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State wants exemption bid denied

Hearing yet to be set

Managing editor

TransCanada Keystone Pipeline LP filed an application Nov. 1 for a property tax exemption with Kansas Court of Tax Appeals.

The exemption has been a point of contention for the six Kansas counties that will miss millions of dollars of tax revenue if the exemption is approved.

Kansas legislators offered the exemption to the oil company in 2006 even though the company had not met all of the requirements in the state statute. The next step for the exemption is approval by Kansas Court of Tax Appeals.

Director of Division of Property Valuation Mark Beck reviewed the application Oct. 29 and recommended the request not be granted because the pipeline project does not give Kansas refineries access within the state. Local refineries do have access to crude oil being transported into Cushing, Okla., via the pipeline.

Department of Revenue Attorney Bill Waters said the real issue with the application was the interpretation of “access.”

“We believe the interpretation of the statute is for the access to be in Kansas,” Waters said.

The Court of Tax Appeals has the task of interpreting the state statute and determining if the pipeline meets the requirements and doesn’t always follow the director’s recommendations, Waters said.

If the tax appeals board approves the application, the Department of Revenue can appeal the decision to Kansas Court of Appeals, which then could transfer the case to Kansas Supreme Court for interpretation.

“I anticipate the scheduling of conferences with attorneys within the next 30 days,” Waters said, but he said he doubted if a court hearing would be set until after the first of the year.

The hearing with the Court of Tax Appeals is open to the public but counties cannot actively intervene during those hearings.

Marion County is one of six Kansas counties and affected by the exemption. The other counties involved are Butler, Clay, Cowley, Dickinson, and Washington.

The exemption would allow the Canada-based corporation to be exempt from paying property taxes in Kansas for 10 years. However, as part of the application and through a Senate bill passed in March, the company could pay 3 percent of the qualified investment during that 10-year period but only the state would reap those benefits. None would be shared with the six counties.

The $12 billion pipeline project began in Hardisty, Alberta, Canada, and extended southeast through Saskatchewan, Montana, South Dakota, Nebraska, and Kansas to serve markets at Cushing. Construction of pipeline in the U.S. began in 2008. It will continue through Oklahoma to a delivery point near existing terminals in Nederland, Texas, to serve the Port Arthur, Texas, marketplace.

Kansas is the only state to offer a tax exemption.

The state statute

Kansas Statute Annotated 79-32,223 states a qualifying pipeline is a pipeline located in the state, used primarily for transportation of crude oil or natural gas liquids, that has a length of more than 190 miles in the state and to which refineries or natural gas liquid processing facilities in this state have access.

The Keystone pipeline will transport crude oil — a slurry mined from oil sands in Alberta — and is more than 190 miles long in Kansas. However, the pipeline is not directly accessible to refineries in El Dorado, Coffeyville, or McPherson, the closest refineries to the location of pipeline construction.

When the Marion County Record contacted Senators Jay Emler and Jim Barnett, who represent Marion County, regarding the exemption, Barnett was the only one to respond. He said at the time the pipeline exemption was proposed he believed the project met the requirements.

In an interview in May 2009 with the Record, pipeline spokesman Jim Prescott indicated there were no plans to provide access to local refineries.

“All of the oil will be delivered to Cushing, Oklahoma,” Prescott said. “Most refineries in Kansas have their own pipeline route to Cushing.”

He continued that the refinery in Cushing is considered a “hub” with storage facilities to accommodate the massive transporting.

At the time of that interview, the public was not aware of the state’s desire to grant an exemption.

Last modified Nov. 17, 2010

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