When County Clerk Donna Zimmerman spoke to the Barton County Commission this past Monday morning, as she does regularly, she sought approval of property tax abatements and refunds.
This time, the request included 33 refunds, all on oil and gas leases and all ordered by the Kansas Court of Tax Appeals. The assessed value of the leases is $1,108,636 and the total refunds come to $163,486.
That was last week. She will visit the commission again next week with more.
So far this year, the commission has signed or will have signed off on $836,821 in abatements and refunds. Of this, $767,504 is oil and gas, the equivalent of about 2.8 mills since each mill in Barton County yields about $273,000.
The balance of refunds are on commercial, residential and other properties.
However, what on the surface may seem like a routine agenda item in fact may have more dire consequences. With each abatement and refund, some taxing entities in the county stands to lose revenue, revenue used to fund budgets.
An annual concern, “it affects many people setting mill levies,” said Barton County Appraiser Barb Konrade. “It can be very devastating.”
It is in Konrade’s office where the complex abatement and refund process begins. It is also her office that helps taxpayers navigate the murky world of tax law.
What are abatements and refunds?
Basically, Konrade said, an abatement is a correction in the value of a piece of property that will impact the taxes owed on that property in the current tax year. A refund goes to a taxpayer who was overcharged on the previous year’s taxes.
In most cases, Konrade said refunds are only available on taxes for the current year and back two years.
“But, it is much more complicated than that,” she said. If the change is needed because of, say the sale of a boat, one just has to bring in a bill of sale and the matter will be resolved.
If the disputed property involves some form of tax exemption, then it gets muddled. These must go before the Kansas Court of Tax Appeals, or COTA.
Exemptions are available for churches, schools, non-profit groups and other such organizations. There may be changes with these, but they don’t typically cause trouble.
However, a state statute passed back when oil prices were rock-bottom also exempted oil wells that produce five barrels a day or less from the same tax rate that applies to other wells. This, Konrade said, is where the problems come.
So, if a operator has a low-producing well, but has been taxed as if it were a high-producing one, they can apply for an exemption to the COTA. This costs $400 per lease, but this could be worth it should a refund be in order.
The court will notify the local county appraiser’s office of its ruling where the records will be amended. It will then be forwarded to the county clerk where the tax roles will be adjusted and, finally, to the treasurer’s office which will cut the refund check.
Lately, the Barton County Treasurer’s Office has been cutting a lot of these checks.
And there’s the rub
“Cities, counties, school districts and townships set their budgets, and the mill levies that fund them, based on anticipated revenue,” Konrade said. But, these taxing entities know going in that there will be some money siphoned away by abatements and refunds so they plan accordingly.
When it comes to smaller units of government, such as townships, there is less wiggle room. “There are townships that have had to get loans” because of their lost income,” Konrade said.
Since townships have to plan their budgets more tightly, even a small change in revenue makes a big difference.
In planning a budget, an entity looks at the previous year’s expenses and revenue and builds from there, County Clerk Zimmerman said. It looks then at projected costs and projected revenues, and this is where the abatements and refunds hit the hardest.
Cleveland Township is a poster child for this problem. Located in the uppermost northeast corner of Barton County, it borders Russell County to the north and Ellsworth County to the east, and the only community there is the unincorporated Hitschmann.
But first, a little background on property taxes would be in order. The mill levy of each taxing entity is divided between numerous smaller entities.
For example, Cleveland Township’s total mill rate is 143.794 mills. But, only about 26 mills goes to the township itself, with the rest going to the State of Kansas, the county, Barton Community College, Unified School District 112 and others.
Thus far in 2013, Cleveland Township has lost $201,648.32 due to abatements and refunds, all of which came from oil and gas adjustments. But that total loss impacts each of the entities under its umbrella, Zimmerman said.
So, ultimately, the township will lose $37,000. That may not sound like much, but Zimmerman said its budget is $170,000, making that 22 percent of the budget.
“That’s significant,” she said.
Although this is one of the largest blows taken, other townships and governing bodies are also feeling the pinch. “This was money these townships counted on but will not get,” Zimmerman said.
This becomes an issue to some degree annually. Factors that impact the numbers include the fact that oil producers can’t predict what a well will do at the first of the year (it may do better or worse than anticipated), the increase in number of low-producing wells that are pumping (with higher oil prices, more of these stripper wells are brought back into service), and the fact that some older wells have started producing less.
The commission approves the batches of abatements and refunds each week, but it is mostly a ceremonial act, she said. Since the changes are ordered by the COTA, the county really has no say.
“It’s mostly for public disclosure,” Zimmerman said.
Abatements and refunds caused by errors made at the county level are subject to commission approval, however.
How long will this go on?
Zimmerman currently offers “current” year abatements and refunds until the tax roll closes the first Tuesday after the first Monday in September each year. After that, they are considered prior year abatements and refunds and are processed by the County Treasurer’s Office.
All of that will change with the next tax roll and the new county bookkeeping software package, she said. In the new software, all abatements and refunds are handled together (whether current or prior) and will be brought to the commission for approval.