Originally published in the print edition of the Yellowstone County News on 5/6/16
BILLINGS — The CHS (Laurel refinery) protested tax case could take as long as another five years to be resolved.
In fact, Montana’s Department of Revenue (DOR) Director Mike Kadas said he thinks that’s the most likely scenario, which is much in contrast to the hopes of local taxing jurisdictions that depend upon the tax revenues, which are withheld during the protest process.
At the invitation of Yellowstone County Commissioners, Kadas and other DOR officials visited on Monday with county and Laurel School District officials, who had hoped to find a way to shorten the process involved in resolving CHS’s tax protest. The company is challenging the state’s valuation of its Laurel refinery in 2014 and 2015.
If CHS maintains the protests on an annual basis throughout the legal process, depending on the resolution, it could result in “a huge release” of the “five-year aggregate,” but that still reduces local government and school budgets for five years. CHS tax revenues represent about 7.8 percent of Yellowstone County’s overall budget and 14 percent of its road fund, and about 30 percent of Laurel School District’s budget.
Kadas said, “We will try to expedite as fast as we can, and I am sympathetic to the local jurisdictions, (but) on the other hand, we can’t walk away from the question of whether they have to provide income information.”
One of the thorns in the process is that CHS has refused to divulge production costs and income information, which could be used as one of three means to determine the value of the CHS refinery. The case is currently awaiting a decision from District Court Judge Russell Fagg about whether CHS must provide income information. Kadas said that he cannot give up his agency’s authority to demand income information.
Asked why CHS would object to providing the information, it was stated that “confidentiality issues could be a reason.” CHS representatives were present at the meeting but made no comments.
At the present time, the two parties remain “a long way apart” in what they believe is the accurate property value. CHS is protesting $352 million of the state’s $821 million valuation of the property in 2015, and $345 million of the state’s $848.6 million valuation in 2014.
If DOR prevails in demanding the income information and CHS does not appeal, the case will take less time, explained Kadas. With the income data, the State Tax Appeal Board (STAB) would then review the Yellowstone County Tax Appeal Board’s decision. No matter the decision from STAB, the losing party will most likely appeal the decision to the courts, for which a date has been set in January 2017. The case could go as far as the Supreme Court in the process, said Kadas.
The Yellowstone County Tax Appeal Board upheld the state’s valuation for 2015, and “split the difference” in the 2014 case, placing a value of $510 million on the property.
CHS protested tax valuations from 2009 through 2013, which were settled with a property value set at $649 million in 2013 and $565.7 million in 2012.
Kadas said that DOR based its valuation on the knowledge that CHS made capital investments of $800 million in 2014. Besides income, he explained, the other two means of determining the value of industrial property is the cost approach and the market approach. The cost approach takes into consideration all forms of depreciation and economic obsolescence. A market approach takes into consideration identified sales of similar properties, which is problematic regarding CHS refinery because there are no sales of similar properties within the region to compare.
Yellowstone County Director of Finance Kevan Bryan asked if there is a way to place tax protest cases involving such a large taxpayer “in front of the line” in being heard before tax appeal boards and in the courts. Bryan said something should change in a system in which, every year, “we roll forward with numbers we know aren’t true” in setting levies and planning budgets.
Kadas said that while he doubted there would be any objection to that, it is the legal processes that are required that extend the timeline, more so than waiting to get on court dockets.
Commissioner Bill Kennedy commented, “Everyone has to have time for due diligence.”
The gist of the conversation seemed to indicate that any changes — such as the creation of a special tax court — will have to go through the state Legislature.
Commissioner Jim Reno asked why previous settlements didn’t address the methodology, which could avoid future protests.
Kadas explained that the previous protest did not address the methodology required by law to be the same in assessing the value of all industrial properties.