Tax waivers for pipeline to cost local governments

AP News
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Posted: Nov 09, 2009 3:37 PM

Leaders from six Kansas counties want a chance to challenge the state's contention that the Canadian owner of a crude oil pipeline is eligible for millions of dollars in tax credits.

The Kansas portion of the pipeline will run through Washington, Clay, Dickinson, Marion, Butler and Cowley counties on its way from Steele City, Neb., to Cushing, Okla. The entire pipeline will carry crude oil from Canadian tar sands to Pakota, Ill., Cushing and the Gulf of Mexico.

The Kansas Department of Commerce has already signed a contract with Canadian energy company TransCanada granting $55.49 million in tax credits for the pipeline, which will be paid in 10 installments over 14 years, said Joe Monaco, a spokesman for the Commerce Department.

There has not been a ruling on whether the pipeline will also be exempt from property taxes.

At a meeting in Abilene last Wednesday, officials from five of the six Kansas counties involved raised questions about whether the pipeline qualifies for any tax exemptions.

According to the law creating the exemptions, Kansas refineries would have to have access to any pipeline that is seeking tax exemptions. Kansas refineries will not have any access connections to the TransCanada pipeline, said Jim Prescott, company spokesman, but will have to use their existing connections at Cushing, Okla., to access that oil.

The law, which grants both income tax credits and property tax exemptions, lets the Commerce Department decide whether the pipeline qualifies for tax breaks. But existing regulations and case law require that property tax exemptions be handled by the Department of Revenue and approved by the Board of Tax Appeals.

County officials at last week's meeting said they hoped to argue their case against exemptions before the board. But Tony Folsom, deputy director of the Property Valuation Division, said that generally the only the state and property owners are part of such cases and the board will have to decide if the counties will be allowed to testify.

TransCanada told the state this summer that the 210-mile pipeline through Kansas will cost $740 million. Based on that estimate, the six counties involved would lose between $1 million and $1.9 million each in property taxes in the first year.

When the Revenue Department originally was asked to compute the fiscal impact of tax credits and property tax exemptions, TransCanada said the pipeline would cost $271 million. But this summer, when TransCanada applied for its tax credits, it said the cost would be $740 million, or 2.7 times more than the earlier estimate.