Energy companies are cheating state, appraisal expert warns legislators
Lawmakers: Underreported taxable assets burden N.M. homeowners, small businesses
Local governments in energy-rich areas of New Mexico are losing millions of dollars in revenue because oil and gas companies aren’t telling county tax officials about thousands of miles of natural gas pipelines and hundreds of compressors, drilling rigs and other equipment, an appraisal expert says.
Jerry L. Wisdom, an Oklahoma native who owns Total Assessment Solutions Corp., which specializes in valuing energy company assets, has done contract work in Rio Arriba, Eddy and Lea counties, pinpointing equipment that should be taxed but is missing from tax rolls.
His appraisers drive thousands of miles on dirt and gravel roads to locate gas pipelines, drilling rigs and other equipment. They then cross-check county records to see of the assets are being reported and properly taxed. Even equipment that is mobile is supposed to be reported as taxable property while it is operating in New Mexico.
The issue is one of both equity and income. If various assets are not reported or underreported, then homeowners and those businesses who do pay up are hit with higher property tax bills. For schools, colleges and hospitals, which collect a set rate on the value of all taxable property, money is actually lost, so there is less to cover bond debt or pay for services.
“From a fairness standpoint, we have a huge problem here,” said Sen. John Arthur Smith, D-Deming, who chairs the Senate Finance Committee and is a certified property appraiser.
New Mexico, like Oklahoma, Arkansas, Colorado and Texas, relies on a self-reporting method for personal property. Unlike the task of assessing homes or commercial buildings, county property appraisers do not have the staff or the expertise for on-site inspections of every machine or piece of equipment, so the state asks that companies annually report their assets and what they are worth.
That honor system is not working for New Mexico counties, Wisdom said, at a time of record in-state crude oil production.
“We deal with these companies, and we know how they report property,” Wisdom told lawmakers on the Taxation and Revenue Stabilization Committee this week. “It’s all selfreporting; this is the process we go through to find these items. These omissions are creating an inequity among the other taxpayers.” Among the items presented to lawmakers:
A map of Eddy County that showed operational drilling rigs on Jan. 1 of each year from 2007-16. Of 318 rigs, just 111 were reported as personal property and taxed. Seventeen of the 30 companies doing business in the county had no reports for their rigs.
Data for Lea County showed that of 247 operating rigs, 136 were omitted from the tax rolls. Seventy-nine of the 118 companies did not report a single rig.
An audit of pipelines in Eddy County showed 132 different company names on crossing posts, with 88 of them not reporting the lines to the assessor.
As for natural gas compressors in Eddy County, 623 were physically inspected, but half were not reported.
The valuation table that the state Taxation and Revenue Department uses for specific equipment, which is a guideline for counties, has not been updated since 1978 while the cost of expensive new drilling rigs has nearly doubled. So even in cases where assets are being taxed, local governments are not capturing full values.
Rio Arriba County, which cut its operating budget and is furloughing employees, hired Wisdom for $16,000 to sample a 15-square mile area where there is oil and gas activity.
Assessor Levi Valdez Jr., said he is still awaiting final results, but his office already has sent out notices to at least one company asking for payment of taxes on equipment it did not report.
Valdez was asked in a telephone interview how much oil and gas equipment is operational but not taxed in Rio Arriba County. “A lot,” he said.
“When I first came into office I said, ‘Why are we taxing our residents and commercial properties so high when these other people aren’t reporting what they should be reporting?’” Valdez said. “If we get the valuation rate higher, the mill rate will drop and taxes will be lower for the person next door.”
At this week’s hearing in Santa Fe, lawmakers said the inequities not only create an unfair burden for homeowners but also for smaller New Mexico companies that might be doing the right thing and paying taxes on all their pipelines and equipment. “One has a competitive advantage over the other,” Smith said.
Still, some lawmakers questioned the value of Wisdom’s work, saying that in a volatile energy market the companies themselves are best able to measure what their equipment is worth.
“Prices vary, so much of it goes up and down,” said Rep. Rod Montoya, R-Farmington. “I don’t know how anyone outside that company can create and come up with a value.”
But Wisdom said that of the 4,000 companies doing business in Oklahoma, there has been just one lawsuit that challenged his valuations — and his company prevailed.
“We’re not just throwing things out there to see what sticks, it’s methodical,” he said, adding that his appraisers will send the information to each company “and they have an opportunity to provide their cost, and if it proves to be correct we will use it.”
Once such work is done, he said, the amount of self-reporting rises: “Once we do this, the self-reporting is rising because someone is watching, someone is auditing.”
The state general fund gets a small slice of property tax revenue, less than 5 percent, but the issue came to the Legislature because of concerns that assessors are not getting support from county commissioners to hire the necessary staff and experts to do their jobs. Smith agreed. “No one is trained at the county level to do this,” he said. “We need to be giving local governments the tools they need. Shame on county elected officials not stepping to the plate to provide those resources to county assessors. If you escape paying your fair share, that burden is passed on to the residential user.”