Enbridge tax fight could cost northern Minn. counties millions of dollars
In several sparsely populated northern Minnesota counties, Enbridge Energy — which operates a system of pipelines that transports 2.8 million barrels of oil daily from Canada across the northern third of the state — is the largest property tax payer.
So those counties are understandably nervous about a tax case beginning Tuesday that could ultimately force them to repay $18 million in tax revenue collected and dispersed between 2012 and 2014, and ultimately, possibly more than $50 million.
At issue is the valuation of those pipelines. Enbridge contends that beginning in 2012, the state Department of Revenue applied a new methodology that overvalued them, and as a result excessively raised its property taxes by 24 percent.
The difference in opinion between the state and Enbridge is stark. In 2014, for example, the state valued the pipelines at about $5.6 billion. Enbridge believed the proper valuation that year was just under $4 billion.
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In total, Enbridge is appealing five years of property taxes. The court case beginning Tuesday covers 2012 to 2014. During that period, Enbridge says it overpaid $18 million.
For 2015 and 2016, it argues it's owed an additional $32 million in overpaid taxes. No court date has been set yet for that appeal. And Enbridge also plans to appeal its 2017 taxes, said spokesperson Shannon Gustafson.
It's the state's responsibility to set the property tax valuation for Enbridge's pipeline system. But the tax money collected goes to the 13 counties where the pipelines operate, beginning in Kittson County in Minnesota's far northwest corner, to Carlton County, south of Duluth, where the pipelines leave the state at the Wisconsin border.
If Enbridge prevails, some of those counties with tiny tax bases could owe relatively huge refunds. Red Lake County, for example, could owe about $4 million, said county auditor Bob Schmitz. Yet its annual levy, he said, is only about $2.9 million.
"It makes it kind of tough," he said. "Where do you get the money from? We only have so much to draw off."
Other counties, including Clearwater, which hosts a major Enbridge pipeline terminal, would also potentially have a payback greater than their annual levy, said Matt Hilgart, a policy analyst with the Association of Minnesota Counties.
"These are counties like Clearwater, Hubbard, Beltrami, Kittson, that have very limited tax bases and are dealing with arguably some of the highest social service costs in the state," he argued.
It's unlikely Enbridge would get 100 percent of what it's asking for, Hilgart said. Still, even if the court meets halfway between the state's and the company's valuations, the impacts on counties could be devastating, he argued.
Counties have backed bills introduced each of the last two years that would pay for any refund out of the state general fund. Both have failed to pass.
Enbridge has met with county officials for the past several years to notify them of the tax dispute, and the potential for having to pay refunds.
"Given the unwelcome financial burden the counties may face, Enbridge will work with them, to identify ways to alleviate the financial impact, possibly be spreading refund payments over a number of years, or treating the refunds as credit against future taxes," said spokesperson Shannon Gustafson.
Gustafson said counties would stand to gain an additional $19.5 million in tax revenue if Enbridge's proposed Line 3 pipeline replacement and expansion is allowed to move forward, a project that has been vehemently opposed by many environmental groups and Indian tribes, and questioned by the state Department of Commerce.
Meanwhile, counties are frustrated that while they don't have any say in the determination of the pipelines' value, they could be on the hook for repaying taxes — revenue that's already been spent on county needs or distributed to school districts and local governments.
Polk County administrator Chuck Whiting said if Enbridge prevails his county could owe $1.8 million, just in the initial court case. He said it makes it very difficult to budget and plan when it takes more than five years to resolve tax disputes.
"I think in the interest of good public policy, it would be healthy to look at this situation," he said. "So that this compounding nature of these situations don't get to a point where you actually threaten the viability of a small county."
Correction: (Oct. 3, 2017) An earlier version of this article included an incorrect figure that the counties stand to gain in tax revenue if Enbridge's proposed Line 3 pipeline replacement and expansion is allowed to move forward.