State: turbines exempt from sales tax
SALE-LEASEBACK QUESTION: Value of proposed deal with JCIDA will be reduced if tax bill is lowered
By NANCY MADSEN
TIMES STAFF WRITER
TUESDAY, FEBRUARY 2, 2010
Wind turbines are exempt from sales taxes, a recent opinion by the state Department of Taxation and Finance states.
It’s unclear exactly how that will affect the proposed Galloo Island Wind Farm, because the developer wouldn’t say how much of the estimated $253 million originally said to be eligible for sales taxes includes turbine parts.
But the ruling could lower sales tax collections from the project, and reduce the value of a tax abatement sought by the developer, Upstate NY Power Corp., through an agreement with the Jefferson County Industrial Development Agency. Sale-leaseback agreements eliminate sales and mortgage taxes on a project.
Some opponents of a proposed payment-in-lieu-of-taxes agreement, which would give lesser payments for property taxes, argue that the developer should pay more in property and sales taxes. The Jefferson County Board of Legislators will weigh in on the PILOT tonight, but the sale-leaseback agreement is made separately by JCIDA’s board of directors.
The proposed PILOT would run 20 years and begin with payments of $2.14 million, divided among the county, town of Hounsfield and Sackets Harbor Central School District. Those annual payments would increase by 2.5 percent each year, with supplemental payments if higher electricity costs prevail.
In an advisory opinion, which tells a particular entity how the department will handle its case, the department told BP Wind Energy North America on Dec. 29 that assembly and installation of wind generation equipment used directly in electricity generated for sale in its project will qualify for sales tax exemption.
This sets the precedent for other wind projects, such as Galloo Island, to be handled in a similar way.
The purchase of property, machinery and equipment not used “directly and predominantly” to produce electricity is subject to sales tax. Those items include the electrical distribution system, cement and other foundation materials, meteorological towers, control and maintenance building and road materials.
Before this and a similar opinion were released by the department, wind farm developer Upstate NY Power Corp. estimated $253 million of the $500 million in expected investment on Galloo Island would be subject to sales tax. Now, that number could fall significantly. But the developer declined to give a new figure to the Times on Friday.
The U.S. Department of Energy reported in its “2008 Wind Technologies Market Report” that for wind farms between 100 and 300 megawatts, prices for turbines ranged from about $900,000 per megawatt to about $1.5 million per megawatt. Based on a planned 252 megawatts and $500 million investment planned for Galloo Island Wind Farm, the investment on the island eligible for sales tax could range from $122 million to $283.2 million under the Department of Energy’s estimates.
On the $253 million it said would be taxable, the developer would have paid $19.6 million in sales taxes, with about $9.5 million going to local governments, according to the developer’s application to JCIDA on Oct. 6. If the state ruling lowers the portion of the project subject to sales tax, it could mean less money for local governments.
Unlike the PILOT, a sale-leaseback agreement is granted solely by a vote of the JCIDA board of directors. Generally, developers that receive a PILOT agreement also receive a sale-leaseback agreement. JCIDA has taken no action on the sale-leaseback request yet.
“Incentives are not necessarily uniformly granted,” JCIDA Chief Executive Officer Donald C. Alexander said. “Typically, these projects are assumed to have a value to the community and are granted a PILOT and the same value extends to a sale-leaseback.”