Agency must show tax-refund permits

PIERRE -- An administrative judge has ordered that state permits issued to large business and agricultural processing projects for sales-tax and contractor-tax refunds must be open to public inspection in South Dakota.

PIERRE -- An administrative judge has ordered that state permits issued to large business and agricultural processing projects for sales-tax and contractor-tax refunds must be open to public inspection in South Dakota.

The state Department of Revenue and Regulation complied this week with the order and turned over electronic photocopies of the permits.

Revenue Secretary Paul Kinsman had previously attempted to keep the records confidential. A reporter's legal challenge led to the administrative ruling that the documents are public records.

What the documents reveal for the first time are the identities of dozens of companies, agricultural cooperatives, electric utilities and business development groups that have applied for permits, and were found eligible to receive partial refunds of taxes paid on contractor services, materials and equipment at new or expanded facilities.

The refund amounts, both actual and potential, are large.


According to data distributed by Revenue officials during the 2009 session of the Legislature, the department has provided $46.2 million of refunds in recent years. The same Revenue chart showed the potential for another $143.2 million for projects currently holding permits.

Among the projects which have received refund permits are:

  • Numerous ethanol and oilseeds plants throughout eastern and central South Dakota;
  • Various South Dakota Wheat Growers grain-handling facilities;
  • Expansion of Premier Bankcard in Sioux Falls;
  • Upgrades of 3M plants at Aberdeen and Brookings;
  • A Watertown agricultural supply dealer;
  • Sioux Falls Development Corp. for a site to host an ADP (Automated Data Processing) center;
  • Expansion of the John Morrell & Co. pork plant in Sioux Falls;
  • Three wind farms backed by large international corporations;
  • Basin Electric's two gas-fired electricity generators at Groton;
  • Dakota Minnesota and Eastern Railroad;
  • Aberdeen Development Corp. for the MFG wind-blade plant;
  • Northern Beef Packers plant at Aberdeen;
  • Expansion of Valley Queen Cheese at Milbank;
  • Tower Tech Systems manufacturing plant for wind towers at Brandon;
  • Big Stone II coal-fired power plant at Big Stone City;
  • TransCanada Keystone oil pipeline;
  • Midland National Life Insurance building in Sioux Falls; and
  • A six-story office complex in downtown Sioux Falls owned by Howalt-McDowell Insurance Co.

The permit documents released this week, however, don't show the actual amounts of refunds or estimates. That information remains confidential under current South Dakota law. The law will change on July 1 by direction of the Legislature, after lawmakers decided in the 2009 session that the refund amounts should become public information.
Kinsman said his department will publish the refund amounts on the department's Internet site once the new law takes effect.

The documents were obtained by a reporter for five South Dakota newspapers -- the Aberdeen American News, the Watertown Public Opinion, the Mitchell Daily Republic, the Pierre Capital Journal and the Black Hills Pioneer -- through South Dakota's public-records appeals process.

Kinsman had denied the reporter's original request in December to inspect or obtain copies of the permits and the applications for the permits. Kinsman claimed the documents were confidential under South Dakota law because they were related to tax refunds. Kinsman's decision was appealed to the state Office of Hearing Examiners.

Administrative Judge Hillary Brady ruled on March 30 that the permits meet the definition of public records set under South Dakota law and affirmed under the state Supreme Court's ruling in the 2007 Argus Leader v. Hagen case, as argued in the reporter's appeal.

The Argus Leader lost the

case, , Brady agreed with the reporter's argument that the permits met the criteria established by the Supreme Court in that case: first, that state law requires the government to keep the documents; and second, that the documents aren't otherwise required to be confidential by some other section of law.


Brady also agreed with the argument made in the reporter's appeal that receiving a permit and later receiving a refund were separate steps under state law as well as under the department's rules.

The documents released this week underscore that point. They show permits have been issued in some instances for projects still being completed, such as the TransCanada Keystone oil pipeline, or which haven't started construction, such as the Big Stone II plant.

State officials chose to accept Brady's ruling rather than challenge it in state circuit court.

Brady's ruling wasn't a clear-cut victory in favor of public disclosure, however. She reached an opposite conclusion regarding applications for permits.

She said applications shouldn't be open to public inspection, because by law they are supposed to contain information about project costs and other proprietary information that is protected as confidential under a separate section of law.

That argument hadn't been raised by the Revenue Department.

In reaching her decision, Brady said, she also discovered that the Revenue Department wasn't complying with law regarding information required on the application.

She said Revenue's form was designed so that the proprietary information was being submitted as an attachment rather than on the application itself.


Another wrinkle surfaced after the decision was handed down. The Revenue Department didn't make the permits immediately available because, according to Kinsman, the department hadn't been keeping copies of the permits to the successful applicants.

He said Revenue staff needed time to create permits from electric files.

The copies released this week contained numerous oddities, ranging from two which were supposed issued on New Year's Day, which was a legal holiday, to others that listed the project locations at the same addresses as the companies' business offices.

One permit didn't even contain the name of the company.

Altogether, Revenue turned over copies of 54 permits, including four from the 1990s and nine issued during the first years of this decade, before the current refund program took effect.

Forty-one permits have been issued since 2005. None have been issued yet in 2009.

The Legislature, working with Gov. Mike Rounds, had significantly expanded the refund program in 2005, opening it to business facilities and power generation projects.

They made further changes in the laws in 2006, such as further defining the refund schedule and opening the way for refunds on expansion projects at existing agricultural processing facilities, and 2007.


New or expanded agricultural processing facilities which exceed $4.5 million in cost are eligible for full refunds of the contractorexcise tax paid on the project, as well as full refunds of sales or use taxes on agricultural processing equipment.

New or expanded business facilities in many cases also are eligible for partial refunds. Projects not eligible include businesses used for sale of retail products, other than electricity; motels, hotels and other lodging; residential housing; health care facilities; and buildings which aren't subject to property taxes.

The degree of refunds on non-agricultural business facilities depends on the project cost:

  • If the cost is $10 million or less, there is no refund;
  • For projects costing $10 million to $15 million, the refund is 25 percent of taxes paid;
  • For $20 million to $40 million in cost, the refund is 33 percent of taxes paid;
  • For $40 million to $60 million in cost, the refund is 50 percent of taxes paid;
  • For $60 million to $600 million, the refund is 67 percent of taxes paid;
  • For costs over $600 million, the refund is 75 percent of taxes paid.
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