Nebraska Supreme Court Upholds Credit Provision of Nameplate Capacity Tax
The Nebraska Supreme Court has upheld the credit provision of the Nameplate Capacity Tax applicable to wind energy generation facilities against challenges that it is unconstitutional. Banks v. Heineman, 286 Neb. 390 (2013). This ruling means that all privately-developed, utility-scale wind energy generation facilities in the state will be treated the same for property tax purposes. More generally, it makes important clarifications to Nebraska law regarding the constitutional requirements for excise taxes versus property taxes and special legislation.
In 2010, the Nebraska Legislature passed Legislative Bill 1048. Among other things, this “omnibus wind bill” replaced the personal property tax to which wind energy facilities were subject with a new excise tax known as the Nameplate Capacity Tax.
The Nameplate Capacity Tax is a flat tax, calculated by multiplying $3,518 by the nameplate capacity of each turbine in the facility. Thus, it creates a level obligation for the facility owner and a level revenue stream for the county in which the facility is located. The personal property tax, on the other hand, depreciates over five years, meaning it creates a very front loaded obligation and revenue stream, which neither the facility owner nor the local county prefer.
Only one privately-developed, utility-scale wind energy generation facility existed at the time the law took effect, the Elkhorn Ridge project in Knox County. Because Elkhorn Ridge’s owner had already started paying the front loaded personal property tax, moving it to the Nameplate Capacity Tax would cause the owner to pay tax twice – once as personal property tax and once under the replacement Nameplate Capacity Tax.
To avoid this unfair result, the Legislature included a provision in LB 1048 whereby any facility pre-dating the Nameplate Capacity Tax would receive a credit against that future tax for the amount of personal property tax it had paid. Thus, such projects could operate under the Nameplate Capacity Tax like all future projects, without being double taxed.
Knox County sued Governor Heineman, Tax Commissioner Ewald and Treasurer Stenberg. Knox County claimed the credit provision was unconstitutional because it commuted (forgave) taxes due and because it was special legislation. The Lancaster County District Court ruled in Knox County’s favor. The Supreme Court reversed and upheld the credit provision as constitutional.
With respect to the commutation argument, the Court determined that the Nameplate Capacity Tax is an excise tax. The Court then held that the Nebraska Constitution’s prohibition on commutation of taxes only applies to property taxes, and not to excise taxes. Therefore, the Nameplate Capacity Tax could not, and did not, constitute a commutation of taxes.
More generally, this portion of the ruling also provides important clarification on the application of the constitutional prohibition to excise taxes. The recent decision in Kiplinger v. Nebraska Department of Natural Resources, 803 N.W.2d 28 (2011) muddied these waters, but here the Court expressly confirmed that the commutation prohibition only applies to property taxes.
With respect to special legislation, the Court determined that the Nameplate Capacity Tax is special legislation in that it applies to a closed class of one, namely the Elkhorn Ridge Project. However, the Court also held that the Legislature may enact special legislation where general legislation cannot accomplish the desired purpose and the special legislation does not confer an undue benefit on the closed class.
Here, the Court found that putting the Elkhorn Ridge project on the new tax system is a legitimate objective that the Legislature can not achieve with general legislation. The Court also found that the Elkhorn Ridge project will not receive an undue benefit because the credit provision merely puts it on the same footing as all other projects and avoids unfair double taxation.
More generally, this portion of the ruling also helps dispel the notion that all special legislation is unconstitutional. As noted, special legislation may be permissible where it is necessary and serves a legitimate purpose.
Baird Holm played a key role in drafting the underlying legislation, and the Court’s ruling maintains the way for Baird Holm client Elkhorn Ridge Wind to be treated the same as all other wind energy generation facilities as to taxation, and to avoid double taxation with respect to the Nameplate Capacity Tax.
The Supreme Court’s decision is available at: http://www.supremecourt.ne.gov/sites/supremecourt.ne.gov/files/sc/opinions/s12-723.pdf.