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SD rural electric co-ops look to cut tax hikes

PIERRE -- Opposition from groups representing public schools wasn't enough Monday to derail a tax change sought by South Dakota's rural electric cooperatives.

The state Senate's committee on taxation endorsed the proposal 6-1. It would limit the growth of taxes paid by cooperatives for schools. The measure, SB 123, now goes to the full Senate for consideration as early as today.

The co-ops for decades have paid a tax on their gross receipts from electricity sales. The money goes to support schools and takes the place of property taxes.

The change sought by the co-ops would levy a tax per kilowatt-hour sold. Price of electricity would be taken out of the equation.

"It's the right thing to do. It's a mechanism to keep costs down," said Sen. Eldon Nygaard, R-Vermillion.

The lone nay was cast by Sen. Jim Hundstad, D-Bath, who acknowledged that as a co-op member he'd benefit from the change. But, he said, that approach doesn't work if schools' needs outpace the tax revenue.

He said that's been the case for the motor-fuels tax, which is charged per gallon regardless of price; highway costs have risen, while the tax revenue hasn't changed much.

"A per-gallon tax on milk is not how we do it," Hundstad said.

Co-ops paid an average of 9.7 percent more annually in taxes during the past decade on their gross receipts, according to Ed Anderson, executive director for the South Dakota Rural Electric Association.

He said changing to a tax strictly on kilowatt-hours would, based on projected growth, cost about 3.7 percent more per year. He said the cost would be an estimated 6.7 percent more annually if the gross-receipts approach remains in place.

Anderson and others laid the fault at the feet of environmental regulations from the federal government, especially the Environmental Protection Agency.

He said two existing power plants that supply electricity for South Dakota rural customers have been forced to add $750 million to $800 million in environmental retrofits. Those costs are passed down to co-op members and the coops have to pay taxes on the additional receipts.