As part of the 2002
Omnibus Tax Bill (Laws of Minnesota 2002, Chapter 377) the
legislature has changed the way wind energy projects are taxed. From
now on, wind energy projects in Minnesota will be exempt from
property taxes and instead will be required to pay local taxing
districts a direct payment based on the electricity production from
the wind turbines. The tax is on a sliding-scale based on the size
of the wind energy project.
Summary of the Minnesota Wind Energy Production Tax
Imposes a production tax on the production of electricity from
wind energy conversion systems that were installed after January 1,
1991. Rates of tax are established based on the size of the wind
energy conversion system.
- Large Scale Wind Energy Conversion System - nameplate capacity
of more than 12 megawatts. Payment of 0.12 cents per kilowatt
- Medium Scale Wind Energy Conversion System - nameplate
capacity of between two and 12 megawatts. Payment of 0.036 cents
per kilowatt hour.
- Small scale Wind Energy Conversion System - nameplate capacity
of between two megawatts and more than 250 kilowatts. Payment of
0.012 cents per kilowatt hour.
- NOTE: Small Scale Wind Energy Conversion systems with a
capacity of 250 kilowatts or less and small scale systems owned by
a political subdivision would be exempt from the production tax.
The production payment taxes would be paid to the county at the
time and in the manner in which personal property taxes would be
paid, and the revenues would be distributed among the taxing
jurisdictions in proportion to their tax rates.
For wind project systems that were installed or contracted for
before January 1, 2002, the owners are allowed to negotiate directly
with the counties and local governments a payment in lieu of wind
energy production taxes.
Minnesota's system of energy taxation could be improved by
stopping what appears to be the annual adoption of property tax
exemptions for most new proposed power projects. For example, in the
2002 Tax bill containing the wind energy production payment, other
provisions give complete personal property tax exemptions to a
natural gas turbine electric generation facility of between 43 and
46 megawatts in Waseca County, a simple-cycle natural gas
combustion-turbine electric generation facility of more than 40
megawatts but less than 50 megawatts in Beltrami County, a 3.2
megawatt run-of-the-river hydroelectric generation by Crown Hydro in
Minneapolis, a biomass power facility less than 25 MW in Shakopee,
and for at least a 500 MW electric generation facility sited on an
energy park that has direct rail access to a Great Lakes port (and
can be up to 1000 MW).
Th idea of placing a production-based payment on energy resources
in place of property taxes was originally proposed by the Institute
for Local Self-Reliance in a 1995 report, Taxing Wind Energy in
Minnesota. The report concluded that a fair rate of production
payment would be 0.3 cents per kilowatt-hour based on a 25 percent
capacity factor. This system would have provided significant
revenues to local communities and also provided a built in incentive
for wind projects to be operated efficiently. Since the release of
ILSR's report, the taxing of wind energy in Minnesota has gone
through many iterations. The 2002 changes replace a complicated
system of property valuation that increased the amount of wind
energy property subject to taxation based on the size of the wind
The New Rules Project likes the new system and likes Minnesota's
efforts to keep in place policies that encourage small-scale
distributed wind projects. However, the utility tax policy in
Minnesota is not comprehensive in that they continue to provide
fossil fuel power projects with tax exemptions.