Bill removing tax breaks for western South Dakota oil pipeline advances to House

Tax bill targets oil pipeline

PIERRE, S.D. — The company planning to bury an oil pipeline across western South Dakota said it would lose an estimated $38 million in tax incentives under a bill approved by state lawmakers on Thursday.

The bill changing state law so oil pipelines would no longer be exempt from sales and excise taxes would apply to the TransCanada Keystone XL pipeline, which would carry crude oil from Canada to refineries in Texas.

Committee debate on the bill came just hours before the state Public Utilities Commission was to act on a construction permit for the $900 million pipeline project across seven South Dakota counties.

Bill sponsor Rep. Jason Frerichs, D-Wilmot, said once the pipeline is in the ground the state will get few benefits in terms of new jobs or other economic activity. He said incentives such as tax refunds should go to projects that bring long-lasting benefits, and that the tax revenue from the Keystone project would help the state balance its budget.

Dennis Duncan, a lobbyist for TransCanada, pointed out that the company would be paying $20 million in property taxes annually on the pipeline, and said the bill could damage the state’s image as pro-business and tax friendly.

“It’s clearly dangerous to change the rules in midstream after you’ve attracted businesses to the state,” Duncan said.

He said the tax refund was an incentive to TransCanada when it built an oil pipeline in eastern South Dakota. That pipeline, which is nearly complete, will not be affected by the bill.

Duncan said offering rebates to some projects and not others was bad tax policy that could deter investment.

“There are three reasons for tax incentives and that’s jobs, jobs, jobs,” Rep. Bernie Hunhoff, D-Yankton, said in supporting the bill.

He said the XL pipeline won’t create many jobs and that lawmakers should not be afraid of change.

“If we don’t make changes we might as well stay home,” Hunhoff said.

Rep. Dan Lederman, R-Dakota Dunes, called the bill “predator taxation” and asked that it be killed.

“What kind of state are we?” Lederman said. “Do we renege on our deals? Do we offer false incentives and then bait and switch?”

Rep. Lance Russell, R-Hot Springs, said TransCanada simply transports oil and that the state should encourage businesses that bring permanent and significant job growth.

Duncan told legislators that Canada has some of the largest proven oil reserves in the world.

“Don’t suggest for a minute that this is the last pipeline that may come out of Canada going south to those refineries, and you also shouldn’t forget for a minute your geography,” he said.

“When they come out of Montana they could just as easily go through Wyoming down into Nebraska and skip the state of South Dakota if we’re not going to be a dependable partner in the construction of these projects.”