GLENWOOD SPRINGS — A mix-up in state sales-tax collections on “fracking” fluids is putting Garfield County a few million dollars into the red and creating a fiscal squeeze on more than a dozen area towns and departmental budgets.
According to Garfield County Treasurer Georgia Chamberlain, the Colorado Department of Revenue over- collected sales-tax receipts from several energy companies from 2002 to 2005. Now the Department of Revenue has been ordered by a state Court of Appeals judge to refund the overpayments to the energy companies.
Those over-collections in Garfield County, based on the county’s 1 percent sales tax, were estimated at $3.9 million for the four-year period, Chamberlain told Garfield County commissioners in a special meeting Tuesday.
The Board of County Commissioners decided Tuesday to draw upon the county’s general-fund surplus to shoulder more than its share of the projected $3.9 million financial hit.
Other counties across Colorado also are involved in the claims process, according to Department of Revenue spokesman Mark Couch, and roughly $12.5 million has been either paid out or approved for payment.
“There could be more,” Couch told the Post Independent. He said the energy companies have three years in which to make a claim in the wake of the court ruling.
The sales taxes were charged to oil and gas companies by firms engaged in hydraulic fracturing services for the industry, according to a memo presented Tuesday by Lisa Dawson, director of administrative services for Garfield County.
The taxes were charged on materials used in the fracturing process, known as fracking, which involves the injection of water, sand and chemicals into well bores drilled deep into the earth. The fracking fluids are used to free up oil and gas deposits at depths of 8,000 feet or more and bring them to the surface.
Generally, state and county sales taxes are collected by the Colorado Department of Revenue. It returns the county’s share back to the county government, which in turn distributes the money to local governments.
The over-collections were discovered in 2008, when industry accounting firms adopted new procedures for handling sales-tax collections, Chamberlain said.
That discovery resulted in a 2008 lawsuit by the Noble Energy company against the state to collect the overpaid amounts.
An appeals court in 2010 ruled in favor of Noble Energy and others that had filed similar claims against the Revenue Department, Couch said.
The appeals court ruled that the taxes were improperly collected because, in part, the sand, liquids and chemicals used in the fracking process were not actually being purchased by the oil and gas companies. The fracking materials, the court ruled, are part of the service being rendered by the fracking companies.
