County makes progress in sales tax dispute
February 27, 2014
GLENWOOD SPRINGS — Garfield County officials aren't quite ready to back off plans to sue the state over its withholding of sales taxes related to the state's 2010 court settlement with Noble Energy regarding taxes erroneously collected on hydraulic fracturing materials.
But a meeting with Colorado Department of Revenue officials on Monday went a long way toward answering some key questions the county has been asking out loud for months, County Attorney Frank Hutfless said.
"Whether we move forward with the lawsuit at this point is not certain," Hutfless said Tuesday.
"We did receive a commitment from the Department of Revenue to provide us with some information in the next two weeks that could satisfy our concerns," he said. "But we're still not happy with some of the inconsistencies in the representations being made."
Specifically, DOR Executive Director Barbara Brohl pledged to try to answer the county on how many more dollars in refund claims are pending that would impact local tax entities, and to determine a way to lessen that impact by retaining funds a little at a time instead of in large lump sums.
"We do understand how much the counties and other entities rely on this income," she said at the Monday meeting with county commissioners and other officials in Glenwood Springs.
"We don't want to leave you with the impression that we don't understand the issue, because we do," Brohl said.
Brohl requested the meeting, following the county's announcement earlier this month that it plans to sue over an estimated $5 million in refunded, withheld or pending tax claims related to the Noble settlement.
Noble was successful in arguing in the 2008 lawsuit that taxes it paid on materials used in the hydraulic fracturing process to drill for natural gas, such as sand, should not have been subject to local and state sales taxes.
That decision was upheld by the Colorado appeals court in 2010, resulting in millions of dollars being refunded or withheld related to claims by Noble and other energy companies that benefited from the ruling.
Accompanying Brohl at the meeting in Glenwood Springs on Monday were John Vecchiarelli, senior director of taxation for the DOR, and Claudia Brett-Golden, senior assistant to Colorado Attorney General John Suthers, who represents the DOR on legal matters.
Other DOR officials also attended, as did representatives from several of the sales tax entities in Garfield County that have had to refund those dollars.
Vecchiarelli said no county money was used to pay the Noble judgment directly, but that the subsequent tax refunds became necessary as a result of the ruling.
Since October 2010, when the appeals court decision was made, Garfield County has had a total of $5.4 million in refunds and withholding claims, about $3.9 million of which was related to the Noble decision, Vecchiarelli said.
The additional amount was related to machinery and tools related to fracking operations, he said.
Unless the county is successful in changing state law to make some or all of those materials and equipment taxable, it's revenue lost, Vecchiarelli also emphasized.
"The money you previously saw from fracking materials will never come back, unless you change state law," he said.
Bottom line for the affected tax entities, including the Garfield County Public Library District and the Emergency 911 Communications Authority, is that the refunds and withholding have affected operating budgets, Commissioner John Martin pointed out.
"These organizations are separate from the county, and they need to know how long this is going to last," Martin said.
The county initially was able to backfill funds for those organizations that had to be refunded, but is not in a position to continue to do so, he said.
Library District director Amelia Shelley said she is going into a third straight year of uncertainty as a result of the state's practice of withholding funds related to the case.
"We have six new buildings to operate, and we need some certainty in our operating budget," she said.
Hutfless said the county may also still ask for a full audit of the claims related to and resulting from the Noble lawsuit, and an accounting of how those claims were paid by the DOR.