June 11, 2014 | Vol. 26 Edition 23

Billions at stake in latest oil property tax ruling

SARB says TAPS worth $10.2 billion for 2014 while past is still in litigation

The value of TAPS – the Trans Alaska Pipeline System – is worth $10.2 billion.

That is the current assessed value according to SARB, the State Assessment Review Board, which hears state property tax assessment appeals.

This is good news for the City of Valdez, which is home to over $2 billion in taxable oil related properties. Its non-oil related property tax assessments total less than $260 million.

A week ago Monday, the Valdez City Council passed its yearly mill levy which sets the tax rate for all properties within the city limits, both commercial and residential.

For the second year in a row, the mill rate was set at 20 mills.

Early estimates peg the city’s 2014 tax revenues at $51,276,976 – if the SARB ruling stands.

TAPS owners, primarily BP, ExxonMobile and ConocoPhillips, have a long history of litigating the pipeline’s value in state courts dating back to 2006.

The City of Valdez, the State of Alaska and other municipalities along the 800 mile pipeline corridor also have a long history fighting back.

In the 2014 assessment arguments, Valdez and other taxing entities argued that TAPS should be valued at $13.76 billion, while state assessors valued the pipeline at only $5.75 billion. Pipeline owners valued it at only $2.7 billion.

As of 2014, only the 2006 tax year has made its way through all appeals processes in Alaska courts. The 2006 assessment was ruled to value the pipeline system at $9.977 billion. The tax years of 2007-09 are lingering in the Alaska Supreme Court, while appeals for 2010-13 are still pending in superior court.

In recent years the valuation of pipeline properties have been based on replacement costs if the owners were to build a new oil pipeline based on today’s dollar value for an identical pipeline.

In the past, TAPS owners have argued it should be valued based on its tariff income, which has been significantly lower in the past decade due to less oil throughput.

Last February, Valdez and the other municipalities in the pipeline corridor won a significant victory when the Alaska Supreme Court upheld a lower court ruling that valued TAPS at $9.8 billion for the 2006 tax year.

The ruling was a big leap forward in settling the long-running legal dispute between the municipal taxing authorities and TAPS owners, though numerous fine-points were still in dispute as to how the ruling would apply to future tax years that are still pending in the court system.

The ruling freed up nearly $40 million revenues due to the city that had been sitting in an escrow account accumulating interest. The State of Alaska filed a separate lawsuit laying claim to that money. Litigation could continue for a lengthy period of time in this separate suit.

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