Fracturing ruling forces refunds to companies

Some Colorado counties must refund energy companies after a company last year successfully challenged sales taxes charged for hydraulic fracturing.

For Garfield County alone, “It’s roughly $3.9 million that the state is going to withhold from us over the next 11 months in sales tax payments,” said county manager Ed Green.

That will mean budget impacts for county operations as well as outside entities that receive county sales tax revenue, including the local library district, and dozens of human service agencies.

Mark Couch, a spokesman for the Colorado Department of Revenue, said just how much must be refunded in counties with oil and gas production will depend on factors such as what refund claims are filed and the results of state audits of the claims. Claims can be made for taxes dating back three years.

The refunds result from a legal challenge by Noble Energy. Noble contended fracturing companies were charging it sales tax on fracturing materials such as sand but argued there was no purchase of tangible personal property.

In fracturing, fluids are injected into underground under high pressure, leaving behind sand that props open cracks to facilitate flow of oil and gas.

The Colorado Court of Appeals last year agreed with a district court ruling that the sand was not tangible personal property, but an inseparable part of the fracturing process that is the “true object” of the transaction. Noble doesn’t acquire the sand that is left behind underground because it doesn’t own the land where it operates wells, the appeals court ruled.

The district court had granted Noble a judgment of $2.82 million plus interest. But that had to be amended because the appeals court overturned the district court’s finding that equipment to separate well production into water, oil and deliquefied gas also shouldn’t be subject to a sales tax.

Debbie Morlan, a sales and use tax official in Rio Blanco County, said she doesn’t yet know how much the refunds will total there.

“We put some aside in our budget just in case, so we’re just kind of hanging in there, waiting,” she said.

The amount at stake may depend in part on whether companies consider it worth their effort to review records to see if a refund is worth pursuing, she said.

Still, the amount the county ends up refunding might be substantial, she said.

“We’re a little bitty county, so really it doesn’t take very much to be substantial,” she said.


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