December 2010

Montezuma County turns to the state Supreme Court

By Gail Binkly

Disappointed by a Colorado Court of Appeals ruling, Montezuma County will petition the state Supreme Court to hear its appeal in a case involving how personal property owned by oil and gas companies is taxed.

A three-judge appeals panel on Nov. 18 upheld a previous decision by the Colorado State Board of Assessment Appeals that slashed the county’s valuation of pipelines and equipment owned by Questar Exploration and Production for the 2007 tax year.

“Obviously we don’t know if the Supreme Court will take the case, but we’re going to ask them to consider that,” said Assessor Mark Vanderpool after the commissioners unanimously voted Nov. 22 to continue the fight.

Vanderpool, the commissioners, and commission attorney Bob Slough have long contended that the state’s recommended methods for assessing energy companies’ equipment and production are inadequate and allow the industry too much leeway.

At stake is hundreds of thousands of dollars in tax revenue annually in Montezuma County and potentially millions of dollars statewide.

The dispute began in 2006, when Vanderpool – concerned that oil and gas companies were essentially self-reporting the value of their personal property – sought approval from the county commissioners to hire an accounting firm with expertise in energy appraisals to provide a valuation. The commissioners agreed, and the county contracted with Visual Lease Services, of Oklahoma, to conduct new appraisals and inspections of equipment and pipelines. The resulting valuations were 300 to 500 percent higher than had been reported by the companies, according to Vanderpool.

The actual value for personal property owned by 16 energy companies operating in Montezuma County jumped from $24.6 million in 2006 to $56.8 million in 2007 after the audit.

Local taxing districts received approximately $595,000 in additional revenue as a result of the increased property valuations in 2007.

Most of the companies accepted the new valuations, but Questar appealed to the Board of Assessment Appeals, saying the methodology used to arrive at the new valuations was not the one recommended by the state Division of Property Taxation.

The state provides appraisal guidelines and instructions that include a method of valuing oil and gas equipment. Vanderpool, however, believes those guidelines, which are not mandatory, do not result in an accurate value.

One of the main points of disagreement in the different methods is the typical “lifetime” of pipelines. The shorter the lifetime, the greater the amount of depreciation allowed for when deciding the equipment’s value.

The state guidelines set a lifetime of 14 to 17 years for pipelines, but Visual Lease Services believes the typical lifetime is 30 years or longer, according to Vanderpool.

Following the independent audit, the county set Questar’s valuation at $6.6 million and later increased that to $7.65 million after the company appealed the first amount to the county board of equalization, which is the three commissioners acting in their assessment-judging capacity.

But on Dec. 9, 2009, the state Board of Assessment Appeals found that Questar’s own valuation of $2.02 million was “more persuasive” than the $7.56 million, according to the decision written by the Court of Appeals panel. The county appealed, claiming the board had basically just rubberstamped Questar’s valuation.

But on Nov. 18, the appeals court supported the Board of Assessment Appeals, stating, “Our review of the BAA’s order is limited to determining whether the BAA committed procedural errors or errors of law. . . .The BAA, not this court, acts as the fact finder. . .Because there is sufficient evidence in the record to support the BAA’s findings of fact, we decline to disturb the order.”

The Court of Appeals ruling was an unpublished decision, meaning it does not set precedent or become case law. However, if the Supreme Court should decide to hear the case, its ruling would have broad ramifications for counties statewide that depend on property taxes from oil and gas companies to bolster their budgets.

If the Supreme Court refuses to hear the case or the county ultimately loses at that level, the extra tax dollars would have to be abated, or refunded, to the companies, and the only likely recourse would be to try to persuade legislators to change state law to support a different method of valuing oil and gas equipment.