How wind turbines are taxed

By Kate Hessling

Published: Wednesday, July 21, 2010 6:43 AM EDT

Tribune Staff Writer

BAD AXE — Huron County commissioners on Tuesday introduced the Thumb Regional Renewable Energy Collaborative, a regional coalition aimed at maximizing local revenue and employment from renewable energy projects.

“We just want to make sure we get our fair share and everyone’s treated equally,” said Mike Krause, member of both the Huron County Economic Development Corporation (EDC) Board and Thumb Regional Renewable Energy Collaborative (TRREC).

Krause said in the long run, renewable energy projects will be very valuable since state law requires at least 10 percent of the state’s energy come from renewable sources by 2015. Michigan’s Renewable Energy Portfolio Standard, which lawmakers adopted in October 2008, also requires that, for the most part, renewable energy systems used to satisfy the “10 percent by 2015” law be located in Michigan.

Because the Thumb has been identified as the number one area in the state for wind energy generation potential, and because of the state’s energy mandate, it makes the area ripe for wind development.

“This is the biggest thing to happen to the Thumb region since the Great Fire of 1881,” Krause said.

One of TRREC’s goals is to provide education to townships, local schools, road commissions, seniors, medical care, transit, libraries and others that could be impacted by renewable energy developments in the area of taxes and job creation. To do that, collaborative members — which consist of representatives from Huron, Tuscola and Sanilac counties — investigated how wind projects currently are taxed.

Annual depreciation,

possible tax abatement

Wind energy systems (i.e. turbines) are classified as industrial property, Krause said. Unlike real property, property values are determined by their market value.

The Michigan State Tax Commission, with input from wind developers, established a schedule where turbines are taxed at 100 percent of their value the first year of operation and then the taxable value depreciates by 5 percent each year until year 15, when they are taxed at 30 percent, Krause said. After year 15, the schedule remains at 30 percent.

As an example, he said a $4.8 million wind turbine would have a taxable value of $2.4 million for the first year. If 20 mills were levied, the total tax revenue from the turbine for the first year would be $48,000. Each year, until year 15, the tax revenue from the turbine would decrease by 5 percent, resulting in revenue being $14,400 at year 15 and every following year.

Because wind turbines are considered industrial personal property, they are exempt from paying the State Education Tax of 6 mills and Local School Operating Tax of 18 mills.

On top of that, turbines also may qualify for a personal property tax exemption from the Michigan Next Energy Authority.

Krause said that means an energy developer could get a 100 percent tax abatement on a wind development once the project is complete — that is unless the local tax collection units and school districts pass resolutions disallowing the exemption.

Impacted local units (i.e. townships) and school districts are notified when a Michigan Next Energy Authority exemption is approved, and the units have 60 days to pass a resolution opting out of the exemption, he said.

If the local tax collecting units of government/schools do not opt out within 60 days, they have no way of collecting any taxes on the wind turbines until Dec. 31, 2012, which is the sunset date the Legislature set in the Michigan Next Energy Authority law, Krause explained.

After that sunset date, any certified exempted wind energy system would return to the tax rolls at their tax depreciated value, unless the law is extended — which officials said on Tuesday could happen because the goal of the exemption is not to encourage just wind development, but renewable energy manufacturing in Michigan as well.

As a result, TRREC members and county commissioners on Tuesday stressed it’s very important that local schools and townships are aware of this, so if a request for exemption is made in their area, they will be able to opt out of it and can collect local taxes on the wind energy systems. And if a township doesn’t opt out and an exemption goes into effect, it means no local government — including the county — will be able to collect any taxes on the development, Krause said.

He noted TRREC has been building a rapport with the Michigan Economic Development Corporation (MEDC) so if a local township is sent a notification that an exemption has been approved, county officials will be notified and can make the local unit aware it has 60 days to act or it will lose out on tax revenue.

“As new developments come in, as we better understand what the tax implications are ... it’s our responsibility to ... make sure information is as transparent and open as much as possible,” said Huron County EDC Executive Director Carl Osentoski, who also is a TRREC member.

Hundreds of millions of dollars at stake

Krause said the Michigan Next Energy Authority exemption is the only tax exemption option for wind energy systems. He said the MEDC is of the opinion that since Michigan ’s Renewable Portfolio Standard is in place, there is no need to extend this provision past Dec. 31, 2012.

“We have a natural resource that people want to develop,” he said, adding tax abatements won’t be the incentive they currently are in the future because developers won’t have a choice but to create alternative energy developments because they will be required to have 10 percent of their electricity come from renewable sources by 2015.

If all local units failed to opt out of the Next Energy exemption as future developments are erected, it could cost the Thumb hundreds of millions of dollars in the future, Krause said.

As an extreme, he cited estimates showing that if 1,000 turbines were erected in the Thumb (Huron, Tuscola and Sanilac counties), and no townships opted out of the exemption, the Tri-County area could lose $445.99 million in tax revenue, assuming the turbines are taxed an average of 20 mills.

Krause stressed that is just a snapshot of the significance of future revenue from wind developments, and noted area townships and schools shouldn’t be ashamed for collecting taxes on wind developments.

“Twenty mills is not the end of the world — it’s what constituents in this county deserve,” Krause added. “... To represent your community and your constituents, you need to get something in return (in the form of tax revenue from developments).”

He said the area has to think of wind as a natural resource.

“If we discovered gold in Huron County , would we invite people in and give them a tax abatement to dig our gold out? Probably not — we’d ask them to leave us a little something behind,” Krause said. “ ... That person struggling to pay their property taxes ... wind developers should pay the same things that they pay.”

According to Huron County Treasurer Sherry Learman, turbines located in Chandler Township that are part of the Harvest Wind Farm were levied for 11.5155 mills in 2009. Those with a primary residence exemption (i.e. primary homes) in that township were levied 29.031 mills and those with no primary residence exemptions (i.e. second homes) were levied 47.031 mills.

Turbines located in Oliver Township that are part of the Harvest Wind Farm were levied 9.9006 mills in 2009, Learman said. Those with a primary residence exemption in that township were levied 25.8013 mills and non-primary residence exemptions were levied 43.8013 mills.

Learman said turbines located in Sheridan Township that are part of the Michigan Wind I development were levied 7.8763 mills in 2009. Those with a primary residence exemption in that township were levied 21.7527 mills and non-primary residence exemptions were levied 39.7527 mills.

Turbines located in Bingham Township that are part of Michigan Wind I were levied 8.0492 mills in 2009, Learman said. Those with a primary residence exemption in that township were levied 22.0985 mills and non-primary residence exemptions were levied 40.0985 mills.

The total property tax collected in the area from both Michigan Wind 1 and Harvest Wind — including all taxes paid to the four townships, county, local schools and libraries — exceeded $1.08 million in 2009 and are anticipated to be around $1.02 million in 2010, according to projections from the Huron County Equalization Office.

The next course of action

According to the presentation Osentoski and Krause gave during Tuesday’s commissioners meeting, the number one item on the collaborative’s to-do list is to make sure townships and local school districts opt out of Next Energy Tax exemptions.

Other to-do items include:

• Educate each other.

• Build a coalition, including counties outside the Thumb area, to affect legislation and Michigan Tax Commission regulations.

• Study the impact of increased taxes on local millage collections, job creation and explore other options. This study will take some time, Krause noted.

Following the TRREC presentation, Huron County commissioners discussed a variety of other wind-related topics. Commissioner Kurt Damrow said county officials met with some manufacturing companies last week about bringing jobs to Huron County in the future. He said the county has about three months to prepare an official pitch to the companies.

Damrow said the local wind developments are what made the area attractive to the companies, which included a hybrid automotive manufacturing company.

Also during Tuesday’s meeting, the board heard from Brad Lila, Renewable Energy Systems Americas Inc. (RES Americas) development manager, who said RES will soon be submitting an application for wind overlay zoning, which is the first step in zoning process to create a wind development.

He said RES is nearing completion of gathering leases, and so far, there are about 60,000 acres under lease.

The company is looking at two different projects, Lila said. The first is northeast of Kinde and the second is southwest of Elkton.

At this time, RES is waiting to see what ITC Transmission will do as far as upgrading the transmission grid, Lila added.

Kate Hessling • (989) 269-6461 • khessling@hearstnp.com

 

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