State sales tax snafu puts budgets in a bind
Post Independent staff
Glenwood Springs, CO Colorado
GLENWOOD SPRINGS, Colorado – A mix-up in state sales tax collections on fracking fluids is putting Garfield County a few million dollars into the red, putting a fiscal squeeze on more than a dozen area towns and departmental budgets.
But the board of county commissioners decided Tuesday to draw upon the county’s healthy general-fund surplus to shoulder more than its share of the projected $3.9 million financial hit.
According to Garfield County Treasurer Georgia Chamberlain, the Colorado Department of Revenue over-collected sales tax receipts from several energy companies from 2002 to 2005. Now the Department of Revenue has been ordered by a state Court of Appeals judge to refund the overpayments to the energy companies.
Those over-collections in Garfield County, based on the county’s 1 percent sales tax, were estimated at $3.9 million for the four-year period, Chamberlain told the Garfield County commissioners in a special meeting held Tuesday.
Other counties across Colorado are also involved in the claims process, according to Department of Revenue public information officer Mark Couch, and roughly $12.5 million has been either paid out or approved for payment.
“There could be more,” Couch told the Post Independent, explaining that the energy companies have three years in which to make a claim in the wake of the court ruling.
Proceeds from the county’s sales tax go to the county library district, road and bridge department, emergency communications system and human services grants, as well as to the six municipalities from Parachute to Carbondale. Officials from many of these agencies attended the special county meeting Tuesday.
The sales taxes were charged to oil and gas companies by firms engaged in hydraulic fracturing services for the industry, according to a memo presented Tuesday by Lisa Dawson, director of administrative services for Garfield County.
The taxes were charged on materials used in the fracturing process, known as “fracking,” which involves the injection of water, sand and chemicals into well bores drilled deep into the earth. The fracking fluids are used to free up oil and gas deposits at depths of 8,000 feet or more and bring them to the surface.
Generally, state and county sales taxes are collected by the Colorado Department of Revenue, and returns the county’s share back to the county government, which in turn distributes the money to local governments and departments according to a specific distribution schedule.
The over-collections were discovered in 2008, when industry accounting firms adopted new procedures for handling sales tax collections, Chamberlain said.
That discovery resulted in a 2008 lawsuit by the Noble Energy company against the state to collect the overpaid amounts.
An appeals court in 2010 ruled in favor of Noble Energy, and others that had filed similar claims against the revenue department, Couch said.
The appeals court ruled that the taxes were improperly collected because, in part, the sand, liquids and chemicals used in the fracking process were not actually being purchased by the oil and gas companies. The materials, the court decided, should not be viewed as “tangible personal property” in a retail setting, according to a copy of the appeals court decision provided to the Post Independent by Chamberlain.
The fracking materials, the court ruled, are part of the service being rendered by the fracking companies, and should not be subject to sales taxes.
The Department of Revenue has already begun issuing refund checks to energy companies that filed claims. The state agency will begin collecting reimbursements from Garfield County starting next month.
That means several county departments, the county library and the six towns within the county all are expected to cough up a share of the $3.9 million reimbursement, according to the county’s schedule for distributing its annual 1 percent sales tax revenues.
The revenue department will collect the reimbursements by deducting amounts from sales tax distribution checks normally sent to the county every month.
Those deductions, according to statements made by officials at the county commissioners’ meeting, would pose serious problems for the different entities involved.
“This would significantly drag down our reserves,” said Carl Stevens of the county’s communications authority, noting that his entire general fund budget is only about $2 million, compared to the authority’s projected refund liability of more than $730,000.
“If you can meet us halfway …” pleaded Marilee Rippy of Glenwood Springs, a board member of the public library district.
So the commissioners voted 3-0 for the county government to pay half of the refund liabilities of the six towns, library district and communications authority.
This means the county government will be paying out more than $1.2 million to help relieve the other entities’ fiscal crunch, on top of more than $2 million needed to replenish the budgets of its own departments.
The BOCC, for instance, voted to use the county’s reserves to fill a gap in the human services grants fund, which is largely fueled by sales taxes.
The grants fund, which stood at $469,000 for 2010, might have fallen to $360,000 because of the refund requirements, according to County Manager Ed Green.
The refund payments will begin in July and continue for a full year.
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