Oil, gas production yielded $183,869 in 2011 property taxes in Routt County
September 12, 2012
Steamboat Springs — Routt County collected $183,869 in property taxes derived from oil and gas production in 2011, almost all of it from 26 accounts.
The biggest of them, a well completed more than five years ago on Wolf Mountain, had production valuation of $1.62 million and received a tax bill of $70,609, according to a spreadsheet prepared for the Routt County Board of Commissioners by Assessor Gary Peterson this month.
Should oil and gas production in Routt County increase in the coming years, Peterson said owners of residential property, for example, could see their share of the overall tax burden decrease.
Records on file at the Colorado Oil and Gas Conservation Commission (COGCC) showed that Routt County oil wells produced 64,270 barrels in 2011 and another 37,191 Mcf (1,000 cubic feet) of natural gas. Of the total amount of natural gas, 11,798 Mcf was sold.
Peterson pointed out that the 2011 tax bills were actually based on oil and gas sold in 2010. The COGCC reports that Routt County produced 66,978 barrels of oil in 2010.
The county actually has 39 oil and gas property tax accounts, but 13 of them yielded insignificant amounts of taxable products.
According to the Colorado Oil and Gas Association, an advocacy organization that works on behalf of the energy industry, energy producers in the state are subject to three direct taxes on production: local property taxes, state severance taxes and a small tax devoted to funding the Colorado Oil and Gas Conservation Commission, which regulates the industry.
Quoting state law, COGA claims that county assessors value oil and gas leaseholds as real property at 87.5 percent of the selling price compared to the assessment ratio of 8 percent of value for residential property.
Peterson said the 87.5 percent valuation applies to wells in primary production and drops to 75 percent for wells in secondary production — those wells that take on the added expense of injecting water or fracking fluids into the well in order to extract the oil and gas.
COGA points out that property tax on machinery, buildings and equipment is taxed at the 29 percent commercial rate. Peterson said in this modern era, when multimillion-dollar drilling rigs capable of drilling multiple wellheads are put into play, personal property tax can become a very significant source of revenue. The tricky part is pro-rating the weeks and months the rigs are in Routt County and the time they are in a neighboring county or state.
"Some of those rigs are valued at $24 million and that's personal property for the amount of time they're in the county, Peterson said. "I've got 120 pages (of rules) on how you value personal property in oil and gas."
The state severance tax here is a tax on minerals extracted from the ground, including hard rock minerals like the molybdenum mined between Copper Mountain and Leadville, and coal, as well as oil and gas.
In Colorado in 2009, 96 percent of severance tax revenues were produced by the oil and gas industry, according to COGA, but the trend flips in Routt County, where coal is by far the largest source of severance tax revenues, Peterson said.
One important dynamic for the energy industry is that Colorado law allows a portion of the general property tax burden to offset the severance tax.
COGA reports that half of severance taxes go to the state and half returns to local governments. But Routt County Finance Director Dan Strnad said this week that the state uses a complex formula to determine how much severance tax returns to each local government. One complication arises when energy workers leave their home county to work in a neighboring county — employees living in Garfield County who commute to work on a well pad in Moffat County, for example. In those cases, severance tax revenues generated by the Moffat County well flow to Garfield County.
Garfield County has amassed large reserve funds from oil and gas revenues, but unlike Routt, Garfield has de-Bruced to get out from under the budget constraints of the Taxpayers Bill of Rights, or TABOR.
The severance tax has recently been very beneficial to Routt County, according to Strnad.
"We've done really well the last few years," he said.
After sinking to $43,000 in 2008, severance tax revenues rebounded to $957,000 in 2009, retreated to $264,000 in 2010 and increased to $528,000 in 2011.
Strnad said the county recently learned that the 2012 severance tax return from the state would be $618,000.
Because severance tax revenues can vary so much, Strnad typically prepares a draft budget for the county commissioners that anticipates $45,000 in severance taxes and places it in a capital fund for the Road and Bridge Department rather than in the general fund. That strategy cushions county finances against a disappointing year.
To reach Tom Ross, call 970-871-4205 or email tross@SteamboatToday.com