Meeker – In Rio Blanco County, this has become the million-dollar question: Is a well a structure?
The Rio Blanco county commissioners will take a few weeks to come up with an answer after a hearing Thursday morning in which EnCana, the company with most of the oil and gas wells in this northeast Colorado county, argued that construction materials used in wells shouldn’t be taxed because wells aren’t structures.
EnCana contends the county’s use tax levied on construction materials for permanent structures is improper when assessed on wells.
The county’s decision, which is expected eventually to be appealed to the courts or lobbied at the legislative level, is being watched closely by other Colorado counties facing increasing oil and gas activity.
Currently, no other counties with substantial oil and gas activity charge a construction-use tax like Rio Blanco’s.
The only similar conflict came when the ski industry convinced the legislature that use taxes shouldn’t be paid on ski lifts in Pitkin County because the towers aren’t considered permanent structures.
“Somewhere along the line, someone is going to be forced to make a definition,” said Rio Blanco County Commissioner Ken Parsons. “It will likely come down to a more precise definition of what is meant by construction materials and what constitutes a structure.”
Alan Poe, an attorney representing EnCana, said he thinks that definition is already nailed down.
“In my view, a well is a well,” he said. “It’s not a structure. It’s not a building.”
The conflict rests on a 3.6 percent use tax the county has been charging for 24 years. The tax was created to help a county with a small sales-tax base benefit from the oil-shale boom of the early ’80s.
With oil and gas production creating a new boom in the county, the use tax put $720,990 into county coffers last year and paid for a host of programs, including senior meals, parks maintenance and a safe house for battered women.
If EnCana had been making payments for the past two years, the county would be at least $1 million richer, said Debbie Morlan, county tax examiner.
Exxon Mobil stopped paying the tax first, arguing like EnCana that materials used in wells should be excluded and that Rio Blanco County, as part of a Colorado Enterprise Zone, should not be able to assess a tax the state waives.
Smaller taxpayers and other energy companies have continued paying the use tax.
That includes coal mines paying for underground materials and homeowners paying for septic systems.
EnCana’s attorney hinted in his hearing statements that the company would appeal an unfavorable decision.
EnCana has permits to drill nearly 1,200 wells in Rio Blanco County.
Staff writer Nancy Lofholm can be reached at 970-256-1957 or nlofholm@denverpost.com.
