Vanguard sues seven counties alleging tax overpayment

By Heather Richards
Casper Star-Tribune
Via Wyoming News Exchange
 
CASPER — Vanguard Natural Resources operated about 1,500 wells across Wyoming before the Texas-based oil and gas fi rm fi led for bankruptcy last year. It paid taxes on the production from those wells both to the state and to counties like Johnson, Campbell and Sublette. 
Now it’s asking a bankruptcy judge to get back some of that money. Vanguard is suing seven Wyoming counties and the state’s Department of Revenue for a recovery of taxes it argues were paid in error, according to documents fi led in bankruptcy court in Houston. 
The disputed taxes paid in Campbell, Natrona, Johnson, Sublette, Sweetwater, Park and Carbon counties total $5.2 million. 
Vanguard argues that the money should have gone to higher priority debts, in accordance with bankruptcy law. Both the state and many of the counties intend to fight in court to keep those funds. 
It’s a tricky situation for the affected counties. Local governments have lost significant revenue due to the mineral downturn and these seven have already passed the disputed tax income on to school and hospital districts, as well as county services like road repair. 
“Johnson County is no different than any other county in Wyoming, where mineral royalties had dropped off . Any amount that we collect in taxes is an important amount for us,” said Johnson County Attorney Tucker Ruby.
The county is being sued for more than $500,000. 
“All of us are facing the same dilemma.”  
Vanguard performed an audit last year covering 14,000 severance tax returns in Wyoming. The company argues that it found mistakes such as the failure to note deductions from the transportation of minerals. It recalculated its tax burden for each of the 2014-operating wells and submitted amendments to Wyoming. 
The company alleges that it overpaid severance taxes — which are paid on mineral production — to Wyoming in the amount of $710,000. It wants this amount returned. Additionally, the company is seeking $2.4 million in taxes paid to Wyoming that Vanguard argues should have been used to pay off debts with higher priority under bankruptcy law. 
The company is likely to file more requests in the coming months for refunds in Wyoming from 2014, 2015 and 2016, according to court documents. 
The Department of Revenue has asked the bankruptcy court to sit out of this dispute, and force Vanguard to appeal through the administrative process in Wyoming: the Board of Equalization, according to court documents. 
If a mineral firm disputes its tax bill, it can try to rectify that through the Mineral Tax Division. 
In this case, the division staff rejected Vanguard’s amendments, claiming the company didn’t provide supporting documentation. 
Vanguard took the matter to bankruptcy court, skipping Wyoming’s process through the Board of Equalization, which is comprised of three governor-appointed citizens who settle tax disputes and appeals. 
Mineral taxes to counties are a topic of perennial debate in Wyoming because the way they are assessed, certified and paid out is more complicated than many say it needs to be. 
The issue was the subject of a legislative task force in 2015, but ultimately lawmakers didn’t get anywhere. 
One of the key issues is when those taxes are paid. Counties receive production taxes after a one-year delay. The state collects them monthly. 
Groups like the Powder River Basin Resource Council, which represents landowners in Sheridan County, are calling for counties to receive payments at the same time the state does.
In a report compiled earlier this year, the group counted $42 million in unpaid taxes to counties following the oil, gas and coal bust. The state was only lacking $3 million in delinquent taxes from the downturn era. 
Because of the one-year delay, counties can be left holding the bag long after a company that owes taxes has hit bankruptcy or gone defunct, the Powder River Basin Resource Council argues. 
The Joint Revenue Committee decided in a meeting Thursday to advance a bill that would make the taxes owed to counties due monthly. However, Carla Faircloth, Johnson County treasurer, said monthly collection could bring its own trouble. 
“It would be wonderful if we could be paid like the state does, on a monthly basis, from the time the money starts coming out,” she said. 
But it’s not that simple. 
Here’s how it goes: A company produces oil and gas. It reports that production to the state at the start of the following year. The state certifies those values in early summer and provides that information to counties. Counties start building their budgets in July. The money doesn’t come in until fall. 
Unlike the state, counties don’t have a reserve of money to pay back companies if they overpay tax bills one month, Faircloth said. They are not as financially flexible as the Department of Revenue. 
Moreover, production taxes are assessed differently depending on what part of the county the production was in, and then the money is paid out to a variety of divisions within that county, she said. About 70 percent goes to the schools. 
“I think the majority of us are leery about monthly taxes,” she said. 
Counties have a difficult choice in the case of Vanguard’s bankruptcy: either forfeit money that’s already been dispersed, or hire a lawyer down in Texas. 
Johnson County has done the latter, hitching itself to Sublette County’s legal counsel in the southern state. Sublette has already been involved in a tax dispute with Vanguard over $2.4 million in delinquent taxes from 2016. 
Ruby said he has confidence that the counties are in the right. The Buffalo lawyer also believes it’s important for counties to win for the sake of precedence. 
He said he hoped that the seven affected counties could work together on the case to save on costs, which can be significant. 
Counties are usually not equipped with bankruptcy experts and their attorneys are not necessarily qualified to practice law in other states. 
Campbell County recently spent $1 million on legal fees in Pennsylvania going after more than $20 million in unpaid taxes from the bankrupt coal firm Alpha Natural Resources.
In this instance, counties are on the defense. But it’s an important case, and one that could set a precedent to discourage other firms from going after counties, said Ruby. 
“I think it’s a good fight that we have to fight,” he said. “Whether we win or not, that’s going to be up to a judge. All we can do is put our best foot forward, and hope for the best.”