How to Use this Guide State Resources Federal Resources State Renewable Portfolio Standards (RPS)

The Renewable Energy Systems Exemption is a property tax exemption for 50 percent of the installed cost of commercial renewable energy systems and the entire assessed value of residential renewable energy systems.

South Dakota

• Renewable Energy Systems Exemption
• Renewable Resource Electric Power Facilities Tax Refund
• Solid Waste Management Program

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Renewable Energy Systems Exemption

The Renewable Energy Systems Exemption is a property tax exemption for 50 percent of the installed cost of commercial renewable energy systems and the entire assessed value of residential renewable energy systems. There is no maximum limit for the cost of the system, and the full exemption (50 percent of installed costs) can be taken for three years after installation. After the first three years, the tax credit is gradually reduced. Seventy-five percent of the base credit can be claimed in the fourth year after construction, 50 percent in the fifth year, and 25 percent in the sixth year. The tax exemption is not allowed for systems that produce energy for resale.

The technologies eligible for the exemption include passive solar space heat, active solar water heat, active solar space heat, photovoltaics, wind, biomass (e.g., landfill gas), renewable transportation fuels, and geothermal electric. Applicability of the exemption depends on the characteristics of each individual system, and approval is granted by the Director of Equalization on a case-by-case basis. Although the exemption has yet to be applied to a landfill gas energy project, the South Dakota Department of Revenue has indicated that landfill gas energy projects might qualify.

Renewable Resource Electric Power Facilities Tax Refund

The South Dakota state legislature authorized the Renewable Resource Electric Power Facilities Tax Refund in March 2001 and its sister legislation, Senate Bill 167, in February 2002. This tax program works in conjunction with several other incentives (including a tax exemption and a grant/loan funding program) to promote the expansion and development of renewable energy sources in South Dakota. The legislation provides for a refund, credit, or deferral of the contractors’ excise tax to persons expanding or developing a commercial renewable power facility, including landfill gas energy projects.

To qualify, a taxpayer must expand or construct a commercial power production facility that:

• Costs over $500,000.
• Uses renewable resources, such as solar energy, wind, geothermal energy, or biomass materials, including landfill gas.
• Is located within one county.
• Is owned by a person, corporation, nonprofit, or for-profit business organization, tribal council, or government agency.

For projects that produce 10 MW or less of electricity, the refund or credit covers 100 percent of the contractors’ excise taxes attributed to project costs (excluding transmission facilities costs), as long as those costs are incurred and paid within 36 months of obtaining approval from the Secretary of Revenue. For projects that produce more than 10 MW of electricity, the refund or credit covers 50 percent of the contractors’ excise taxes, with the remaining taxes deferred until the second through fifth years after construction. To receive approval, the project developer must apply for a permit from the Secretary of Revenue at least 30 days before starting the project.

Solid Waste Management Program

Established on July 1, 1992, South Dakota’s Solid Waste Management Program provides funding in the form of grants and low-interest loans for solid waste disposal, solid waste recycling/use for energy production (e.g., landfill gas energy projects), and waste tire projects. The loan interest rates are set by the Board of Water and Natural Resources. The current interest rate is 2.25 percent for seven years, or the useful life of the project, whichever is less.

To be eligible for funding consideration, an application must clearly show how the project will advance the state’s solid waste management hierarchy, as follows:

• Volume reduction at the source
• Recycling and reuse
• Use for energy production
• Disposal in landfill or combustion for volume reduction
• Show potential cost savings, public health, or environmental benefits in solid waste management, waste tire management, or waste tire processing for energy production.
• Develop a workplan, schedule, budget, and provisions for a final report.

Eligible applicants include individuals, partnerships, limited liability companies, corporations, counties, cooperatives, municipalities, regional or state-wide planning agencies, federally recognized Indian tribes, or special purpose districts that have the authority to construct or operate solid waste, waste tire, or recycling facilities.