State tax court says 13 counties must still refund millions to Enbridge, but less than before

The Minnesota Tax Court has raised its valuation of Enbridge's oil-pipeline corridor, a setback for the Canadian company but an improvement for several counties on the hook for tens of millions of dollars in tax refunds.

Enbridge and the Minnesota Department of Revenue have been battling for years over valuing the company's pipelines, which carry oil from Alberta across 13 northern Minnesota counties to Superior, Wis. Up until last week, Enbridge had mostly prevailed in its tax appeals.

Prodded by the Minnesota Supreme Court, the Tax Court on Nov. 5 revised its May 2018 valuation order, which dealt with assessments for 2012, 2013 and 2014. The Tax Court has now set the 2014 value of Enbridge' pipeline system at $4.73 billion, which is still $879 million, or 16%, below the Revenue Department's valuation.

But in May 2018, the Tax Court valued Enbridge's system at $3.42 billion for 2014. That's about $2.2 billion, or 40%, below the Revenue Department's assessment. The 2018 decision valued Enbridge's system in 2013 at 21% below the Revenue Department's mark; the November ruling was only 8% below.

The May 2018 valuation was "catastrophic," said Matt Hilgart, general government policy analyst for the Association of Minnesota Counties. The latest "is not as bad, but it will be no easy lift."

Counties that host Enbridge's pipelines will still have to pay millions of dollars in refunds, though less than previously expected, Hilgart said.

Unlike most property, pipelines — along with utilities and railroads — are assessed by the state, though the bulk of the tax proceeds flow to counties and local governments. Enbridge has claimed that over six years starting in 2012, it's been systematically overtaxed by the Revenue Department and is owed at least $50 million in refunds.

While Enbridge's tax appeals have gone largely in its favor for 2012 through 2014, that's not the case for 2015 and 2016.

In late June, the Tax Court ruled that the revenue department should increase Enbridge's valuation by 5% and 3% respectively for those two years, according to the Association of Minnesota Counties.

Enbridge asked the Tax Court to reconsider its June decision, but last week it declined to do so.

An increase in valuation means that Enbridge would owe more tax money for 2015 and 2016. However, that tax increase would not come close to making up the tax refunds owed to Enbridge for 2012 through 2014, county representatives said.

In a statement, Enbridge said that "overall [the company] is in a net refund position. We are continuing to review the judge's decisions, as we determine next steps."

Enbridge or the Revenue Department could appeal last week's Tax Court decisions.

Calgary, Alberta-based Enbridge runs six pipelines in a corridor across the state to its terminal in Superior, and a seventh to another terminal in Clearbrook, Minn.

The Enbridge system is the largest conduit of Canadian oil imports into the United States.

Some of the 13 Minnesota counties that host the pipelines are sparsely populated and rely on Enbridge for a big chunk of their tax base.

Under the Tax Court's May 2018 ruling, at least two counties — Clearwater and Red Lake — could have ended up refunding more money to Enbridge than they raise annually from all their taxpayers.

It's not clear yet how much refunds would be reduced by the Tax Court's latest ruling. "We still have pretty large payments, but it's a far better outcome than the original decision," said Kyle Holmes, Carlton County's assessor.

He estimated the Enbridge tax refunds allocated to Carlton County for the years 2012 through 2014 could fall from a range of $7 million to $9 million to $2 million to $3.5 million.

As with all counties and the state itself, those refunds must be paid with 4% interest, county representatives said.

The Tax Court changed its tune after a decision by the Minnesota Supreme Court in February.

The Supreme Court, agreeing with a petition from the Revenue Department, found that the Tax Court in May 2018 had not properly considered a key state administrative rule.

So, the Tax Court altered its methodology, weighing the "income" and "cost" approaches to valuation equally, according to an e-mail sent to county auditors and administrators by the Association of Minnesota Counties.

The Tax Court had previously relied on the income approach, which Enbridge favored.

The income approach is based on the present value of future income generated by a property; the cost approach is based on the cost of constructing a new property having the same utility, according to Tax Court filings.

Mike Hughlett • 612-673-7003