Property Tax on Wind Turbines

Property tax is probably one of the most arcane taxes in existence. The tax is supposed to be based on “market value assessment”, but of course, market value can only be determined upon sale of a property, and even after a sale, the market value may change, so the value determined by a sale is immediately obsolete. The difficulty of property tax assessment is as true of wind turbines as it is of residential properties.

Under the property tax system, the assessed value for commercial properties is based on the land, and buildings. Equipment housed by the buildings is not taxed. In an auto assembly plant, the building and property are subject to tax, but the assembly line, robots, machines etc. are not subject to tax.

A wind turbine consists of a foundation, a tower, a nacelle that houses a generator, gearbox, controller, and sometimes a transformer, and blades. The foundations would clearly be subject to tax. But the nacelle would clearly be classed as equipment. The tower, it could be argued, is not a building, but merely there to hold the equipment in place. So is it taxable or not? It is not clear. Furthermore, many wind turbines are built on a turnkey basis, where the price paid is for a fully erected turbine, and the foundation and tower are not separately valued.
The Conservatives introduced a 10 year exemption on property tax for wind turbines to encourage more clean energy. This was modeled on a successful initiative to make water power re-developments exempt from property tax, that resulted in a substantial refurbishment of some of Ontario’s older water power plants. The Conservative initiative included a commitment to provide compensation to muncipalities for lost revenue, but the details on this were never released. At the time, the province had only 10 commercial wind turbines in operation, so this was not a big deal.
The first Liberal budget eliminated this exemption, on the basis that no source of energy should have this “subsidy”.

So the wind industry formed a small committee to research the issue. We found that if the foundations and towers were subject to tax, then the property tax on wind would be 21 times greater than the property tax on coal, per kilowatt hour produced. So who had the subsidy? Clearly this was bad public policy. In addition, if the towers were assessed, there would no doubt be legal challenges as to whether they were simply there to support equipment, and therefore exempt. So municipalities would have uncertainty about their tax revenue, and wind developers would have uncertainty about their tax expense.

We discussed the issue with the Ministry of Finance, which is responsible for governing property tax. They understood that it was bad public policy to tax wind turbines out of existence, and that the uncertainty over the value to be used would deter investment, and cause uncertainty of tax revenues for municipalities. After about 6 months of discussions, they decided that it would be best to set a fixed value per megawatt of installed capacity. The assessed value was set at $40,000 per megawatt, plus one acre of land per turbine.

The net result is that the Ferndale wind turbine pays about $3800/year. These funds are split between the school board, the local municipality, and the County. The current arrangement of taxation is fair relative to other sources of electricity, and provides certainty for investors in the wind industry, and for muncipalities.

There was an article in the Kincardine News this week, where they suggested that the tax on wind turbines is too low, providing a subsidy to the wind industry, and robbing municipalities of revenue. But there is no subsidy. The property tax on wind turbines is now similar to the property tax paid by other forms of generation. And municipalities do receive revenue, for which only minimal services are required. There is no water, no sewer, nor garbage collection. Wind turbines do use roads for maintenance vehicles, but these roads are already maintained. So the extra revenues to the municipality costs them nothing. And they collect fees for zoning applications and building permits, to cover their costs of running their planning and building departments.

Needless to say I wrote a letter to the editor on the issue.

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