Earlier this month, the West Virginia Supreme Court ruled in a case in which local tax departments and gas companies battled over the way property taxes should be calculated. But the companies and counties are still trying to figure out how they’ll be affected by the court’s decision.
“Where we’re at is, we have had a chance to look at it, and we’re not sure that we fully understand it. We haven’t met with the tax department,” said Al Schopp, regional senior vice president and chief administrative officer of Antero Resources, the state’s biggest gas producer.
The case includes seven different appeals from the Business Court Division, which said the state Tax Department failed to assess CNX Gas Company and Antero Resources’ wells “at their true and actual value.” The companies and Business Court argued the state Tax Department’s calculations were unconstitutional, and that companies should be allowed to deduct operating costs from their property tax payments.
The state Supreme Court heard the case in March, when lawyers for the industry asked for the justices to back formulas that would curb property tax payments. Lawyers for the state and county tax departments warned in court and in legal briefs that the Supreme Court’s decision to uphold the Business Court’s ruling would devastate local governments, pulling money from infrastructure, jails and education.
Property taxes on gas wells are calculated using a formula from the state Tax Department, which was written in a legislative rule, meaning the Legislature approved the formula. Under the rule, companies can deduct operating expenses from property taxes. That deduction is capped at 30 percent of receipts for conventional wells (and not more than $5,000), and 20 percent of receipts for horizontal wells (not more than $175,000).
According to the Tax Department, oil and gas tax revenue amounted to about $93 million in 2017.
The companies argued that the deduction on their expenses shouldn’t be capped at all, and that the Tax Department should instead look at the cost of producing the revenue from gas wells.
Then, on June 5, the West Virginia Supreme Court handed down a ruling written by Justice Margaret Workman that said the deductions should be calculated using a monetary average, not a percentage. The court remanded the case back down to the Business Court.
“In IOGA’s view, in a revenue/cost valuation, when all revenue is considered, all costs to generate that revenue should be considered,” said Charlie Burd, executive director of the Independent Oil and Gas Association of West Virginia. “The Supreme Court simply applied the Tax Department’s unfair regulations. IOGA’s members, like other taxpayers, want fair taxes. When the tax department considers all revenue but not all costs, it is simply not fair.”
Friday, a spokeswoman for the Business Court said the case hadn’t yet been scheduled. Willy Parker, Harrison County administrator, said he was waiting to see how the Business Court’s calculated the monetary average.
“Overall, I think it was a favorable decision for the counties, boards of educations, whatever the taxing entities were,” he said. “It could’ve had a major negative influence on ability of counties to provide services. The decision doesn’t go that far, and that key will be what that number is.”
Before the opinion came out, Doddridge County officials had been worried they’d have to put county funds on hold. The decision frees up funds to help build much-needed infrastructure, said Randee Britton, executive assistant to the Doddridge County commission.
“Just that the main takeaway is we’re very excited about the Supreme Court’s decision, we’re very pleased with the outcome, and we’re hoping that the part remanded back to Business Court will have some sort of resolution soon so we can keep moving forward,” she said.
The West Virginia Oil and Gas Association and CNX did not respond to requests for comment Friday. The state Tax Department declined to comment, referring questions to the Attorney General’s office, which declined to comment.
Ted Boettner, executive director of the West Virginia Center on Budget and Policy, urged an “adequate” tax on the industry, noting the link between tax revenue and resources, like local schools.
“State policymakers should be raising severance taxes on natural gas production to invest in our people and communities to diversify the state’s economy and to set aside money in a permanent fund that will exist long after the natural gas boom is over,” he said. “Otherwise, we will just repeat history and communities will suffer from the consequences of scarred landscape and a lack of economic development.”