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Legislative Electric Energy Task Force

Interim Subcommittee on Utility Taxation Recommendations

The 1997 Minnesota Legislature required the Legislative Electric Energy Task Force to establish an interim subcommittee to conduct an analysis of certain issues relating to the imposition of personal property taxes (PPT) on the state's gas and electric utilities. Specifically, the interim subcommittee was required to analyze and develop a recommendation regarding:

  • the effects of the PPT on the ability of the state's utilities to compete in a less regulated energy industry;
  • the impacts that eliminating the PPT would have on local units of governments (including school districts), state revenues and rate payers; and
  • alternatives to the current utility taxation structure.

The task force established the interim subcommittee, which held a number of public hearings in the fall/winter of 1997. In addition to those public hearings, members and staff of the subcommittee met with interested parties to collect information and to solicit opinions. During the course of these proceedings, the subcommittee found that the issues it was charged with exploring are exceedingly intricate and complex, and that several analytic, policy and political questions remain to be considered and answered before the subcommittee can make a recommendation as to whether and how to address the issue of the PPT.

These questions include:

  1. what significance the PPT holds in the context of all of the federal, state and local taxes and tax benefits available to the various types of utilities operating in the state
  2. whether restructuring would result in such sharp price reductions or market share losses that the economic viability of utilities subject to the PPT would be threatened
  3. whether the PPT should be replaced with a different tax, fee or surcharge; how that replacement fee should be structured; and how replacement revenues should be distributed to local government units
  4. whether PPT reform or elimination would have to be revenue neutral for local government units, including the question of whether those local government units that are heavily dependent on PPT revenues and providing above-average government services to its citizens should be expected to:
    • reduce overall expenditures and services; or
    • increase local tax levies on other local property.
  5. whether PPT reform should be tied to the implementation of retail competition for electric supply, or whether the state should proceed with utility tax reform prior to or independent of restructuring the electric industry
  6. whether and how technical issues, such as how property owned by different types of utilities should be valued by local assessors or the Minnesota Department of Revenue, should be reformed or more fully analyzed

Due to the importance of these issues, the interim subcommittee on utility taxation of the Legislative Electric Energy Task Force recommends that:

  1. the task force spend additional time and resources in fully understanding the answers to these and other related questions;
  2. the interim subcommittee be continued to allow for uninterrupted, in-depth study of these complexities; and
  3. parties affected by these issues are encouraged to continue to meet and work, in an effort to develop a broad consensus, and are invited to periodically update the task force as to their efforts and progress.
At this time, the interim subcommittee makes no further recommendation regarding legislative activity on these issues during the 1998 session.