This real-estate dispute is worth $10 million to Whatcom agencies
Whatcom County appears headed to court over the value of Petrogas properties at Cherry Point, with $10 million or more at stake in back taxes from 2016 to 2019.
The dispute was supposed to be decided in July, but a hearing before the state Board of Tax Appeals over taxes from 2016-2018 was delayed until spring 2021 because of the new coronavirus pandemic, Assessor Rebecca Xczar said in a July 24 memo to County Executive Satpal Sidhu.
A Petrogas appeal of its 2019 tax assessment is being handled separately, Xczar told The Bellingham Herald in an interview.
Petrogas Energy Corp., which is based in Calgary, Canada, provides crude oil and natural gas distribution services.
“The Assessor’s Office has made several attempts to settle the case with the appellant, but we disagree on what is taxable and a resolution does not seem feasible without going to trial,” Xczar said in the memo.
“There is a substantial amount of value being contested, which will result in a significant amount of property tax and interest to be collected after the trial,” she said.
Back taxes, penalties and interest could total $10 million if Whatcom County wins its case for 2016-2018 and a settlement is reached for 2019, Xczar said.
Xczar was asking the County Council for $80,000 to continue paying a lawyer specializing in tax law to represent the county.
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“They are claiming that the facility should be valued much less than what they paid for it,” Xczar said at an Aug. 5 meeting of the County Council finance and administrative services committee.
Gavin Carscallen, vice president of legal affairs for Petrogas Corp., declined to discuss the issue.
“Petrogas does not comment on ongoing litigation or hearings, which includes our current property tax appeal in Whatcom County scheduled to be heard in 2021,” Carscallen said in an email to The Herald
Councilman Rud Browne said during the Aug. 5 meeting that large petroleum companies have a history of “beating local governments to death” over tax assessments, using teams of lawyers.
“Their original defense was ‘Gee whiz, we made a mistake. We overpaid significantly for the property. You need to give us a break’,” Browne said. “I’m not happy with this issue.”
Councilman Tyler Byrd said he recognizes Petrogas’ contributions to the local economy but that he think the company should “pony up” its share of taxes.
“I’m actually a little frustrated by this. That’s a lot of money that we’re missing out on each year and we could really use it moving forward right now,” Byrd said.
According to information from the Assessor’s Office website, Petrogas is being billed a total of nearly $2 million in taxes in five accounts for 2020.
Tax burden shifted
Meanwhile, Petrogas is paying taxes only on what it thinks its property and assets are worth, said Xczar, who was elected assessor in November 2019.
State law allows Petrogas to pay that amount, and to appeal directly to the state — bypassing a local hearing, she said.
Whatcom County and Petrogas officials disagree about the value of their land and facilities at Cherry Point, where Petrogas is one of the “Big Four” employers.
“The value contested is greater than one-quarter of 1% of all property in Whatcom County,” Xczar told The Herald.
“Because the (tax) burden has been shifted to other taxpayers in the county, getting this settled is important. It’s important that companies pay their fair share, just like the rest of us,” Xczar said.
In all, the holdings in dispute include a 35.7-acre site on Unick Road and a 6.3-acre site on Mountain View Road in the Cherry Point industrial zone, plus physical assets and improvements made to the site that Petrogas West bought in 2014 for a combined $242 million from Chevron USA, according to Xczar and records at the assessor’s website.
Petrogas Pacific bought the pier, which is sometimes called a wharf in official documents, in 2016 for $122 million.
All five taxable assets are treated as a single “going concern,” but Petrogas is challenging only the value of improvements and the pier, Xczar said.
Value of the pier includes intangible assets such as a Department of Natural Resources permit to dock large vessels, and Xczar said Petrogas doesn’t want to be assessed for the value of that permit.
The Cherry Point location is the only LPG terminal on the U.S. West Coast, according to Petrogas’ website.
For the 2016 tax period, Whatcom County appraised the facility and wharf at $275,550,700, but Petrogas claims that it is worth $103,025,601 — a difference of more than $172 million in appraised value.
Washington state law defines what elements can be included in taxable value, which is why the Petrogas site’s appraised taxable value is below the sale price, Xczar said in an email.
The State Board decides whether the property value is more, less, or the same as the value set by the county Board of Equalization, according to its website.
“When the case is settled in 2021, and back taxes are recovered, taxing jurisdictions will receive their portions of the tax at that time. All taxpayers in those districts will likely see a decrease in their property tax the following year,” Xczar told The Herald.
Affected taxing districts include Washington state, Whatcom County, county roads, flood-control zone, Cemetery District No. 7, Conservation Futures, Fire District No. 7, rural library, Port of Bellingham, Ferndale schools and Whatcom County EMS.
Council members approved the extra funds to fight the appeal on Aug. 5 and Xczar assured them that Whatcom County’s case is solid.
“If we walk away from this, we’re not reducing the tax burden, we’re just shifting it to everybody else in the community,” Browne said.
