News > CEO’s Message – September 2023

CEO’s Message – September 2023

Board Weighs Options on Cooperative’s Property Tax

Settle or Proceed to Tax Court

Under a Minnesota law that has existed since 1939 (Minn. Stat. 273.41), electric co-ops in the state pay a per member fee of $10 for each 100 members in lieu of property tax on distribution equipment outside of incorporated areas. Although the law has not changed in over 80 years, in 2021, the Minnesota Department of Revenue (DOR) began reinterpreting this exemption and started implementing property tax on certain rural equipment. This violates the statute and increases Stearns Electric’s property tax.

Since 2021, we have fought this reinterpretation through appeals with the MN DOR. Most recently, on August 17, we once again appealed our 2023 apportionable market value, which is ultimately used to calculate the Cooperative’s annual property taxes. We estimate this reinterpretation has cost Stearns Electric Association an additional $450,000 in taxes over the last three years on equipment that was previously untaxed.

Until there is new legislation that clarifies the language in the statute, Stearns Electric will see an increase of about $150,000 per year in property taxes. It is frustrating to say that clarifying language is needed for 80+ year old legislation, but this is exactly why you have heard us state that this is one of our top priorities at Stearns Electric.

In both 2022 and 2023, legislators came to a bipartisan consensus in the agreed to Omnibus Tax Bill, reaffirming the exemption of co-op distribution equipment from property tax. Unfortunately, the Tax Bill did not pass in the 2022 legislation and the exemption provision was cut from the Omnibus Bill in the final hours of the 2023 regular session.

We appreciate the legislative support we have received on this issue. Senator Aric Putnam authored the 2023 bill and recently joined the Cooperative during its MN DOR Appeal. Other senators and legislators throughout our service territory have listened to our concerns and appear eager to act on behalf of the Cooperative in the 2024 session. One of our biggest challenges is seemingly coming from an unwritten rule – where legislation ends up being removed when there is pending litigation. In this case, we know other co-ops have taken this issue to tax court, so we believe this is why legislation failed to pass in 2023.

Stearns Electric is not the only Minnesota cooperative experiencing increased property taxes. We work together closely with the other impacted cooperatives and remain in frequent contact. I want to be clear: Stearns Electric, like all electric cooperatives, wants to pay its fair share of our local taxes, but we do not want to pay more than is authorized by state law. We do pay property taxes both on our equipment that is located within incorporated areas and on our 33 substation properties.

Throughout this process, the leadership team working on this issue has been guided by the Cooperative’s Board of Directors. At their meeting on August 24, our Board discussed this issue extensively once again. The Board is currently weighing our options, which are:

Settling the 2023 apportionable market value. This means that the Cooperative would pay more than it believes it should for property taxes in 2023 and will need to continue appealing to the MN DOR in future years until clarifying legislative language is passed.

Taking the MN DOR to tax court. It is likely that multiple impacted cooperatives in Minnesota will take the MN DOR to tax court. If a favorable decision is made in tax court, these additional property taxes would not be paid and this issue would likely be put to rest. This could take a few years and would involve multiple cooperatives pooling together on attorney and legal fees.

There are pros and cons to both scenarios. Based on what we know from other cooperatives, some have chosen to settle while a majority are planning to go to tax court. As this newsletter goes to print, our Cooperative’s decision has not been determined. Stearns Electric will keep you informed and continue to speak up on issues like this that impact our members.

Sincerely,

Matt O’Shea
Chief Executive Officer