Counties express concerns following a Tax Court decision announced Tuesday
The state of Minnesota has repeatedly overvalued Enbridge Energy’s oil pipeline system, a state Tax Court judge ruled Tuesday, potentially leaving several counties in jeopardy of paying millions of dollars in tax refunds to the company.
On Tuesday, May 15, tax court Judge Joanne Turner ruled the Minnesota Department of Revenue (DOR) had overvalued Enbridge’s pipeline system by $156 million in 2012, $880 million in 2013 and $2.2 billion in 2014, resulting in a total overvaluation of the pipeline system of $3.2 billion throughout that time.
Enbridge, the largest pipeline operator in North America, argued it was overtaxed by $55 million from 2012 to 2017. The company operates several pipelines that cross 13 Northern Minnesota counties (Beltrami, Aitkin, Carlton, Cass, Clearwater, Hubbard, Itasca, Kittson, Marshall, Pennington, Polk, Red Lake and St. Louis), connecting Alberta and the company's terminal in Superior, Wis., and transporting nearly 2.5 million barrels of oil per day.
Although pipelines are assessed by the state, tax proceeds are distributed to the counties. As a result, there is a potential that the latter may have to refund tens of millions of dollars to Enbridge, which has said it was overtaxed by $15-20 million during 2012-2014, the years covered during Tuesday’s court filing. Enbridge has also sued the state for the tax years 2015-2017, cases which have yet to be heard. Enbridge says that through all six years, the company is cumulatively due $55 million in refunds.
According to information provided by Enbridge spokeswoman Jennifer Smith, in 2012, the Minnesota Department of Revenue elected to “apply a new methodology that excessively raised the taxes of utility companies, including Enbridge.” As a result, the company is seeking adjustments from the Minnesota Department of Revenue in tax court regarding the Department’s new methodology used for property tax calculations, which results in a 24 percent tax increase beginning in 2012.
“This appeal is about the amount of that increase,” said Smith. “Under Minnesota law, it is the obligation of the counties to refund the bulk of any overpayments should Enbridge prevail in the court and the tax court reduces the DOR’s assessments, even though the counties weren’t responsible for creating this issue.”
According to the Minneapolis Star Tribune, at least two counties, Clearwater and Red Lake counties, could end up refunding more money than they raise annually from taxpayers.
Red Lake, the third-smallest county in the state, has a total tax levy of $2.6 million and it has been estimated it may have to pay $3.5 million if Enbridge prevails, the Star Tribune reported.
“I don’t know where we would get the money for it,” Bob Schmitz, the county’s auditor told the Star Tribune. “We don’t even have high enough reserves to cover that.”
Local governments, school districts and townships could also be hurt by the Tax Court’s decision.
According to Smith, “given the unwelcome financial burden the counties may face,” Enbridge plans to work with the affected counties “to identify ways to alleviate the financial impact.”
Smith said possibilities for addressing the burden could include spreading refund payments over a number of years or treating the refunds as credits against future taxes.
“Throughout this entire process, Enbridge has been focused on trying to find an equitable solution to the tax dispute,” added Smith, who said Enbridge does not plan to take any “immediate action” on this ruling as all parties now have 30 days to file an appeal.
“Enbridge recognizes counties are caught in the middle of this state-initiated tax dispute,” Smith continued. “We do not want to cause any hardship on them and are committed to work with each county if needed at the appropriate time.”
In Itasca County, which stands to lose approximately $5 million in back-tax payments to Enbridge due to what County Auditor/Treasurer Jeff Walker said were “errors made by the Minnesota Department of Revenue assessor’s department,” officials have been regularly monitoring the situation.
“The Enbridge case is extremely important to Itasca County,” said Walker, who said the county would urge state legislators to provide financial support to counties affected by the lawsuits.
“We need to urge legislators to provide financial support to counties affected by these lawsuits and to correct the system in which assessed values of public utility companies are adjudicated to be overvalued by 20-40 percent,” Walker continued.
The sentiment is shared by local legislators who have spoken about the issue with county officials over the course of this legislative session. Many agree that the state should be held responsible for the disparity.
Walker also expressed concerns that this case could possibly “spill over” to all other utilities, which comprise nearly 20 percent of the county’s total property tax base.
“We disagree with the Minnesota Tax Court’s decision,” wrote the Minnesota DOR in a statement. “We understand the concerns of the affected counties. This is not the end of the litigation, and we are exploring our options for appeal.”
In addition to the tax lawsuits, Enbridge is awaiting approval from the Minnesota Public Utilities Commission to decommission and replace its Line 3 oil pipeline. The project has aroused strong opposition from environmental and tribal groups across the state.
According to Smith, should the tax court ruling stand reducing Enbridge’s assessments, the counties “should not see a net decrease in tax revenues moving forward if the Line 3 Replacement Line [were] to be approved.”
“After the first full year that the Line 3 Replacement Project is in service, Enbridge will pay an estimated additional $19.5 million annually to the state of Minnesota,” said Smith.
Minnesota agencies have been reviewing the $2.6 billion project since 2015, and a decision is expected by June 27.