Wind turbines and the pocketbook
When looking at a wind farm project a person living in the real world looks at two things:
1. How will it affect my pocketbook?
2. How will a project affect the world, that is, what are the ecological effects of a wind farm project? In this tour we will look at the first issue only. Neither issue however is paramount to the other.
I look here at the issue of pocketbooks – that which is in one’s pocketbook and that which is taken out of one’s pocketbook (taxes). Recent tax law changes affect the tax consequences to the wind farm operator and do not ‘directly’ affect the taxes of a landowner.
The U.S. production federal tax credit (PTC)a per-kilowatt hour (kWh) credit for electricity generated by eligible renewable sources, such as wind farms, was first enacted in 1992 and has been extended and modified in the years since. At the end of December 2020, Congress extended the PTC at 60% of the full credit amount or $0.018 per kWh ($18 per megawatt hour) for another year through December 31, 2021. In 2020, the credit was 60% of the full credit amount. Under the new federal PTC legislation, qualifying wind projects must begin construction by December 31, 2021.
Lobbyists for the Farm Bureau and Farmers Union dropped the ball on the 2020 tax rewrite. Nothing was put in the recent revisions addressing federal income tax consequences to landowners.
Without doubt the benefits a wind farm operator receives from the federal tax code affect its profits. And without doubt a developer analyzes its anticipated profits before it offers a landowner a particular formula for production payments or what are sometimes called – royalties. Consideration of the tax consequences to the operator however is not an easy translation for a landowner to make. Various factors and economic projections of a new project will change based on contingencies such as the local project’s prevailing winds and the purchase price an operator secures for its energy production from an energy utility or energy purchaser.
Even under the revised provisions of the federal tax code the landowner is stuck with the ordinary federal income consequences on the landowner’s payments received from an operator. What are the other tax consequences? South Dakota has no income tax on individual income, so royalties won’t be assessed for that purpose. What about real estate taxes? The state created a few years ago a real property tax law commonly referred to as ‘equalization’. What this law equalizes is quite another question. But the practice and policy of the state is not to consider wind turbines and wind farm infrastructure as a taxable asset. The presence of turbines and infrastructure does not change the taxable value of the land on which the infrastructure sits. This principle is rather unique in the tax world.
For tax purposes the state tax code ignores the windmills sitting on the land.
OK. No tax consequences, but what about the projects actual effect on the land? Ag land under the law of equalization is taxed on a complicated formula based on the agricultural production of the land. Does the state tax system consider the effects of production where project infrastructure dots the land in question? No, turbines and turbine foundations, concrete pads, footings, towers, guy wires, support fixtures, anchors, fences, all overhead and underground electrical cables, and all overhead and underground telecommunications cables necessary are not considered for real estate tax purposes. Then the next question is, what are the ag production effects of wind turbines on the land? Each landowner must make their own assessment of this question.
Do the turbines interrupt row crop land productivity or impair grazing access? Lawyers call these questions “factually based issues?”
If you have control or own the land, this pocketbook issue is yours to decide.
