Budget & Tax, Law & Principles
Lawmakers differ on reining in inflated tax bills
June 8, 2022
Although the issue was not as high profile as other topics, state lawmakers spent much of the past year trying to rein in practices that critics say have dramatically inflated businesses’ property-tax valuations in some Oklahoma counties.
Critics argue the tax inflation experienced in some counties is deterring business investment and leading to an outsized number of tax protests, which indirectly deprives schools of millions in local funding for years.
But not all lawmakers have been onboard with efforts to address the reported problem.
Businesses Say Third-Party Assessors’ Estimates Are Wildly Inflated
The controversy centers around some county assessors’ practice of outsourcing their work to third-party, independent contractors who assess business property values rather than the staff of the county assessor’s office.
Business officials say that practice has generated wildly unrealistic assessments and prompted many tax protests that land in court and drag out for years.
Lawmakers began public work on the issue with a legislative study last September.
Scott Crisler, tax manager for DCP Midstream, a natural-gas company, was among those who testified at that hearing.
DCP Midstream operates in multiple states, including Oklahoma, Texas, New Mexico, Colorado, and Kansas. But Crisler said Oklahoma is the only state where the company must consistently appeal property-tax valuations.
“District-court litigation is rare,” Crisler said. “The state where DCP is consistently required to file appeals beyond the informal level is Oklahoma. Since 2015, DCP has filed 108 appeals in district court in the mid-continent. Eighty-eight of those appeals, or 81 percent of the mid-continent total, have been filed in Oklahoma.”
He told lawmakers the problem is centered in counties that use third-party assessors. And the difference between the assessment levied in those Oklahoma counties and other states is dramatic.
In Texas, Crisler said DCP owns 14,100 miles of gas-gathering pipe that Texas officials assessed at a value of $76.1 million. But in Beaver County, Oklahoma, where the company has just 2,800 miles of pipe, the county assessor’s contractor claimed those 2,800 miles of pipe should be valued at $60.1 million.
Put another way, Crisler said the state of Texas assessed a value of $5,402 per mile of pipe, compared to $21,541 per mile in Beaver County, Oklahoma.
And, Crisler noted, even the Texas assessment exceeds actual market value. When DCP sold 3,134 miles of pipe in Texas—a figure greater than the total in Beaver County—the company was paid $11 million.
That situation does not encourage business investment in Oklahoma, particularly in rural areas that are often the most starved for job creation and population growth, he noted.
“Twenty cents of every dollar earned in Oklahoma is allocated to property-tax costs,” Crisler said. “This is four-times the percentage in Texas and almost twice the percentage in Colorado. This creates significantly less appeal to invest additional capital in Oklahoma.”
He also said the inflated property valuations create false expectations among entities that depend on property tax collections for funding.
“These excessive and unrealistic values by the counties’ consultants unfortunately offer false promises—to counties, public schools, and CareerTechs—of large tax revenues that are contrary to law,” Crisler said.
Lawmakers Vary in Response to Tax Challenge
The controversy drew varied responses from legislators during the 2022 session.
State Rep. Anthony Moore, a Clinton Republican who is vice-chair of the House Energy and Natural Resources Committee, filed House Bill 3398 at the start of the 2022 legislative session.
That legislation would have required businesses that file a tax protest to “provide all evidence of the taxpayer’s opinion of value to the county assessor,” and mandated that the company turn over “the business records of the taxpayer pertaining to the cost to construct the property at issue and the income produced from the property at issue for the year preceding the assessment date.”
Under Moore’s bill, failure to provide business records would “result in immediate dismissal of the taxpayer’s protest.”
Business groups objected, saying Moore’s bill was overly broad and intrusive. Ultimately, HB 3398 did not receive a hearing.
Other lawmakers tried a different approach.
By the end of the 2022 session, the Legislature approved House Bill 2627, by state Rep. Dick Lowe and state Sen. John Michael Montgomery.
Among the reforms included in that bill was a restriction on the use of third-party assessors during the protest process. While county assessors could still contract with those third-party entities to perform assessments, under HB 2627 the office of the county assessor would be required to handle all tax-protest negotiations.
Lowe, R-Amber, told lawmakers that is not the common practice in some counties today.
“I can talk about some counties that I know personally that the assessor just turns all of the settlement over to the third parties,” Lowe said.
As a result, he said no settlements typically occur in those jurisdictions and everything eventually goes to an expensive courtroom process that can drag out for years, during which time local schools and other entities do not receive any of the associated property tax funding.
HB 2627 stated, “Appraisers whose services were obtained to assist the county assessor for valuation shall not participate in any valuation negotiations, protests to the county assessor, or protests to the county board of equalization. Contracts for such appraiser services shall be subject to the Oklahoma Open Records Act.”
The legislation was endorsed by a wide range of business entities and education groups.
“Fair ad valorem taxes have always been a priority for Farm Bureau members,” said Rodd Moesel, Oklahoma Farm Bureau president. “Our main interest in House Bill 2627 is to try to speed up protest resolution to ensure our rural schools receive tax revenue in a timely fashion, while upholding the right to reasonably protest ad valorem assessments. We know that as elected officials, county assessors are best equipped to make decisions that are in the best interest of their local communities.”
“The reforms included in HB 2627 create a fair assessment process for all taxpayers, both individuals and businesses,” said Emily Crouch, senior vice president of government affairs for the State Chamber. “Anyone protesting an assessment wasn’t dealing directly with the local elected official charged with this crucial responsibility. They were left to mediate with a third party who had a vested interest in prolonging the evaluation process. Oftentimes, the process resulted in expensive litigation that cost taxpayers in the long run. We applaud the Legislature for pushing this reform through to ensure taxpayers receive a justifiable and transparent assessment of their property and assets.”
However, HB 2627 was nearly derailed in the Oklahoma House of Representatives. On May 18, the bill failed on a 48-37 vote. A bill must receive 51 votes to pass out of the House.
HB 2627 received the majority support required upon reconsideration on May 19, narrowly passing 52-27.
Moore was among those who spoke out against the bill on the House floor, voting against its passage both times it came before the House.
“We are limiting the rights of someone in a negotiation over a tax protest when you say you cannot have an expert present,” Moore said. “We’re violating the rights of the tax assessor as to who’s in the room.”
But state Rep. Brad Boles, R-Marlow, noted that if tax protests are not quickly settled, they can extend for as long as seven years and local school districts lose that property tax funding throughout that process. As much as $80 million in tax payments have been tied up statewide from prolonged protests, he noted.
And lawmakers noted much of that $80 million in protests has been concentrated in counties where local assessors are using third-party vendors.
“Schools are most affected by these protests, other than the taxpayers,” Boles said.
“We’ve had some schools that would’ve loved to have some settlements done and couldn’t, that were fine with the settlements,” Lowe said.
During Senate debate on HB 2627, state Sen. Lonnie Paxton, R-Tuttle, said the legislation would keep a bad problem from growing worse.
“I was on the phone last night at 10 o’clock with a superintendent in my district who was very concerned that if this bill doesn’t pass that the protests will increase to the point that they will not even be able to pay the bonds that they have out there,” Paxton said.
Unlike the House, HB 2627 passed the Oklahoma Senate with strong, bipartisan support. The bill passed on a vote of 42-0.
Gov. Kevin Stitt signed the bill into law on May 26.
News of the law’s enactment was not welcomed by all.
In a June newsletter, Matthew J. Wehmuller, president of the County Assessors Association of Oklahoma, wrote, “Despite our best efforts, HB 2627 was signed into law by the governor. I try to remind myself of those simple five words: ‘It is what it is.’”