South Dakota’s gusty plains are well known for their pheasant hunting potential. Indeed, one is much more likely to see a pheasant utilizing the breeze to sail out of harm’s way than a turbine harnessing the wind to power a home or business. Despite ranking in the top five states for best wind resources, South Dakota ranked 16th in 2011 for installed wind capacity as a result of a prohibitive tax on wind farm construction that is up to ten times higher than the rate in Iowa, Minnesota, or North Dakota. This problem finally caught the attention of the South Dakota Legislature, as lawmakers recently agreed on a proposal that potentially opens the door to a new era of increased investment in wind power.
Senate Bill 235, which was signed by Governor Daugaard on March 20, allows developers to apply to the Governor’s Office of Economic Development (“GOED”) for a reinvestment payment on (1) projects costs for a new or expanded facility that exceed $20 million or (2) project costs for equipment upgrades that exceed $2 million. Once the GOED has determined that the application is complete, the State Board of Economic Development will review the application and make a determination of whether the project should be approved or disapproved, based on, among other things, the likelihood that the project would have occurred without the reinvestment payment. The board may approve a reinvestment payment that is equal to or less than the South Dakota sales and use tax paid on project costs, which equates to up to a full refund of the state’s four percent sales tax.
Iberdrola Renewables’ recent analysis estimates that a $200 million wind project in South Dakota would be liable for $11.4 million in upfront taxes, compared to less than $1.5 million in North Dakota, Iowa, and Minnesota. This disincentive for construction in South Dakota is so heavy that the superior wind resources cannot make up the difference. Moving forward, the upfront costs of a typical $200 million project would be reduced to less than $1 million – on par with other Midwestern states. South Dakota lawmakers hope this benefit, in conjunction with the recently extended federal production tax credit, will be the tailwind investors and renewable energy advocates have been looking for to improve the industry’s outlook in the state.
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