A pending Tax Court decision could require massive unplanned refunds from cities and other local units of government.
The Senate Property Tax Subcommittee and the full Senate Taxes Committee held a hearing on May 6 to consider the impact that legal challenges to state-assessed property valuations have on local governments. When challenges are successful, local governments are required to refund property taxes to the plaintiff.
The focal point of the hearing was the yet-to-be finalized challenge to the value of the Enbridge Lakehead pipeline system, an interstate petroleum pipeline that spans roughly 1,900 miles across the United States and Canada. The case is currently being considered by the Minnesota Tax Court.
In Minnesota, portions of the Enbridge Lakehead system are located in the counties of Aitkin, Beltrami, Carlton, Cass, Clearwater, Hubbard, Itasca, Kittson, Marshall, Pennington, Polk, Red Lake, and St. Louis. Enbridge is challenging the valuation of the Minnesota portion of the pipeline for tax years 2012, 2013, 2014, 2015, and 2016.
Testimony from local government reps
Testifying on the potential impacts of the Enbridge challenge were Kyle Holmes, Carlton County Assessor; Brett Skyles, Itasca County Administrator; Duane Laveau, Silver Brook Township Board Chair; Mark Box, Deer River City Administrator; and Tiffany Gustin, Minnesota School Boards Association.
Although the exact impacts are not yet known, it is estimated that the total refund across all impacted local units of government in the affected counties could exceed $30 million. That estimated refund does not include compounded interest costs that would be part of the final calculations.
The testifiers shared concerns about the magnitude of the potential refund, which for some smaller jurisdictions could exceed their entire annual budget. The testifiers all indicted support for legislation that would require the state to cover the refund amount.
The League, the Coalition of Greater Minnesota Cities, and the Minnesota Association of Small Cities also submitted a letter highlighting the direct and indirect impacts of successful valuation challenges to state-assessed properties.
Legislation and other recent cases
Sen. Paul Utke (R-Park Rapids) has introduced two bills, SF 2438 and SF 2439, that would require the state to cover the refund and would require the Department of Revenue to annually report on large judgments and settlements related to utility and railroad property. No formal action was taken on the bills, partly because the Tax Court decision in the Enbridge case could still be appealed by the Department of Revenue.
Other recent challenges to state-assessed utility property have impacted an array of local governments. A recent Tax Court decision related to CenterPoint Energy property in 40 counties will also require cities and other local units of government to refund significant amounts of property taxes to the company.
The counties affected by that case are Anoka, Blue Earth, Brown, Carver, Chippewa, Crow Wing, Dakota, Dodge, Douglas, Faribault, Freeborn, Hennepin, Isanti, Kanabec, Kandiyohi, Le Sueur, McLeod, Meeker, Mille Lacs, Morrison, Nicollet, Pipestone, Pope, Ramsey, Redwood, Renville, Rice, Rock, Scott, Sherburne, Sibley, Stearns, Steele, Stevens, Swift, Todd, Waseca, Washington, Watonwan, and Wright.