Speaking of how we tax agricultural land, Rapid City attorney and columnist David Ganje notes that the productivity formula used to calculate the maximum potential income that serves as the basis for farms’ and ranches’ property tax ignores the impact, positive and negative, of wind turbines on ag income:
…But the practice and policy of the state is not to consider wind turbines and wind farm infrastructure as a taxable asset. The presence of turbines and infrastructure does not change the taxable value of the land on which the infrastructure sits. This principle is rather unique in the tax world.
For tax purposes the state tax code ignores the windmills sitting on the land.
OK. No tax consequences, but what about the projects actual effect on the land? Ag land under the law of equalization is taxed on a complicated formula based on the agricultural production of the land. Does the state tax system consider the effects of production where project infrastructure dots the land in question? No, turbines and turbine foundations, concrete pads, footings, towers, guy wires, support fixtures, anchors, fences, all overhead and underground electrical cables, and all overhead and underground telecommunications cables necessary are not considered for real estate tax purposes [David Ganje, “Wind Turbines and the Pocketbook,” Rapid City Journal, 2021.10.23].
South Dakota’s property tax system does not reclassify the few acres that wind turbines on farmland may take out of production. That’s akin to charging ranchers taxes based on what they could make planting corn on a certain plot when they’ve grown nothing but grass there for 30 years. But the tax system doesn’t contemplate wind energy as a cash crop contributing to the value of agricultural land, either. If the lease payments a farmer gets for hosting a few wind turbines exceed the value of the few hundred bushels of corn or beans or the handful of extra cows that could have been raised where those turbines stand, South Dakota’s ag productivity tax doesn’t touch that higher productivity. If a string of farms lie on a particularly windy ridge that has wind energy developers bidding up the value of the land, the ag productivity formula does not notice.
We could reform the ag productivity formula to include wind energy potential, although such an inclusion could lead us to wonder why we don’t include other potential commercial uses—hunting lodges, eco-tourism AirBNBs—that can produce more wealth without shutting down farming or ranching and triggering a reclassification of the land from agricultural to commercial. We could revert to assessing farm land on its market value, which would reflect how much value buyers see in farm land that hosts or could host wind turbines.
Or we could just tax income, on corn, cows, and kilowatts alike. If wind turbine leases boost farmers’ revenue, counties could fairly tax that currently untapped wealth. If wind turbines are a net loss for farmers, their taxes would go down proportionally.