EQT disputes officials' claims

In a letter to the Bristol Herald Courier, EQT Corp. has issued a response to the newspaper’s Feb. 5 story on the potentially devastating impact of lawsuits EQT filed against two Southwest Virginia counties.

“We at EQT were disappointed to see the factually inaccurate remarks by elected officials from Wise and Dickenson counties concerning our ongoing disagreement over severance and property tax issues,” the company’s letter reads, without elaborating on the specifics of what it considers to be inaccurate.

“While it is inevitable that disputes between private companies and public officials will arise from time-to-time over any number of regulatory, legislative or public policy issues, agreement can usually be reached,” it states.

The company declined to comment for the Feb. 5 story, citing a policy against commenting on pending litigation.

The story dealt with a $20 million pair of lawsuits challenging the validity of severance tax ordinances in Wise and Dickenson counties. County officials said the lawsuits, if decided in EQT’s favor, would have repercussions that could bankrupt the entire region.

Counties won’t agree

The letter from EQT paints both counties as uncooperative in negotiating with the company over how much it should pay in taxes.

“After failing to reach an agreement on EQT’s property tax liability for 2002-2005, EQT was forced to sue the County in State court,” according to the letter.

Meanwhile, “A newly elected Dickenson County Commissioner revoked a Memorandum of Understanding regarding well assessments, which was not only agreed to by the previous Commissioner but also supported by the Board of Supervisors.”

According to the letter, EQT wants to be involved in the development of “a fair and uniform method of assessing property and severance taxes that is not subject to the whims of elected officials.”

In support of its viewpoint, EQT lists the benefits the company believes it has brought to the region, including 650 jobs and close to $300,000 in community donations.

For 2010, the company reports a payroll of $13 million, an investment of $76 million and royalty payments of $4 million. From those figures, EQT calculates an economic impact of more than $190 million in that year.

According to EQT’s letter, “If Southwest Virginia is to continue to attract and retain natural gas producers to the region, it must develop a consistent and predictable method of property and severance tax assessment that is adhered to by County administrators.”

Legal battles

The company’s dispute with Wise County over the assessment of its property taxes was decided in 2011 by the Wise County Circuit Court, with a ruling primarily in the county’s favor.

While EQT was awarded a $2 million tax refund because certain assets had been overvalued, the county received an affirmation of its assessment method that was worth $3.4 million in back taxes, plus additional revenue going forward.

At the heart of the matter was whether the county was correct to include the value of drilling and fracturing gas wells in its property tax assessment. The county argued that development of a well is necessary to extract the gas; EQT argued that a well is a hole in the ground that lacks value.

“The court agrees with [Wise County],” according to its ruling. “The greater and more plausible weight of the evidence supports its position that the costs associated with the drilling and fracking of a gas well add to the value of the improvements which should be included in a replacement cost valuation to ascertain fair market value [for taxation].”

The property tax issue has seemingly been settled by the court, and both Wise County Commissioner of Revenue Doug Mullins and Dickenson County Commissioner of Revenue Mike Yates say there is no long-running dispute on severance tax.

That’s the tax that counties charge on coal and natural gas extracted from the earth. The money is used to help fund infrastructure, economic development and county services.

Mullins and Yates say EQT had never appealed a severance tax assessment before it filed a pair of lawsuits in December challenging the validity of the counties’ severance tax ordinances on a legal technicality and asking for a refund of nearly $20 million. The cases have not yet gone to court.

Being reasonable

Mullins said he objects to EQT’s complaint that the county wouldn’t negotiate on the company’s tax bill. In the end, the court ruled that the county was right to tax the gas wells’ full value.

“I can call an outrageous position reasonable. That doesn’t make it reasonable,” he said. “If they want reasonable and they really want a gesture of goodwill and good faith, let them drop their lawsuits against Wise and Dickenson counties before we go sit down in those negotiations [about severance tax].”

Mullins said neither he nor Yates reported anything inaccurately to the Herald Courier. Yates said if any factual error were brought to his attention, he’d be glad to correct it. He defended his use of the Wise County precedent in Dickenson County’s gas well assessments.

“While a circuit court ruling in one locality is not necessarily binding in another locality, that decision followed closely with standards that are used in assessing real estate improvements throughout the Commonwealth,” Yates said. “So if we weren’t going to use a court-mandated method in Wise County, which is our next-door neighbor, what were we going to use?”

“To my knowledge,” he said, “this is being used a standard, at least for now, in most localities.”

He said commissioners of revenue from Southwest Virginia’s seven severance tax counties are meeting to work out a system for taxation that can be consistent among all the localities.

In response to EQT’s comments, Yates acknowledged that EQT had given him a copy of a memorandum signed by the previous commissioner, but that neither the county attorney nor the county Board of Supervisors had any knowledge of it, and to him it just didn’t make sense.

“It embraced a method of assessment that just immediately drove the values of those gas wells down, and it seemed in just a disproportionate amount,” he said. “When I compared it to other assets, it seemed just out of line. I started to question why and what was going on, and I found out what the reason was.”

“The cost associated with drilling a hole in the ground and fracturing a well had no [assessed] value. Well, that wasn’t logical. If I put in a swimming pool, the cost of digging the hole is part of the swimming pool, and if I drill a water well, the cost of drilling that well [is part of its value].”

If the labor of developing a gas well were not counted in its value, he said, to be fair the same standard would have to be applied to other assets, including homes. The resulting deflated values would create problems for resale and insurance – not to mention be in conflict with state requirements.

Outside opinion

David Henry, commissioner of revenue in Washington County, doesn’t have a dog in the fight; his county doesn’t have a severance tax and, at present, doesn’t allow gas drilling at all.

But he does have experience with taxing holes in the ground. He recently brought in an expert to assess the value of a natural gas storage facility at Saltville which, it turned out, had been greatly undervalued in previous assessments.

He, too, was approached with a request to negotiate on the assessment value, he said, but he stood firm on the expert’s $80 million evaluation of the underground storage facility – and the company, a subsidiary of Spectra Energy, paid its taxes.

In general, Henry said it’s typical for corporations to try to downplay the value of their property assets, in hopes of keeping their tax liability low.

In Washington County, he said, natural gas facilities are assessed in the same way as other industrial enterprises – based on fair market value, regardless of whether the facilities and equipment needed for the business are underground or above ground.

Generally speaking, he said, taxpayers can’t negotiate on the assessed value of their property – though they can appeal an assessment with factual information showing why it should be different based on the tax ordinance it was assessed under.

“I might not be happy with a speed limit of 25 miles per hour through the town of Abingdon,” he said for comparison. “That doesn’t give me any right to sue or call and negotiate [the speed limit] with the town police.”

Henry said he believes that, like Saltville’s gas storage facility, Southwest Virginia gas wells were previously undervalued because, since they were a relatively new type of facility for the area, their value was not immediately known by local officials. Once the value of an asset is known, he said, localities have the duty to tax it at that value.

“Some corporations just simply do not want to pay their fair share,” he said, without referring to EQT or any other company by name. “And then others are great corporate citizens, just like Saltville Gas Storage.”

‘Good corporate citizen’

EQT, in its letter, says that it “prides itself on being a good corporate citizen.”

According to EQT’s letter, “We are committed to paying our fair share of taxes, as should be amply demonstrated by the fact that in the last five years, EQT’s net share of taxes paid have totaled more than $17 million in severance taxes and more than $13 million in property taxes to Virginia counties and municipalities.”

But in talking about natural gas companies that operate in Southwest Virginia, Mullins differentiates between EQT and other companies.

“Let me say, just for the record, you’ve not heard any other gas companies’ names mentioned because the relationships we’ve had with the rest of the gas industry has been a good one, a very good one,” he said.

“We’re hoping that we can establish that same kind of positive relationship with EQT that we have with the others.”

dmccown@bristolnews.com
(276) 791-0701