Minnesota to recalculate sales tax for many home solar, wind systems
BIRD ISLAND, Minn. — When solar panel installers told Glen Jacobsen that his utility bill looked different than others they have seen, he began investigating.
Now Jacobsen, and many others who produce some of their own electricity with solar panels or wind turbines, are entitled to refunds on some of the state sales tax they have paid.
"I didn't realize they were doing it 'quote unquote wrong' until last spring when I had my solar work done,'' said Jacobsen, an assistant county attorney in Renville County. "Talking to folks who said (that's) not how a bill is supposed to look.''
Jacobsen said he learned that investor-owned, cooperative and municipal utilities in the state were using either of two different methods to calculate the sales tax owed by their customers who produce some of their own electricity, known as distributed generation. He contacted the Minnesota Departments of Commerce and Revenue and urged them to look into it. He also called the issue to the attention of organizations advocating for distributed generation.
The Department of Revenue is now in the process of providing clarification to power suppliers thanks to what Jacobsen has brought to light. Ryan Brown, communications director
with the department, said it has determined that no use tax is due by customers.
According to information from Brown, the electricity produced by the customer, for which the customer is credited under net metering law, is not subject to sales tax. Any sales tax should be calculated after the credit for the electricity produced by the customer has been deducted from the other charges, the department determined.
At this point, the department does not have an estimate of how many utilities relied on inaccurate information to calculate the sales tax. The Department of Revenue will issue refunds to those cooperatives that file a claim for a refund and make arrangements to send those refunds to customers that paid the sales tax, Brown stated in an email.
Jacobsen said his power supplier, McLeod Cooperative, will need to recalculate his monthly bills paid for just over 10 years to determine the refund he is owed. He estimates he is owed a refund of nearly $15 a month, or somewhere between $1,200 and $1,500 total.
The McLeod Cooperative has been calculating the sale tax according to instructions originally provided by the Department of Revenue, and is now awaiting clarification from the department on how to proceed.
Jacobsen is an advocate for distributed generation, and hopes to get the word out so that others who may be entitled to a refund get it.
He said he invested in his own wind and solar generation to be as carbon neutral as possible, but pointed out that he had a financial motive as well.
"I hated paying $300, $400 and $500 electric bills every month,'' he said.
He and his wife, Donna, are large power consumers on their farm place outside of Bird Island. They use their farm to protect a variety of endangered tortoises from warm climates. In the winter months, they house the tortoises in a climate-controlled environment in their basement. They use energy-hungry, globed lamps that radiate both heat and ultraviolet radiation that are essential to the health of these cold-blooded creatures.
Jacobsen said he installed a small wind turbine — rated for 20 kilowatts of capacity — in August of 2007. Last spring he added solar panels rated for 19.5 kilowatts. He is currently producing more power during the course of a month than he purchases from his cooperative.
While he receives a credit for his energy, he still pays a monthly fee of just over $83 for being connected to the McLeod Cooperative electric distribution system. He said $50 of that fee is because he is a distributed generation customer, a charge that he feels is unfair.
He argues it is not fair to charge distributed generation customers more than other customers for the costs of maintaining the distribution system. By virtue of producing their own power, they reduce the amount of electricity that must be purchased from elsewhere. That represents a savings in terms of the infrastructure needed to produce and deliver that electricity to the local cooperative, he said.
Jacobsen said he is urging lawmakers and local power suppliers to recognize this savings. He is also exploring the possibility of purchasing a Tesla Powerwall and going off the grid to avoid paying what he feels is an unfair, added cost.
Two questions determine tax on electricity
Two questions are at the heart of the issue in calculating how much sales tax is owed by those who produce a portion of their own electricity.
Ryan Brown, communications director for the Department of Revenue, said these are the questions raised by Glen Jacobsen and the department's response.
Is self-generated electricity, solar or wind, residential or commercial, subject to use tax by the user, since purchasing electricity is subject to sales tax?
Is the sale of a customer's excess electricity back to the company for credit, under the state net metering law, subject to tax?
The department determined that customers who generate electricity — referred to as "distributed generators" — do not make retail sales of electricity when they "net meter."
Furthermore, the use of self-generated electricity is not purchased from a retailer and is therefore not subject to use tax. The credit paid to customers under the state net metering law constitutes a reduction of sales price and is not subject to sales tax.