State’s $5.7 million sales tax withholding from the county looks legitimate, review finds
A Garfield County review of state procedures that led to $5.7 million in county sales taxes being returned to energy companies suggests the county has no grounds to question the amount of money paid back.
“It is unfortunate that we have had to give that money back,” Assistant County Attorney Tari Williams said during a presentation Monday to the Garfield County commissioners.
However, a review by Williams and county Finance Director Ann Driggers of Colorado Department of Revenue procedures shows the county has not overpaid its share of refunds owed to Noble Energy after a 2010 court settlement.
The issue dates back to 2008 when Noble filed a lawsuit claiming that sales taxes it paid on sand and other materials used in the hydraulic fracturing process to drill for natural gas should not have been subject to local and state sales taxes.
A lower court decision in favor of Noble was upheld by the Colorado Court of Appeals in 2010, and state legal officials decided not to ask the Colorado Supreme Court for a ruling.
That resulted in several million dollars worth of sales taxes already remitted to counties and local taxing entities across the state being refunded or withheld on claims by Noble and a dozen other energy companies. Through Sept. 30 this year, that figure in Garfield County alone was $5,720,619, according to county officials.
“The amounts refunded to date are consistent with the volume and cost of materials purchased during the applicable time period,” according to Williams and Driggers’ report to the commissioners.
That’s not exactly good news for public entities that rely on sales tax revenues for their operations, such as the Garfield County Public Library District and the county’s Emergency Communications Authority.
“Going forward, it is hard to set budgets until we know what to expect with these refunds,” Amelia Shelley, director of the library district, said at the Monday meeting.
But it at least answers some of the questions around the amount of money that has been withheld by the state over the past four years to pay for the refunds, she said.
County officials have questioned the amount of money being withheld by the state since the court ruling came down, and even threatened to sue the Department of Revenue earlier this year to force an audit.
After the initial ruling, county commissioners agreed to take $1 million from the county general fund to help soften the blow for the various taxing entities, including the library district and municipalities, which were required to refund money that had already been received.
Since then, the state has withheld sales taxes from counties to pay off multiple years worth of back claims for refunds.
Garfield County has also questioned the amount of sales tax refunds coming from Garfield County, which would mean that $570 million worth of sand and fluids were sold for fracking purposes in the county between 2008 and 2011, based on the county’s 1 percent sales tax rate.
But a calculation based on an estimate of the amount of sand used for a typical fracking job of between 720,000 and 1 million pounds per well by one of the county’s largest operators, and the number of new well starts in the county during those three years suggests the figure is on target, Driggers said.
Based on her examination of state records, Driggers also said the state has denied refund claims in cases where the operator could not prove it had purchased or used sand and other products in Garfield County.
The good news for the county and the various taxing entities that are affected by the refunds is that the number of claims should drop significantly as time passes since the court ruling. Operators have three years from the date the tax was paid to file a refund claim.
Operators and vendors have also been put on notice since the ruling that sales taxes should not be paid on the materials in question.
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