A group of interest owners of fractional carbon dioxide do not have legal standing in their lawsuit claiming overtaxation by Montezuma County because they are not the designated operator of the McElmo Dome Unit under Colorado tax law, a District Court ruled this month.
The complex case is a spinoff of a Colorado Supreme Court case decided in 2017 that ruled Kinder Morgan LLC underreported its taxable carbon-dioxide property value for many years by wrongfully claiming a transportation deduction. As a result, the company owes back taxes to Montezuma County.
But CO2 Committee Inc. – formed in 2002 to oversee 150 small-share interests – claimed in a civil lawsuit filed against the county that the Colorado Supreme Court tax decision against Kinder Morgan does not apply to them; therefore, small shareholders do qualify for the deduction. The defendants listed included the Montezuma County Board of Commissioners, Board of Equalization, assessor and treasurer.
But in a decision June 11, District Court Judge Todd Plewe dismissed the lawsuit filed against the county by CO2 Committee Inc., a Colorado nonprofit.
Kinder Morgan – the operator – is obligated to pay property taxes to Montezuma County on behalf of all the interest owners in the McElmo Dome Unit, including the nonoperating interest owners, Plewe wrote.
The fractional shareholders represented by CO2 Committee are limited to a royalty interest as a non-operator.
CO2 Committee does not have standing, Plewe wrote, because “as the operator, Kinder Morgan files annual property tax statements for all leaseholds.”
Under the “netback” method, Kinder Morgan pays the county for the taxes, then deducts the appropriate tax amount from royalty payments of small-share interests.
“Montezuma County is obligated by law to only deal with the unit operator, and Montezuma County has no direct obligation towards or dealings with the non-operating interest owners,” Plewe wrote.
The nonoperating interest owners represented by CO2 Committee can pursue remedies against Kinder Morgan if appropriate. Or they could seek a change in state tax law policy by addressing the Colorado Legislature, Plewe said.
Nonoperating interest owners in this case do not have standing to sue Montezuma County for their method of taxation, Plewe concluded, and the plaintiff does not have a plausible claim for relief.
“Montezuma County is simply following the statutory scheme promulgated by the Colorado Legislature,” Plewe. “The case is hereby dismissed.”
In 2017, the Colorado Supreme Court ruled the county properly assessed the taxable value of Kinder Morgan’s CO2 product and that it could be collected retroactively.
The court ruled then that Kinder Morgan did not qualify for a transportation deduction on its property tax filings because the company is a majority owner, or “related party,” in the Cortez Pipeline that delivers the gas.
Without the deduction, Kinder Morgan’s taxable assessed valuation increased for years 2007 to 2017, which amounts to millions of dollars owed in back taxes to the county. They have since stopped claiming the deduction.
Kinder Morgan made repeated attempts all the way to the Colorado Supreme Court to argue on behalf of the nonoperating interest owners, but the arguments were not addressed by the court.