Tax Court ruling places burden on several local jurisdictions

By Anna Jauhola
Several entities in Kittson County are facing an uncertain and enormous price tag after a Minnesota Tax Court recently upheld two of Enbridge’s lawsuits regarding overtaxation.
Almost 10 years ago, the Minnesota Department of Revenue reassessed values on certain types of property, specifically pipelines between 2012 and 2016. Because the state overvalued these properties, Enbridge filed suits to recoup the losses. On Thursday, May 6, the Minnesota Tax Court entered two separate rulings – one for tax adjustments from 2012 to 2014, and one for tax adjustments from 2015 to 2016.
Kittson County Administrator Dillon Hayes said the major issue Enbridge had with the overvaluations was how the Department of Revenue calculated the assessments.
“What it really comes down to is the interpretation of the rule the Department of Revenue uses to calculate those assessments,” Hayes said. “There are certain percentages allocated to different computations of the value, and that is really where the issue lies. The state was focusing hard on this set percentage that was in the rule and the Tax Court said, ‘No. The commissioner of revenue has the ability to modify that percentage to more accurately reflect that value.’”
Hayes said a letter from the Department of Revenue dated Friday, May 28, read the state does not intend to appeal the rulings for 2013 through 2016, but does plan to appeal 2012.
Current numbers reflect an approximate repayment cost for Kittson County including 2012. With the 4 percent compounded annual interest included, Kittson County is looking at having to reimburse Enbridge $1.4 million. That number would be less if the state wins an appeal regarding 2012. They don’t want to wait too long to pay it either so the interest doesn’t continue to accrue.
“Obviously, at the end of the day, (the total) comes down to what Revenue certifies based on the Tax Court ruling,” Hayes said. “But the concern is, what appears to be low numbers listed from Revenue on this spreadsheet is not an accurate picture of what we will actually have to pay back. It’s all just estimates and guesses right now.”
More guesswork comes in the form of wondering whether entities will have to pay back a lump sum or be able to set up a schedule. He said that depends on Enbridge, the final numbers and whether the court order will allow for an extended repayment schedule.
Hayes said meetings with Enbridge indicate they are willing to work with counties.
The state places this burden squarely on each entity, insisting they pay on their own. Several officials and organizations are working to push for some resolution from the state because many counties, school districts, townships and other jurisdictions do not have reserves on hand.
“I believe we have sufficient reserves to pay it,” Hayes said. “But obviously, we have to keep our fund balances and reserves at an acceptable level, so we’d have to levy to replenish those funds. That’s the big concern.”
He and other county leaders in the 13-county area specifically affected by these court rulings are worried how they will affect townships. Hayes said other counties have said several townships may unorganize, which puts the burden back on the county to assume that township’s debt.
Kittson County is fortunate to still have the Line 3 pipeline replacement, which will help offset the repayment to Enbridge with the company’s own future tax dollars to the county.
“Some of the other 13 counties affected have Line 3 routed around their county, so they’re getting double dinged,” he said. “They’re losing the revenue and they’re having to pay this back.”
For the Kittson Central School District in Hallock, the cost estimates are all over the place. Superintendent Bob Jaszczak said he can’t verify the accuracy and can only keep the board of education informed as the process moves along.
“There’s a startling lack of detail in all of this,” Jaszczak said on Wednesday, June 2. “I did some checking last week and then this morning. The numbers we’re hearing for the school district, I’ve heard from $88,000 to $232,000. That’s a big range.”
Jaszczak is not clear on how the district will repay the amount when it’s determined, or the timeframe in which the district will pay it back.
“The frustrating part is people think the school district got this extra money, which is not the case,” he said. “We set our levy, that’s the amount of money the district gets. How it gets divided up and who pays it, that’s determined by the property valuations. So the school district would have gotten the same amount of money if Enbridge was paying for it or not. It’s just had Enbridge not paid it, the rest of the tax base would have seen increases.”
That will be the case later on for all county taxpayers as well. Hayes said likely to recoup the cost of repaying Enbridge, the county will have to increase its levy. But some taxpayers will feel that more keenly, particularly if they reside within the Kittson Central School District and a township affected by these Tax Court rulings.
Officials across the state are also worried about these Tax Court decisions opening up opportunities for other utility companies to challenge valuations and seek compensation.
“We’re seeing utility providers all over the state coming forward with appeals of this nature,” Hayes said. “In some counties that have the Walmarts, Menards, and so on, a lot of these values are being contested by these large organizations. You start adding all that up, those changes in values for most counties is huge.”