By Mary Drier
CARO — During a Michigan Renewable Energy Collaborative (MEREC) meeting, leaders of the group encouraged members to continue challenging the state’s arbitrary change of the depreciation tax formula on wind turbines.
In 2011, the Michigan Tax Commission changed the taxing formula which resulted in millions of dollars of lost revenue to all the taxing units where there are wind farms are located as well as a revenue loss from future development.
The areas impacted by the tax change are primarily five counties — Tuscola, Huron, Sanilac, Mason, and Gratiot as well as the several townships in those counties. Leaders in those areas are the ones who formed the grassroots MEREC to challenge tax change.
When the taxing method was changed, Huron County had several wind farms that had been operational for several years and others were under development. Plus, several more turbines have been added since then. Construction on the first wind farm in Tuscola County was underway when the change was made, and two more wind farms have been built since then. Further development is being eyed in those counties, along with a push by state officials to increase renewable energy production.
When the wind farms were being explained and then constructed, they were touted for the financial windfall they would bring to the area. However, the tax change reduced the money municipalities received.
The taxing formula change had an immediate financial impact as well as a long-range impact on each taxing entity — from counties, townships, and schools.
Construction cost of each wind turbine is estimated at about $4 million, explained Carl Osentoski, director of Huron and Sanilac county’s economic development corporation (EDC).
“There is a lot of money involved in this,” said Osentoski.
Before the change, each turbine’s tax was based on 100 percent of its value for the first year and depreciated over 15 years until bottoming out at 30 percent for the remainder of the turbine’s life, which is estimated at about 30 years.
Under the State Tax Commission change, turbines are to be taxed at 80 percent on the first year and that drops to 30 percent within five years.
The STC refuses to explain why the change was made, to release any information on why the decision was made or to review the impact of the decision.
Because of that, MEREC was formed with the common goal of having the original tax depreciation schedule re-established or a more favorable one created.
The collaborative sent local boards of review a legal opinion and information that supported the position that the tax commission’s ruling does not accurately reflect the true cash value of wind turbines so the original tax depreciation formula should be used. This is the area of contention.
MEREC hired the law firm of Clark Hill to handle legal matters, to argue their case before the Michigan Tax Tribunal for the original tax formula — and/or another fair and reasonable method of wind energy taxation, —and also hired Appraisal Economics to do a nationwide study on turbine taxation.
While a few of MEREC’s appeals to the Michigan Tax Tribunal have been handled, there are several that haven’t and are not expected to be heard for a couple of years, so some collaborative members are becoming concerned about legal fees.
“The total revenue (from wind) in 2014 was $27 million in the five counties versus $540,000 in legal fees. I think that is good value for our money, and that includes the appraisal study,” said Mike Krause, member of the Huron County Economic Development Corporation and (MEREC) member.
MEREC’s study hopes to show the original tax formula should be re-established or use the multiplier of 47 percent developed by Appraisal Economics.
There are approximately 839 turbines in those five counties valued at $3.1 billion, and more development is being planned.
“That change in depreciation on turbines is a $28 million loss the first year,” said Krause. “It would have been much more without the state stepping in for a compromise.”
Of those 800-plus turbines, 170 are coming off being taxed at 100 percent in Huron and Sanilac counties for a $170 million loss in revenue.
While the group was able to keep the original taxing standard from NextEra’s wind farm in Gilford and Blumfield townships, the energy company is appealing it.
NextEra missed the filing deadline to make their case so contention that federal funding per windmill they received should be deducted off the cost first and the remaining value is what should be taxed.
Although the county is receiving the tax at the level they wanted, the difference between the money that is being collected and what NextEra contends they should pay is being escrowed until the appeal is settled — in case the county has to pay the money back.
While that issue is somewhat settled, the townships of Bingham, Sheridan and Deleware are the next ones on the tax tribunal docket challenging the taxing formula of Exelon’s wind farm development.
Besides the current finances involved in renewable energy development and the tax challenges, there could be even more money at stake in the future as the governor pushes for more renewable energy development.
During his State of the State address, Governor Rick Snyder stated that Michigan’s energy policy needs to be set by Michiganders, and if the state’s system is going to be adaptable, it needs to be affordable, reliable and environmentally protective.
In order to do that, he plans to establish an agency where energy policy experts are under one roof, which would help the state formulate its own statewide energy policy.
The governor also said he will deliver a special message on energy in March.
Mary Drier is a staff writer for the Tuscola County Advertiser. She can be reached at [email protected]