Mesa County refunds sales tax to energy firms

Mesa County’s sales-tax base, weakened by the recession, has taken another hit after the county this month refunded more than $500,000 in sales tax to at least one local energy-services company in connection with a Colorado Court of Appeals ruling earlier this year.

County officials say they gave back the money at the direction of the Colorado Department of Revenue, which changed the way it collects sales tax on materials used in oil and gas drilling in light of the court’s decision.

The state appellate court in April largely upheld a Denver District Court judge’s decision that the Department of Revenue must refund $2.8 million in sales tax, plus interest, to Noble Energy. The amount represented the sales tax Noble Energy had paid to the state between 2002 and 2005 on sand and fluids that well-service companies use to drill and pull oil and gas out of the ground.

State law mandates that sales tax be collected and paid on all “tangible personal property.” In a lawsuit filed against the state, Noble Energy claimed the sand and fluids were exempt from sales tax as part of a Department of Revenue regulation that says tangible personal property doesn’t include anything that “loses its identity when it becomes an integral and inseparable part of the realty, and is removable only with substantial damage to the premises.”

Noble noted the sand and fluids, when injected into the ground, remain in and become part of the ground. That fact, they argued, makes those materials exempt from sales tax.

The Court of Appeals decision prompted the state to alter its policies and reduce the amount of tax it collects from energy companies. Department of Revenue officials notified the county earlier this month that they would reduce the amount of sales tax normally collected and passed along to it and other local governments. That money was instead returned to the business or businesses.

County Finance Director Marcia Arnhold said the county gave back $535,000 in taxes and interest collected between 2004 and this year.

A little more than $147,000 of that money would have otherwise been distributed to Grand Junction, Fruita, Palisade,  De Beque and Collbran as their share of the county’s tax revenue.

County officials said they aren’t sure how many businesses received the refund.

And Department of Revenue spokesman Mark Couch said he couldn’t release the name of the business or businesses, saying information about businesses who submit taxes to the state is confidential.

The refunded taxes took a chunk out of the county’s July sales-tax revenue.

Without the refund, revenue would have been up 2 percent over the same time last year, the first month-over-month increase since November 2008.

Instead, revenue for July was down 20 percent compared to July of last year.

“It was just another piece of bad news to our overall revenue picture,” acting County Administrator Stefani Conley said.

Through the first seven months of the year, the county pulled in $9.4 million in sales-tax receipts, a 13 percent drop from the same period in 2009.


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