The Duchesne County Commission has tentatively agreed to join other members of a five-county task force in refunding back-tax payments to oil and gas companies that filed their property taxes under protest over the past two years.
At the same time, the commission approved the implementation of a tax rule revision expected to cost the county millions of dollars.Although County Attorney Herb Gillespie in a recent public hearing voiced objections to reaching an agreement without taking more time to study both issues in the dilemma, commissioners have tentatively approved the back-tax repayment plan for 1990 and 1991, as well as the immediate implementation of the "discounted cash flow" method of assessing values on oil and gas properties and production.
Duchesne, Uintah, Grand, San Juan and Summit counties must sign off on the proposed agreement by today for the tax rule revision to take effect this year.
In return for not seeking a delay in the implementation of the new tax rule, oil and gas companies have tentatively agreed, in most cases, to settle for repayment of just 10 percent of the back taxes they filed under protest in 1990 and 1991. Some companies may hold out for a higher percentage, however, according to county commissioners.
Gillespie said he favored the task force's using the six-month postponement of the rule revision, given to the affected counties by the State Tax Commission, to hire an expert to review how the new tax formula will affect them financially. Gillespie said he also had concerns about having the rule implemented in 1992 "as written" leaving the counties without the option of additional input.
Proponents of the tax settlement and rule revision said further delays will only anger oil and gas companies and lead to the filing of even more taxes under protest in 1992, thus putting the county in the position of having to repay a substantially higher amount in back taxes while still facing the inevitable rule change.
Marc Eckels, oil and gas operator, encouraged commissioners to "sign off because in 1992 the refund will be in the $3 million to $4 million range."
While exact figures aren't available pending settlement terms, it's estimated that Duchesne County may have to repay several hundred thousand dollars in protested back taxes.
In addition, the five counties are bracing for revenue reductions ranging anywhere from 25 percent to 40 percent. According to commissioners in the fiscal note attached to the rule revision, it's estimated that in a best-case scenario there'll be no impact should the price of oil stay constant. In a worst-case scenario, the fiscal note estimated a revenue decline of 25 percent. However, most oil companies are estimating a decline of 40 percent, Commissioner Curtis Dastrup said.
In Duchesne County, oil and gas companies make up more than 67 percent of the tax base.
A member of the Duchesne County School Board urged commissioners to bring the tax disputes to an end as well. "Most people are of the consensus that the oil fields won't last forever. We've appreciated the revenue and the ride they've given us. But we need to wean ourselves from it and learn to do with less," said board member Lynn Snow.
The taxation issue came to a head in September when the Property Tax Division of the State Tax Commission informed elected officials from the five counties that centrally assessed property owned by oil and gas companies has been overvalued since 1989. At the same time the Property Tax Division proposed sweeping changes in the current formula used to tax oil and gas property.
Oil and gas property values are currently determined by yearly production, less approved royalties, less 20 percent for deep wells multiplied by four, for a 400 percent tax on individual wells.
The proposed revision to the "discounted cash flow" basis, a method used by oil and gas companies when buying and selling wells, would consider the price of oil, the discounted rate, a declining production curve and actual production expenses.
Although initially opposed to the proposal, commissioners now say they can see flaws in the current formula and have no feud with the oil and gas companies seeking the rules change.
Four thousand oil and gas wells are operated in Utah, but just four people within the State Tax Commission monitor the situation.