Utility Tax Court Petition Update
As of 11/18/2019
The State of Minnesota Department of Revenue (DOR) is in the midst of addressing a multitude of Minnesota Tax Court petitions from both above-ground and below-ground energy and utility providers (carriers) statewide. These carriers include oil and natural gas pipelines and electric power transmission lines. No matter how the DOR’s ultimately addresses these matters, there will be an impact on property taxes in Carlton County.
The formula the DOR uses to value this infrastructure is very complex and, in some regards, different from the formulas used by our neighboring states, due in part because much of what the DOR does is prescribed by state law. A number of utility providers have questioned the DOR’s formula, and some have challenged the DOR formula in Minnesota Tax Court.
These legal challenges focus on both current valuation and past valuations dating back at least eight years. When these legal challenges are resolved, it is possible that both the current and past taxable value of these carriers could be increased or reduced.
If the tax court rules to reduce one or more carriers’ value, it is in essence ruling that the carrier(s) are or were overvalued and subsequently taxed higher than can be justified, causing them to shoulder a greater tax burden than they should have. Should such a ruling occur, the tax court can and will likely order that the difference in taxes be paid back to the carrier(s).
The State of Minnesota, rather than the County or other local taxing authorities, is solely responsible for setting the Estimated Market Value (EMV) for taxing purposes. However, should it be determined that a carrier was overvalued, it is unlikely that the State of Minnesota will be held responsible for paying back any difference, unless the State Legislature takes action to do so. It is more likely that the local taxing authorities, which includes counties, cities, townships, and schools, will be responsible for any back payments. As such, it is important to know that the DOR provides the County with these carriers’ values as orders and the local taxing authorities benefit from the taxes they provide. However, those local taxing authorities are responsible for back payments should the courts determine overvaluation and overpayments occurred.
Some carriers have reached settlements with the DOR or have finalized their cases through the court, including two in March of 2019. Three more rulings were issued this past week. These rulings now provide a clearer picture of potential tax impacts to Carlton County residents. County officials will continue to monitor this situation in order to provide timely and accurate information to our citizens and local elected officials as the facts of these cases are provided to us. In the meantime, the following cases have been decided and impact as follows:
Minnesota Energy Resources Corp. (Merc) 2008-2017, Refund $332,225.10 Docket #’s: 8041-R, 8135-R, 8271-R, and 8482-R
Wisconsin Central Terminal aka Canadian National (WCT/CN) Refund $12,792 for tax payable years 2016 and 2017 Stipulated out of court by Commissioner of Revenue
Burlington Northern Santa Fe (BNSF) Refund $-0- for tax payable years 2017 and 2018 Stipulated out of court by Commissioner of Revenue
Great River Energy, Refund $-0- for tax payable 2017 and 2018 Stipulated out of court by Commissioner of Revenue
Great Lakes Transmission for taxes payable 2019, Refund due $74,044 Docket # 9257-R
Enbridge Energy Southern Lights Line Pollution Control Exemption, for taxes payable 2018 Refund due $70,125 Docket # 9081-R
Northern Natural Gas, LTD., Refund $517,092 for taxes payable 2016 and 2017 (Approx. 256,000 County, 35,000 townships/cities, 80,000 schools, 146,000 state) Docket # 8864-R & 8976-R.
Lake Country Power- (three of the 6 years being disputed were just dismissed by the court) Docket #’s 8729-R, 8937-R, 62-CV-15-2752 were for taxes payable 2014, 2015, and 2016. These were dismissed. Three years were settled out of court (2017, 2018, and 2019) at approx. 4% reduction each year. These reductions were all shifted to the 2019 payable 2020 year though so as to avoid local jurisdictions from having to issue refunds.
Pending (Court Decisions in appeal phase):
There were recent rulings on both of these cases listed below, but both are now in appeal. County officials hope to know more about these before February 2020.
Enbridge Energy, LLC Docket # 8579-R, 8631-R, 8771-R, for tax payable years 2012, 2013, 2014, had an initial ruling issued May 18, 2018, that was appealed to the Supreme Court. Supreme Court ruled and remanded back to the Tax Court, Recent ruling (11-5-2019) reduced Enbridge’s MN market value by 4%, 7%, and 13% for the respective years. This most recent ruling is subject to appeal from either the State of Minnesota or Enbridge if either so desires. The current ruling will result in refunds plus interest being issued to Enbridge.
Enbridge Energy, L.P. Docket #’s 8858-R & 8984-R, for tax payable years 2015 and 2016 had an initial ruling June 25, 2019 that was appealed. The most recent ruling (11-5-2019) increased the value of the company by 5% and 3% respectively. This can be appealed, but if not, will cause a payment by Enbridge to be made to the County for the shortage of taxes paid.
What this means:
These cases will impact everyone in Carlton County, but will impact Perch Lake, Sawyer, Twin Lakes and Silver Brook Township residents the greatest, as these are the areas where the utilities with the greatest value actually lie and make up the largest percentage of total tax base. In addition to the three most recent rulings and the potential paybacks, the DOR, under its new appeal guidelines and provisions has reduced the estimated market value (EMV) for 2019 taxes payable in 2020 for many of the carriers. This reduction is both positive and negative. The biggest plus is that the carriers now have a chance to get their valuations corrected by administrative appeal rather than having to file directly to the MN Tax Court. This reduces timelines, fees, and costs borne by the local taxpayers as we have experienced recently. The most significant negative is that with a lower EMV moving forward, a significant amount of the tax burden in these areas will shift to all other taxpayers.
Remaining Cases Pending (no court decisions)
Still to be decided, Tax payable years 2017-2018 for Enbridge, and 2017-2018 for Northern Natural Gas*
It is both wise and prudent for County and other local elected officials to continue to monitor this situation, and to begin planning how any payback obligations might be met, including efforts to convince the State of Minnesota to contribute to any payback obligations. We at the county have been relaying this information to the local jurisdictions that are most likely to be impacted as well.
It is important to remember that nothing has been finalized yet though as far as future impacts and/or tax shifts with the remaining cases in litigation, and because the litigation is between the carriers and the state, much of the information is classified, even for top county officials. It is also very important to understand that the remaining cases involve two of our largest taxpayers in Carlton County and the impacts are likely to be significantly more than what we have seen to date.
*Any questions about the above information should be referred to either Kyle Holmes, Carlton County Assessor or Kathy Kortuem, ‘Acting’ Carlton County Auditor/Treasurer