A 9-year-old tax dispute between Montezuma County and Kinder Morgan has landed in the lap of the Colorado Supreme Court.
The convoluted case revolves around assessed values of the company’s CO2 production within the county and whether tax laws were properly applied. Legal briefs are being filed by both parties, and the case is expected to take up to a year to be heard and ruled on.
It has a long history.
In 2008, then county assessor Mark Vanderpool audited the energy company’s reported 2007 production values and disallowed them a transportation tariff deduction involving the Cortez Pipeline that delivers the CO2.
Vanderpool and an independent auditor determined Kinder Morgan was a 51 percent majority owner of the Cortez Pipeline, and therefore could not claim the transportation tariff deduction because they were a “related party.”
Without the tariff deduction, the company’s assessed valuation increased by $56.7 million and they owed an additional $2 million in property taxes for their 2008 tax bill.
Kinder Morgan paid the higher tax bill, but appealed it to the Board of Assessment Appeals (BAA), which upheld Montezuma County’s assessed valuation and agreed they did not qualify for the tariff deduction.
Kinder Morgan, the nation’s fourth-largest energy company, appealed that decision to the Colorado Court of Appeals, arguing that the retroactive valuation is not authorized by state statute.
In January 2015, Kinder Morgan was awarded a short-lived victory when the Appeals Court ruled in their favor. The BAA decision was reversed, and the court stated the board “erred in concluding that the statutory scheme allows for retroactive taxation based on the undervaluation of oil and gas leaseholds.”
Dismayed, the county requested a re-hearing of the case — a long shot — but to their delight it was granted, and on June 4, 2015 the Appeals Court reversed their own decision and ruled in favor of Montezuma County.
“It’s been a lot of up and down,” said county assessor Scott Davis. “It could be another year before a final decision is made by the supreme court, and there will be no more appeals.”
The county has spent $138,000 in legal costs on the case, he said. They are represented by the firm of Dufford, Waldeck, Milburn & Crohn, LLP. Kinder Morgan is represented by lawyer Allen Poe.
The $2 million tax windfall was distributed to various special districts within the Kinder Morgan production area in 2008. Those districts were instructed by the county assessor’s office to not spend the money pending the outcome of the case.
“If we lose, they would have to pay the money back,” Davis said.
The largest beneficiary of the increased tax collection was the Re-1 School District, which reaped $942,000 in 2008.
Other significant amounts went to the county general fund ($513,000), the road and bridge fund ($129,000), the Montezuma County Sheriff’s Office ($71,000), social services ($64,000), and Southwest Memorial Hospital ($50,000). The rest was spread out among smaller districts including local fire departments and cemetery districts.
Kinder Morgan has continued to use the tariff deduction pending the outcome of the case. The county is currently auditing the company’s 2009, 2010 and 2011 reported production valuations.
If the county prevails in the case, Kinder Morgan would owe significant back taxes to the county, Davis said.
“We’re going ahead with additional audits, and the company has been cooperative,” he said. “They will keep claiming the tariff deduction until told they can’t by the court.”