ways and Means Committee proposed doubling the tax rate to nearly two-thirds of a penny, a level that advocates said would effectively keep commercial wind developers away from Vermont.
Establishing a standard tax assessment rate for wind projects provides much needed financial certainty for wind energy developers and is an important step if the state hopes to encourage wind energy development (provided, of course, that the tax levels are not set so high that they discourage developers from investing in the state). In many states it is nearly impossible for developers to arrive at a reasonable estimate of the potential tax burden for their proposed project. Developers can estimate many of the on-going operating costs for projects - lease payments, salaries, etc. - but not the final tax payments. And that uncertainty translates directly into financial risk, which ultimately discourages investment in the industry. For many projects, the final property tax assessment can make or break the project.

Other states have already taken steps to establish some certainty in this area. In Pennsylvania, for example, the Governor recently signed legislation which exempts wind turbines from state property tax assessments. The legislation is intended to clarify that the value of wind turbines, like other business equipment, should not be counted by tax assessors when setting property taxes for parcels that host wind farms. Instead, the legislation (Pa. Act No. 167 ) directs the county tax assessors to establish tax rates based on the value of the facility's land leases.

For those interested in what other states are doing in this area, check out the recent article Property Taxation of Wind Generation Assets (Warren Ault, North American Wind Industry May 2006). It provides a good overview of the various methods for valuing wind generating assets around the U.S.

Disclosure: SDKS represents wind energy companies in Vermont, including, among others, the developers of the Sheffield Project, mentioned in the Free Press story above.

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