In 2008, the Montezuma County assessors office denied Kinder Morgan a complex tariff deduction that bumped the company’s tax bill up by $2 million.
The energy company paid the additional amount but appealed, and last week the Colorado Board of Assessment Appeals ruled in favor of Montezuma County, upholding the higher tax valuation.
“We did what we thought was right, and the state agreed with us,” assessor Mark Vanderpool said Friday.
Kinder Morgan and the county disagreed on two issues: retroactive assessment of actual values and the deduction of pipeline transportation costs of carbon dioxide.
During a company audit, Vanderpool and tax expert Mary Ellen Denomy concluded that the energy company underestimated its assets by $50 million. The county denied a deduction made by Kinder Morgan on a tariff it pays to Cortez Pipeline, which delivers carbon dioxide to Texas, where it is used to pressurize played-out wells for extracting residual oil.
“Kinder Morgan took a deduction we did not agree with, and so we denied it, and they appealed,” Vanderpool said.
At a June hearing in Denver, Vanderpool, Denomy and tax lawyers argued that the county’s case, asserting that tax laws allow the tariff deduction only if Kinder Morgan is not a “related party” to the pipeline.
Vanderpool’s office and audit said that because Kinder Morgan is more than a 50 percent partner of the pipeline, it doesn’t qualify for the tariff deduction.
“It is like they are paying themselves. We disallowed it,” he said in an earlier report.
Kinder Morgan President James Wuerth argued that the two companies were unrelated and qualified for a tariff deduction applied to the price of gas at the wellhead.
According to Wuerth, the Cortez Pipeline was founded in 1982 by unrelated parties.
But the CBOCC agreed with the county tax bill and affirmed that financial statements show Kinder Morgan and Cortez pipeline are business partners under tax-assessment methodology.
The decision noted that according to the Assessors Reference Library, “related parties” are defined as businesses “that are subsidies of the same parent company or are associated by one company controlling or holding ownership of the other company’s stock or debt.”
In defense of the county valuation, Denomy, a CPA specializing in energy tax audits, pointed out that Kinder Morgan reported a 50 percent ownership in the Cortez Pipeline in 2007.
Denomy also stated in the hearing that the Cortez Pipeline Co. derived 98.2 percent and 96.2 percent of its transportation revenues in 2007 and 2006, respectively, from the parent companies Kinder Morgan and ExxonMobil, who combined, own an 87 percent interest in the pipeline.
“The Board finds that Kinder Morgan CO2 Company was a related party to the Cortez Pipeline Company,” therefore, “a transportation deduction is not allowed.”
Vanderpool said Kinder Morgan has 45 days to appeal, and if it does, it would be heard in the Colorado Court of Appeals. Either party could challenge that decision to the state supreme court.
Since the case was filed in 2008, all special districts in the county were told to hold onto the additional funds because if the county had lost the case, the combined $2 million in additional property-tax revenue would have had to be paid back.
At the commissioner’s meeting on Monday, Vanderpool advised that the additional funds remain in reserve until all of the appeals have been exhausted.
He thanked the present and previous commissions for supporting the assessor’s office position in the case through additional professional staff and funding, and urged continued support.
“You had the guts to make the right decision, so thank you,” Vanderpool said.
Kinder Morgan has continued to use the contested tariff deduction so the assessor’s office plans to conduct audits for 2009-2013 on the company.
“Because of the decision we are in a stronger position than before,” he said.
But Vanderpool and the commissioners stressed the importance of Kinder Morgan contributions to the county tax rolls and to not boast or brag about the decision. The energy company contributes 40 percent of the county tax base.
“We are grateful for Kinder Morgan’s contributions to our area. Not boasting is a smart approach,” said commissioner Steve Chappell.
Some kudos were appropriate however, as a small county proved its case against a large corporation.
“We’re happy with your work. You and your team looked at this with the right set of eyes and did a bang-up job,” said commissioner Keenan Ertel.
Added Vanderpool: “We’re not saying they’re the bad guys and we’re the good guys. It is a disagreement over the tariff deduction. We just want to treat all taxpayers fair, from the biggest to the smallest.”
jmimiaga@cortezjournal.com
