Montezuma County assessor Mark Vanderpool is in a Denver hearing room this week defending a property tax bill being contested by CO2 producer Kinder Morgan.
The dispute, ongoing since 2008, is in front of the Colorado Board of Assessment Appeals and is scheduled to be heard June 18-21.
Kinder Morgan, whose massive CO2 operations contribute 40 percent of the county’s property tax collections, disagrees with assessment methodologies that bumped their 2008 property tax bill up $2 million.
A 2008 audit by Vanderpool and oil-and-gas tax expert Mary Ellen Denomy concluded that the energy company was underestimating its assets by $50 million. The Montezuma County commission agrees, supporting Vanderpool’s audit and subsequent higher appraisals.
“The commission has upheld our values, and Kinder Morgan has been very cooperative in our audit,” Vanderpool said in an interview Friday. “It has been an agonizingly slow process, however.”
The complex case centers around whether Kinder Morgan can deduct a tariff paid to Cortez Pipeline, which delivers the C02 to Texas. where it is used to pressurize played-out wells to extract residual oil.
Tax laws only allow the tariff deduction if Kinder Morgan is not a “related party” to the pipeline. Vanderpool’s office and audit point out Kinder Morgan is a 50-percent partner of the pipeline, and therefore does not qualify for a tariff deduction.
“It is like they are paying themselves. We disallowed it,” Vanderpool said.
The denied tariff deduction resulted in $739,000 of the $2 million in additional tax paid. The county also denied deductions for attorney fees, specific production costs and paid royalty amounts.
Kinder Morgan is contesting the claim that they are a related party to the Cortez Pipeline.
The $2 million in additional taxes already has been paid and distributed to county departments. The breakdown of some of the windfall includes the county general fund ($513,000), Re-1 schools ($942,000), social services ($64,000), the road and bridge fund ($129,000,) Southwest Memorial ($50,000), and the Montezuma County Sheriff’s Office ($71,000).
Montezuma County has upheld the property tax valuations, but Kinder Morgan appealed. If the county ultimately loses, the disputed tax amount would have to be paid back.
Letters have been sent out to all of the special districts advising them to hold their share of the additional tax revenue in reserve until the case is resolved.
Vanderpool emphasized that the county appreciates Kinder Morgan’s contribution to the local economy and tax rolls. However, because energy companies self-report their assets, an independent audit seemed reasonable and is in-line with regular audits for other commercial properties.
“Oil and gas industry is in a much stronger position than small assessor offices like ours; we are outgunned,” Vanderpool said. “It’s David versus Goliath, but we followed state guidelines to the letter and believe we are right. Our goal is to have all tax appraisals be right and fair.”
