Refunds to drillers frustrate Garfield County officials

Government agencies receiving sales tax revenue in Garfield County are anxious to know how much longer they will have to refund some of that money to energy companies in the wake of a 2-year-old court decision on how oil and gas hydraulic fracturing services are taxed.

Agency representatives on Monday voiced frustration to Garfield County Commissioners over their difficulty in getting answers on the matter from the Colorado Department of Revenue.

“We would like to know when the bleeding is going to stop,” Garfield County Sheriff Lou Vallario told the commissioners, speaking in his role as chairman of the Garfield County Emergency Communications Authority, which operates almost exclusively on sales tax revenue.

The concerns of Vallario and others in the county stem from a 2010 Colorado Court of Appeals ruling over a lawsuit by Noble Energy against the Department of Revenue. Noble questioned the charging of sales tax on certain fracturing materials, such as sand, arguing there was no purchase of tangible personal property and sales taxes shouldn’t apply.

The courts agreed, saying that the materials were an inseparable part of the fracturing process. Sand is used to prop open cracks to improve oil and gas flow during high-pressure injection of fluids to fracture underground formations.

After the appeals court ruling, the Department of Revenue determined that refunds would be done by withholding future sales tax disbursements, which amounted to about $3.9 million in Garfield County. Other counties, such as Rio Blanco, were affected by the ruling.

Garfield County Treasurer Georgia Chamberlain said refunds have exceeded $4 million.

“So we think we’re at the end of the refunds,” Chamberlain said, adding that she can’t get a definitive answer from the Department of Revenue.

The issue has created a budgeting challenge for such entities as the communications authority, the Garfield County Public Library District, area fire districts, municipalities and human services agencies.

Vallario said the communications authority has gone three months with no revenue and several months with reduced revenue because of the issue. So far it has been able to tap into reserves to keep operating, he said.

County Commissioner Mike Samson said he has “not been happy at all with the Department of Revenue and how this has been handled.”

He wondered why so-called errors-and-omissions insurance carried by the department shouldn’t cover what he said appeared to be a big error.

The department couldn’t be reached for comment Monday. Chamberlain said the department told her one reason it can’t provide a solid answer on the issue is because it doesn’t know if more refunds will be requested.


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