BY JOHN COX, Californian staff writer email@example.com
The implications of the property tax lawsuit Chevron filed against Kern County last month go well beyond the $3.5 million the oil company claims it was overcharged between 2006 and 2008.
Based on pending tax appeals filed by eight other oil companies operating in the county, Kern and other government agencies could be forced to refund more than $12 million in tax revenues between 2006 and 2009 if Chevron wins and others in the industry use the same legal argument, as a representative of several companies suggested they would.
Perhaps more importantly, according to county officials, a Chevron victory in the case would exempt some future oil wells from taxation, and even set a legal precedent that could limit the county's ability to tax new construction on other types of commercial property.
The case is viewed as a landmark by both sides. A loss by the county could represent a disabling blow to a strong source of discretionary income. The oil industry, meanwhile, views Chevron's lawsuit as its best hope for ending what it considers an unfair double tax on new investment.
"The importance of this case is difficult to overestimate," the county's chief of assessment standards, Robert Lisenbee, wrote in a county memo last month.
Oil company representatives dismiss talk of the suit's broader implications, and even county officials say Chevron's action is in some ways routine. But clearly the lawsuit has caught the attention of the local oil industry, which despite a losing streak against county lawyers hopes the Chevron case will reverse a taxation practice it deems unfair.
"Basically, Chevron's carrying the torch on this for industry right now," said Brad DeWitt, a Bakersfield petroleum engineer who does property tax work for some of the oil companies that have agreed to postpone their tax appeals pending a resolution of Chevron's case.
Some people involved in the case expect it to carry on for years and, ultimately, reach the state Supreme Court, as have previous tax disputes between the county and members of the local oil industry.
County government keeps only about 40 percent of the property taxes it collects. Kern's share came to 16 percent in its 2009-10 budget. Unlike many other sources of public income, property tax revenue can be spent at the county's discretion.
To some degree, the large dollar figures at stake in the tax appeals relate to heavy drilling activity in recent years as fuel prices spiked and oil companies reacted by investing in their oil fields.
At the core of the lawsuit, filed Sept. 21 in county Superior Court, is the county's assertion that drilling new wells makes an oil field more valuable. Chevron argues that such investments amount to maintenance that merely preserves a property's value.
The same central argument is made in eight other companies' cases now pending before the local tax appeals board, said the county's assistant assessor, Tony Ansolabehere.
The Santa Rosa lawyer representing Chevron in the case, Clay Clement, said he has had "very little" contact with other oil companies on the lawsuit, though he is aware that some have appealed their Kern tax bills on the same grounds.
But others are making plans based on Chevron's actions.
"I don't think we (small, independent oil producers) would have the resources to do what Chevron's doing, in a way, for all of us," said Bakersfield oilman Chad Hathaway, whose company has agreed to delay an appeal from its 2008 tax bill that could result in a refund of about $21,000.
The county has indicated that of the eight oil companies disputing their property tax bills, the largest sum belongs to Bakersfield-based Aera Energy LLC, which it said is looking for a refund of nearly $8 million, some $3 million of which would come from Kern County.
Aera's spokeswoman, Susan Hersberger, disputed these amounts, writing in an e-mail Thursday that the company is disputing taxes totaling only $2.2 million. She noted that Aera pays property taxes totaling about $65 million a year.
She declined to address Chevron's lawsuit, saying Aera had not determined whether to move forward with its appeal.
"Aera is committed to paying its fair share of taxes," she wrote.
Other companies listed as having tax appeals on hold could not be reached for comment.
The county's Ansolabehere said he worries that a victory by Chevron could be applied to other property tax cases, such as the construction of a shopping center on a previously vacant lot. The property owner could argue that the land is no more valuable with or without retail buildings, he said.
"It's a slippery slope," he said. "... I don't know where you stop."
Clement, Chevron's attorney, said the example of the shopping center goes too far.
"That example has nothing to do with what we're talking about," he said, adding that the repair of a leaky roof is a more adequate comparison, in that such maintenance adds no extra value to a property.
County Administrative Officer John Nilon said that while the basis of Chevron's lawsuit seemed "fairly creative," he was confident that his team would, in the end, win in court.