Written by Patty Decker Tuesday, 18 December 2012 14:15
As 2012 comes to a close, Dan Holub, Marion County Commission chairman, is focusing his attention on state-approved tax exemptions and how those exemptions will affect local taxpayers.
For one, a 2006 tax exemption given to businesses for certain personal property items, such as store furnishings, Holub said in a recent interview. The second is the TransCanada Keystone Pipeline and a 10-year exemption on the pipeline itself.
“Every time a large tax exemption is granted, the lost revenue is made up mostly by an increase in property taxes,” Holub said.
“Consequently, the tax exemption in 2006, coupled with the Keystone Pipeline exemption, has cost Marion County $2 million in revenue annually at our current mill levy.”
In reference to the Keystone Pipeline, Holub said he thinks the Kansas Legislature didn’t take into consideration multiple factors before agreeing to exempt the pipeline from taxes for the first 10 years.
“(State legislators) didn’t look ahead—past what was on their desk that day,” he said, “but the ramifications will now affect everyone.”
Holub said the 10-year exemption on TransCanada Keystone Pipeline continues to bother him.
“We are supposed to be getting the pipeline money (for the county budget) in 10 years,” he said, “but it started bugging me on how the pipeline will be taxed.”
The Keystone pipeline from Canada, which runs through Marion County, he said, went into operation in February 2010.
“What Keystone has paid so far is $42,000 in sales tax on the pipe equipment and $417,000 for road work, which didn’t even pay for relaying the base,” Holub said. “It also made a $20,000 donation for the public’s benefit.”
While he said the money helped, it didn’t take care of the wear and tear on county roads during the project and roadwork repair now needed.
“It costs $8,000 a mile for chip and seal and twice that if a double seal is needed,” he said.
Holub said he wanted to know more about the fair amount of taxes Marion County and the five other Kansas counties will receive.
“In checking on how the pipeline is taxed,” he said, “the federal government sets the price.”
The pipeline, Holub said, is considered intrastate—in other words, each state gets its fair share on mileage.
Holub said there are 1,379 miles of pipeline from Canada to Steele City, Neb., and into Patoka, Ill.
“The pipeline that involves Kansas (and Marion County) runs from Steele City to Cushing, Okla.,” he said. “Of that, Kansas has about 200 of the 1,379 miles or 14.5 percent of the total tax value of the pipeline into Kansas.”
Holub said he figured that would be close to $3 million for Marion County in taxing entities.
However, Holub explained there is an additional 1,179 miles of pipeline going into Nebraska and will also connect to Steel City, feeding more oil into Cushing.
“The tax money we would be eligible for today is not going to exist in 10 years,” he said.
To substantiate that claim, Holub said he talked with the county’s appraiser, Cindy Magill, who spoke with a state employee about the issue.
“The state won’t even venture to try to put a price on it now,” he said, “and it gets real complicated with the federal government.”
The reason, Holub said, is part of the tax will be on the pipeline itself, part on the revenue and the mix has yet to be negotiated.
“We will get a small percentage of a smaller value,” he said.
The newer pipeline running through Nebraska is a 30-inch pipe and also connects in Steele City.
“We get paid for a 36-inch pipe that feeds more oil to benefit Cushing, but ours depreciates in tax value,” he said.
With the newer line, Kansas’ fair share stays at 200 miles or 7.8 percent.
“Even though the (tax) money comes out about the same, in the meantime our pipeline is depreciating, so it will be worth less.”
The state and federal governments will tell the counties what the pipeline’s value is, he said, and whatever the mill levy is, the county clerk’s office will figure the final tax.
“That’s how it works,” he said. “What the county has will depreciate, and as far as how much is yet to be determined.
“Anytime someone says we will have money in 10 years, they are either misleading counties or are incompetent.”
In addition to the completed pipeline and the second one near completion, a third pipeline will go through Texas.
“This will dwindle the counties’ share even more,” he said.
Along with the tax exemption, Holub said the counties didn’t get branch lines or jobs. Plus because Keystone doesn’t pick up or drop off a product in Kansas, it is not a utility that would be monitored by the state’s commerce commission.
Some people Holub said he has spoken with believe the county is going to get the same tax dollars it would get in 10 years.
“Not a chance, because we will get depreciation and a smaller share of total project,” he said.
Holub said there are three segments of the original pipeline.
One was north—Canada to Patoka, Ill., which was Keystone One, he said. The second is the pipeline from Nebraska to Cushing, which includes Marion County.
“XL is building from Hardesty, in western Canada to Steele City (Keystone Three) and hooking up with Keystone Two. The fourth will be from Cushing to the Gulf Coast.
“If we get something (in taxes) and, I am not sure if we will get anything, the exemption could always be extended.”
Kansas Supreme Court
“The only hope we have is the Kansas Supreme Court.”
Because the case failed at the state tax appeal level, it is now in front of the Kansas Supreme Court.
The case is not about justification, he said, but only whether Keystone met all the requirements of the exemption.
If that court says “no,” Holub said he admits he doesn’t know where to go from there.
“The Kansas Legislature has said over and over they would feed branch lines off to four Kansas refineries and Keystone said that was never part of the deal,” he said.
“That is what is being argued—the wording.”
Holub explained that what the court will be considering is whether the requirement meant running branch lines or going into Cushings and back up as supplying oil.