Post Independent opinion: County’s tax backfill decision a good one, but questions remain | PostIndependent.com

Post Independent opinion: County’s tax backfill decision a good one, but questions remain

Post Independent
Glenwood Springs, CO Colorado

Garfield County has been basking in a justifiable glow of gratitude over a June 13 decision to cover half of a serious sales-tax revenue overcollection for the county’s six towns and various other entities, this year and next.

But even as the glow persists, there are questions that ought to be answered.

The Colorado Department of Revenue, from 2002 to 2005, was incorrectly charging a sales tax on fracking fluids used in Colorado’s mammoth gas drilling industry. A court ruling on the overcollections has hit several counties across the state, and put a considerable crimp in local budgets. The payback involves at least $3.9 million in Garfield County alone, based on the county’s 1 percent sales tax.

The problem, according to local officials, was that the state was improperly taxing the gas companies for fracking fluids, which are the massive amounts of water, sand and chemicals injected into gas wells to free up deeply buried natural gas reserves.

But those fluids, unlike such things as pipelines or lumber used to build facilities, turned out to be not taxable, because the gas companies don’t keep the fluids. Nearly all of the fluids are recovered by the fracking contractors and reused, until such time as they are disposed of.

So the entities that have been living off the erroneous sales tax collections now have to pay back approximately $12.5 million statewide.

The Garfield County Library District, to use one example, is looking at a budget of $2.2 million this year, in light of disappointing sales tax projections even before the state foul-up became locally apparent in June.

Now, the library district faces the loss of approximately $975,000 in sales taxes that were overcharged to gas drillers operating in Garfield County. That is well more than a third of the district’s operating budget for this year.

The decision to share the pain was not something the county had to do. But because the county has tens of millions in cash reserves, largely thanks to gas-industry property taxes and state-mandated mitigation payments, it was the right thing to do.

There remain, however, some troubling issues that ought to be addressed, including the timing of the announcement of the problem.

According to a memo to the county commissioners from the Garfield County finance department, the county first learned of the bad news in fall 2010, either in October or November.

But the smaller districts and municipalities reportedly did not learn of the problem until June 2011.

Why the delay?

Would it not have been more helpful for the smaller district’s fiscal planning if the county had warned them in advance?

Another vexing question is, why is the state not shouldering the burden?

It was, after all, a mistake made by state tax collectors, not local officials.

The local sales tax entities that will ultimately have to suffer the budgetary consequences deserve to know that they will be kept in the loop earlier on such matters in the future, as well as assurances that it won’t happen again.


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