Utility tax payback cases add up

Two recent resolutions in Minnesota Tax Court are part of a trickle that is expected to lead to a flood for taxpayers in Carlton County and in a swath of counties to the northwest.

In early March, the tax court in St. Paul’s Ramsey County affirmed adjustments in how much two pipeline operators paid in taxes due in 2018 in 13 counties. The rulings mean Carlton County will need to pay back nearly $200,000 in property taxes.

That amount is small compared to the total amount in paybacks expected when larger cases are settled, namely in overtaxed years for Enbridge Energy that could make Carlton County and its townships and school districts liable for more than $1 million, according to the county auditor. Enbridge is the top taxpayer in the county.

Enbridge Pipelines and its Southern Lights line were part of a dispute over tax breaks for pollution control. The tax court ruled in its favor on March 4. It means Carlton County needs to pay the company about $70,000 in a tax refund.

On March 7, Great Lakes Gas Transmission got a favorable ruling in tax court more along the lines of several lingering cases on how the state conducts valuations on utility properties as a whole. The ruling means Carlton County will need to pay back nearly $130,000.

“These decisions are pretty small potatoes,” Carlton County assessor Kyle Holmes said. “In the end, they all add up.”

In a story on the overall issue of utility paybacks in the Dec. 7 issue of the Pine Knot News, Holmes said the impact on property taxes in the county is “the largest issue facing taxpayers in my lifetime.”

Aside from the paybacks, local governments are then saddled with a lower tax base with the valuation adjustments.

As the decisions roll in, county, township, and school taxes will have to be adjusted. It means those entities could pass the losses on to taxpayers. And in many townships that are home to major stretches of pipeline — namely Silver Brook, Twin Lakes and Perch Lake — wholesale adjustments to budgets will have to be considered.

Duane Laveau, chairman of the Silver Brook Township board of supervisors, said the township will have to do what it can to lessen the impact on residents. “We can delay road projects, I guess,” he said.

Although the numbers vary, the overall cost in the tax cases to Silver Brook could be $25,000, Laveau said. The annual levy is $92,000 and the road and bridge budget has $100,000 to $200,000, he said.

Northern Natural Gas in Wrenshall pays 51 percent of taxes in the township. Laveau chuckled when thinking about simply raising the levy to offset the tax paybacks. “They (the utilities) would be paying themselves back,” he said.

Diane Felde-Finke, chairwoman of the Twin Lakes Township board of supervisors, said it’s still too early to assess what kind of economic damage will come from the court cases. She said she hasn’t heard much from residents yet.

Townships supervisors expect to hear more numbers when they meet April 23 with county officials at the Carlton County Association of Township Officers. That public meeting begins at 7 p.m. at the transportation center off Minnesota Highway 61 south of Black Bear Casino Resort.

Holmes said any decisions coming out this year and beyond will have no impact on taxes payable in 2019. The counties involved will need to pay the utilities immediately, with interest. Carlton County, because of the length of pipeline that runs through it, is often near the top of the list when it comes to tax bases relying on utilities. Others hit hard are Cass, Itasca and St. Louis counties.

There is a bill floating in the current legislative session calling on the state to help pay back utilities. Its fate is iffy, having failed to get out of committee last session. County assessors reason that the fault lies in the Revenue Department. Carlton assessor Holmes has said you can’t blame the utilities in asking for a legal tax rate. “I’m mad at the State of Minnesota,” he told the Pine Knot last December.

Judges have ruled in cases covering up to 10 years in tax payments that the state has erred in how it values utilities that cross multiple jurisdictions across the state. In short, one utility found a flaw in the state’s formula and the rest have asked for the same relief. There have been 62 utility tax court challenges since 2012.

The state is still using those faulty valuations, even as the tax court losses keep piling up, Laveau said. It’s estimated that the statewide overcharge for Northern Natural Gas is $17 million.

“That’s what makes me mad,” the Silver Brook supervisor said. “They’re still overcharging. This is going to be a long-term problem.”