November 8, 2009 at 2:03 pm #2893
Chevron tax refund ruling may set a pattern
By Rick Radin The Contra Costa Times
Posted: 11/06/2009 05:06:46 PM PST
Refinery in Richmond Calif., Wednesday May 17,2006. (Bob Larson/Contra Costa Times/KRT)
Contra Costa County could lose $50 million in tax revenue if a property tax appeals board lowers the assessment of Chevron’s Richmond refinery by the same percentage it did in an appeal that must wrap up soon.
The county assessment appeals board lowered Chevron’s assessment by $1.2 billion for the 2004-2006 tax years that will cost the county $12.7 million if a Sept. 2 preliminary ruling is upheld. The reduction was about $1.5 billion less than what Chevron sought. A final decision is due Dec. 15.
Chevron is appealing for the same reasons its appeal of the 2007-2009 tax years, company spokesman Brent Tippen said.
“Regrettably, the use of an inappropriate assessment methodology is placing the county, as the tax recipient, and the citizens, as the recipients of services from taxes, and Chevron, as the taxpayer, in a tough position,” he said.
Contra Costa Assessor Gus Kramer, whose office did the assessments, declined to comment before the final ruling on the appeal. In his stead, the Times consulted with a Southern California assessor. No hearings in the new appeal have been scheduled. Chevron has pledged to negotiate how much it will ask the county to return if the board confirms the preliminary ruling.
To mediate these disputes involving millions, an appeals board must evaluate the methods the assessor used to determine the business’ value, said Robert Quon, an assistant assessor in Los Angeles County, which itself has six oil refineries.
Assessors usually use a combination of three methods in assessing a refinery’s value: the market approach, the income approach and the cost approach, Quon said.
The market approach looks at the sales prices of other refineries, the income approach evaluates the refinery’s likely income and the cost approach assesses the value of new equipment and construction.
“The income approach is the most reliable, followed by the cost approach and then the market approach,” Quon said.
Chevron objected to the way Kramer’s office used two of the three methods, Tippen said.
He said Kramer could not show that other refineries had been sold for as much as he said the Richmond refinery was worth. The Richmond refinery also lacks a coker, an expensive piece of equipment used to break down heavy crude oil into gasoline and other products that many refineries have, Tippen said.
“The main drawback to valuing a refinery by the market method, is that very few refineries are sold and that very few of them are exactly alike, making comparisons difficult,” Quon said.
Chevron also said that Kramer’s income analysis overvalued the refinery’s revenue outlook because he did not adjust a discount rate related to petroleum industry instability.
Oil companies often buy crude from politically unstable places such as Saudi Arabia, haul it in tankers that can rupture and spill oil and process it at refineries that can explode, so that can be a reason to discount the income to distinguish it from an office or apartment building that involve less risk, Quon said.
“The higher the discount rate, the less the property is worth,” he said.
Tippen said Kramer also did not adequately recognize intangible values that are required by law to be removed from determining income from plant and equipment.
“Chevron could say ‘Let’s subtract the cost of all the architectural plans that went into the value of new and old equipment that yields the income,'” Quon said.
The first appeal required nearly 50 hearings, said appeals board member Clark Wallace, a former California real estate commissioner. The new appeal will not necessarily be heard by the same members.
“I would not characterize it that Chevron won the appeal,” Wallace said. “We were striving for fairness. No one had a total victory. Both of them stretched.”
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