Natural Gas Processors Find Tax Loophole

MOUNDSVILLE – Williams Energy, Blue Racer Midstream and MarkWest Energy spent nearly $900 million in Marshall County during the last tax year on their natural gas processing plants, but those same plants are taxed at only a fraction of that amount, county officials said.

Marshall County Assessor Chris Kessler and Commissioner Robert Miller believe a 2011 bill passed by the West Virginia Legislature intended to entice a company to build a multi-billion dollar ethane cracker plant in the state may be allowing these companies to pay far less property taxes than they otherwise would for these processing plants, de-ethanizer units and fractionation facilities.

Under the bill, any new plant built in the state is eligible for tax credits that, in reality, bring the overall tax burden to only 5 percent of a plant’s value for the first 10 years it is operating.

Under the legislation, only $45 million of the $900 million – 5 percent – is taxable.

“I believe a 95 percent tax break on these is excessive,” Kessler said. “That legislation was supposed to attract a $1 billion ethane cracker. But the language allows companies to take the tax credit with just a $20 million investment.”

Because of the tax credits approved by the West Virginia State Tax Department, Kessler said Marshall County overall will not realize $10 million next year in property taxes that it otherwise would have received, based on the county’s assessed values – $2 million that would have gone into the county’s general fund and $8 million that would have gone to Marshall County Schools.

“We didn’t realize this was happening until Chris reviewed the property taxes,” Miller said. “That is $10 million this year that we are not going to get. And because it appears there will be even more construction next year, we will be losing even more that we should be getting.”

In 2011, the Legislature passed the Marcellus Gas Manufacturing and Development Act – Senate Bill 465 – later signed into law by Gov. Earl Ray Tomblin. According to Kessler, this allows developers to pay only 5 percent of the annual property tax they normally would.

“It was intended to attract a cracker and downstream industries,” said West Virginia Senate President Jeff Kessler, D-Marshall, himself a sponsor of the 2011 bill. “We need to incentivize ethane cracking.”

According to the bill, facilities eligible for the tax credit include “any factory, mill, chemical plant, refinery, warehouse, building or complex of buildings …” used in connection with the operation of the facility in a manufacturing business.

Williams currently operates three processing plants – Oak Grove, along Fork Ridge Road; Fort Beeler, along U.S. 250 north of Cameron; and the Williams fractionator along W.Va. 2 south of Moundsville. Blue Racer operates a new plant along W.Va. 2 at Natrium, and MarkWest operates a facility at Majorsville at the eastern edge of Marshall County.

“We appreciate the investments these companies are making in our county. But our established companies have to pay property taxes at the full rate,” Miller said, citing Axiall Corp., Bayer Material Science and the recently re-branded coal mines now operating under the Murray Energy Corp. banner.

Upon discovering the tax loophole, Chris Kessler and Miller sent a letter to Jeff Kessler to see if there was anything that could be done to close it.

“I cannot take away the tax credits that they got,” Jeff Kessler said. “What I can do is look at some ways to recapture some of that in terms of value-added” tax.

“I’ve got some ideas up my sleeve,” he added.

Chris Kessler said he knows the matter likely will not be addressed in the current legislative session, but said he just wanted to let the legislators know what is happening.

“Maybe the tax could be phased out earlier,” Chris Kessler said, noting it is currently set to last 10 years.

Officials with Blue Racer and MarkWest could not immediately be reached for comment. An official with Williams said she had not seen the letter to Sen. Kessler and until she did, could not comment.