How it’s Used Wind Energy System
A “wind energy conversion system” is defined as any device, such as a wind charger, windmill, or wind turbine, which converts wind energy to a form of usable energy. Wind energy conversion systems can also include an entire wind energy “farm” made of multiple turbines.
Minnesota is in the top 10 in the nation for both installed wind capacity and net electricity produced from wind. Over one-seventh of the state’s net production came from wind power in 2012 (Retrieved from eia.gov).
Current taxation process
Wind Energy Conversion Systems (WECS) are exempt from ad valorem property taxes, but are subject to a wind energy production tax. (See Minnesota Statutes 272.029.) This production tax was enacted in 2002.
The following wind energy conversion systems are exempt from tax:
- Small scale systems with a capacity of 0.25 megawatts or less
- Small scale systems owned by a municipality and with a capacity of 2 megawatts or less
There is no process of valuation, allocation, or apportionment as with other energy producing facilities.
By February 1 of each year, the owner of the wind energy conversion system must file a form with the commissioner of revenue detailing the amount of electricity produced in the previous calendar year. If a wind energy company fails to file a report by the due date, the department will determine the tax due based on the “nameplate capacity” of the system multiplied by 60 percent. The nameplate capacity is the maximum output rating of a wind generator.
Revenue annually calculates the amount of wind energy production tax due and notifies the system owners and County Auditors. The tax is paid to the County Treasurer and then distributed – 80 percent to counties and 20 percent to cities and townships.
Current tax rates for Wind Energy Production Tax (WEPT)
The rates for the wind energy production tax are legislatively set and are based on the energy output of the conversion system.
Distribution of WEPT revenues
The tax is distributed, along with the regular property tax settlements made by the county treasurer, to the local governments in the following percentages for 2010 distributions and thereafter: 80 percent to counties and 20 percent to cities and townships. The state does not receive WEPT revenues.
Exclusions and exemptions
JOBZ
Wind energy conversion systems qualifying as JOBZ properties do not pay wind energy production tax for the duration of the zone. This exemption is not limited to qualified businesses and is granted to any wind energy conversion systems that become included within a JOBZ.
Assessors or auditors granting these exemptions are asked to notify Revenue of their existence to ensure they are tracked for when the exemptions expire. As of this report, no one has notified the department of the existence of conversion systems in qualifying JOBZ.
ayment in lieu of WEPT
A developer of a new or existing wind energy conversion system may negotiate with the county where the wind energy conversion system is located to establish a payment instead (“in lieu”) of the wind energy production tax.
The in lieu payment provides fees or compensation to the host jurisdictions to maintain public infrastructure and services. A host jurisdiction includes a city or town and the county where the facility is located. The payment in lieu of the production tax may be based on production capacity, historical production, or other factors agreed upon by the parties.
The payment in lieu of tax agreement must be signed by the parties and filed with the commissioner of revenue and the County Recorder. Exemption from the production tax is effective for the same duration as the in lieu payments.
As of this report, no owners of wind energy conversion systems have filed an agreement with Revenue.
Variation in taxes
The different tier structures complicate the tax system and make it difficult to make generalizations about tax amounts. For example, a large power company may split off ownership of various conversion systems. This way they are considered (separately) as small-scale systems and assessed a lower tax rate, even if the company as a whole would be considered a large-scale system. Disputes related to the size of the system are settled by the Department of Commerce.
Costs and benefits
Benefits to communities for hosting a wind energy producing facility are similar to other renewable energy sources. These benefits include a stronger tax base, lower taxes, and other economic benefits.
In general, renewable energy sources have very small external costs in comparison to fossil fuels. Lifecycle emissions from wind power are extremely low. Costs to the community may include impacts on wildlife and the area’s landscape (National Research Council, 2009).
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