Harris Co. may try to tax rigs located in Jim Wells Co.
Christopher Maher, Alice Echo-News Journal
Officials with the Jim Wells County Appraisal District are monitoring a potential issue that could mean a loss of more than $100 million in appraised taxes to the county, city and school district in the near future.
Chief Appraiser J. Sidney Vela announced the potential problem to the appraisal district board of trustees during its June 27 meeting.
Vela told the board he had received information that indicated the Harris County Appraisal District may use unclear wording in an existing state law to assess and collect taxes on drilling rigs of companies who have their headquarters in Harris County, regardless of the actual location of the rigs.
Under the current system, taxes are assessed and collected in the county where those rigs are based, Vela said.
Harris County, Vela said, may use wording in Section 21.02 of the tax code to assess taxes on the property based on where the main headquarters of those companies are located.
Section 21.02 states in part that a taxing unit may assess taxes on property if the company "maintains the owner's principal place of business in this state…in the (county)."
Vela said that code could be open to interpretation because the phrase "principal place of business" does not indicate if that could be a district or division headquarters or if it refers only to a corporate headquarters.
"That's part of the problem, the lack of definition in the code," Vela said. "There's some ambiguous terms there."
Two companies own and operate facilities on drilling rigs based in Jim Wells County, Vela said, although the corporate offices for those companies are in Harris County.
Those two companies, Grey Wolf and Nabors Drilling, have drilling rigs in Jim Wells County that have been valued at a total of $98,634,100. Along with $8.9 million in workover rigs owned by Key Energy and Nabors Well Service, Vela said the assessed value of the property at risk is $107,534,100.
Total taxes paid on that property to the Alice Independent School District, the City of Alice, the Alice Water Authority and Jim Wells County would be $2,915,214, based on the 2006 tax rate, according to information provided by the district. Vela said if Harris County pursued a similar tactic in counties all over the state, the revenue to that county would be tens of millions of dollars or more.
"That would be a huge windfall for (Harris County), if they were to assess all these drilling companies that are headquartered in Harris County, and get all these drilling rigs from around the state and have them taxable in Harris County," Vela said. "It would mean millions of dollars to Harris County."
While Harris County would benefit from the change in policy, the local taxing entities would be severely impacted by the loss of tax revenue. The $1.6 million loss in tax revenue to the school district alone makes up 12.8 percent of its annual property tax levy, Vela said.
Losses to the City of Alice and the Alice Water Authority would be closer to 15 percent, Vela said, with potential loss to the county at eight percent.
Vela said officials with Grey Wolf Drilling had told him they expected to be informed of Harris County's intent to assess and collect taxes on the drilling rigs in the next few weeks.
Any action to contest Harris County's assessment would initially be taken by the companies involved, Vela said, although the appraisal district and the taxing entities might become involved at a later date.
Although the potential loss to the local taxing entities is significant, Vela said the appraisal district has not yet been officially notified of Harris County's intention to pursue the drilling rig assessment.
"We don't want to say that the sky is falling," Vela said. "But there are threatening skies right now that we have to keep an eye on and try to keep on top of and make sure we're as involved as we can be in the outcome, because this is certainly going to have an impact on our tax base."