Business personal property tax eyed as budget shortfall mounts

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As El Paso County faces a multimillion dollar shortfall from reduced property taxes next year, officials are realizing, once again, how far the business personal property tax could go in easing their financial woes.

El Paso County is the only county in the state that does not levy a business personal property tax, a tax on equipment used to conduct business. And though opinions about the tax differ, one thing is certain: The county is missing out on millions in revenue without it.

The shortfall is compounded by the fact that El Paso County is facing a significant reduction in property tax revenue next year, something that came to light as property revaluations for the 2011 tax year come to a close.

County Assessor Mark Lowderman forecasts that the lower property values will mean county property tax revenue could fall from $52.7 in 2011 to below $45 million in 2012.

Budget Officer Nicola Sapp said the county has been aware of the drop in assessed value.

“We’ve been fully aware of it and have been planning for it for a couple of years,” she said. “I believe we’ll have enough in excess reserves for 2012, but what happens in 2013 remains to be seen. There are a lot of unknowns between now and then.”

Some of those unknowns could be made more certain if the county expected to collect the business personal property tax from a planned wind farm in Calhan and an influx of oil and natural gas companies expected to come the county’s way.

El Paso County abolished the tax more than 10 years ago to encourage new business growth, and only a vote of the people can reinstate it.

The tax can be levied on equipment ranging from desks and computers to heavy machinery. The bulk of revenue is derived from large machinery and infrastructure materials such as oil pipelines and wind turbines.

Calif.-based Clipper Windpower is in the process of installing a $350 million wind farm in Calhan on the east side of the county.

Lowderman said if the business personal property tax were levied, the wind farm would result in close to $800 thousand in annual revenue for the county.

“Would I like to be collecting the tax off them? I would,” said El Paso County Commissioner Dennis Hisey. “When they first came out here to do the testing, I was happy for the school districts that would make money off of it, but it doesn’t do the county much good.”

It might not do El Paso County much good, but every other county in the state will see revenue from the Clipper project. That’s because the power generated by the project crosses county lines, and the property is assessed by the state tax commission which allocates the revenue based on the percentage of power used by each county.

In addition, as the price of energy spikes, Lowderman said his office has been inundated with inquiries from oil and natural gas companies interested in exploring mineral rights on the eastern part of the county.

Energy producers lay expensive and intrusive infrastructure, for which some believe there is good reason to tax.

In 2009, La Plata County Assessor Craig Larsen testified in front of the House Committee on Economic Development that the burden of incorporating oil companies was such that the business personal property tax is necessary to pay for the stress these industries inflict on local roads and land.

Hisey, too, is aware of that.

“I’m worried that we won’t be able to recover the long term costs from the impact these industries have,” he said. “We can make sure they take care of the upfront costs in road repair, but there’s no additional income to deal with those problems once the initial build-out is complete.”

Opponents of the tax say it’s an incentive for businesses looking to move to the county, although it’s hard to quantify just how big a factor it is.

“I don’t think it helps bring business to El Paso County,” Hisey said. “The dollar figure for companies isn’t big enough. It’s not a tipping point for the people making those decisions. The folks at the (Regional Economic Development Corporation) make sure companies are aware of it, but it’s just not a big enough selling point.”

If El Paso County wants to use the tax break as a selling point, it might need to act fast.

Two bills that sought to phase out the tax over the next decade were proposed this year.

Both recently died in the Senate, but another one, House Bill 1141, which proposes an exemption for companies purchasing new equipment through the end of 2013, is still alive. The bill is currently under review by the House Finance Committee.

Another argument against the tax is that it stifles small business growth, which many believe could be a job killer in the current economic climate. But both the Colorado legislature and the city of Colorado Springs have found ways around this to mitigate the burden on small businesses.

House Bill 1263, which is also currently under review by the Finance Committee, would grant a tax exemption to any company with less than $14,000 in business property.

The current exemption only covers companies with property valued at less than $7,000. And the city of Colorado Springs has an incentive-based business personal property tax, whereby employers who create jobs or invest in the region can qualify for a reduction.

“This comes up almost every year,” Hisey said. “A lot of people I support will come out saying that the tax needs to be done away with, but when I ask them how they’ll cover the budget holes this creates, they just say that a committee needs to study it, or it should be phased out. They don’t have any real answers.”