Proposal Would End Electricity Sales Tax as GOP Tackles Soaring Utility Bills

Minnesotans’ electric bills have soared in the last decade, due to aggressive renewable energy mandates forcing a massive build-out of wind generation capacity. Yet no one did a comprehensive analysis of the actual impact of the feel-good policy until American Experiment’s ground-breaking report “Energy Policy in Minnesota: The High Cost of Failure.”

Our report revealed at least $15 billion has been spent on wind turbines and transmission lines, while failing to achieve environmentalists’ goal of meaningful CO2 reductions. At the same time, nobody was looking out for consumers with green zealotry trumping ratepayer protection at the Minnesota Department of Commerce and Minnesota Public Utilities Commission.

Consequently, the state lost its historic 18 percent competitive advantage in the retail price of electricity versus other states, resulting in Minnesotans paying higher power bills than the national average in 2017 for the first time.

But now the economic fallout appears to be sinking in with some policy makers.  State Rep. Jeff Backer has taken the lead by introducing HF2421, effectively categorizing electricity as a necessity to be exempted from state sales tax, according to Session Daily.

Has electricity become a necessity in the modern world?

Rep. Jeff Backer (R-Browns Valley) told the House Taxes Committee Wednesday that he believes electricity is on par with food and clothing — two items exempt from sales tax in Minnesota.

“Electricity in our society is as important as food and water,” Backer said, quoting his father, “… And if you live in a township when [the] electricity goes out you don’t have water — your pumps don’t run.”

The legislation would level the playing field in sales tax policy for residential and industrial users. But the change would particularly benefit consumers.

Rep. Jeff Backer

Electricity sales tax is currently exempt when used as a primary heating source for residential customers over the winter, and when consumed during industrial production. Some exemptions also apply for data centers and certain taxable services.

The greatest beneficiary of the change would be residential settings, where it is estimated only 11 percent of electricity sales are currently exempt. Additional estimates show 90 percent of industrial electricity and 25 percent of commercial electricity are currently exempt.

Data shows the effects of the tax would be far-reaching. In 2016, residential electricity usage in Minnesota was approximately $2.7 billion. The average residential electrical bill is $90 a month, resulting in a potential tax savings of $85 a year per household.

Minnesota ratepayers can also expect to see their bills lowered as much as $200 million as a result of the federal tax cuts, as American Experiment recently reported. But two of Rep. Backer’s colleagues have introduced legislation just to be on the safe side.

State Rep. Nolan West, R-Blaine, and Rep. Pat Garofalo, R-Farmington, have drafted legislation directing the Minnesota Public Utilities Commission to require utilities to give all of the tax savings back to lower consumers’ gas and electric bills.

“As part of the federal tax reform bill, Minnesotans will see lower energy rates and we have an opportunity to put even more money back in the pockets of millions of Minnesota families and businesses,” West said in a press release. “If we do nothing, a huge windfall will almost certainly stay in the pockets of the energy companies. But if  my legislation is approved, qualifying Minnesota ratepayers will see every penny  of the more than $200 million in expected savings.”

The sales tax exemption and tax cut savings mark a step in the right direction. But it will take much bigger changes in order to stop the long term bleeding on Minnesotans’ electric bills.