For many mineral rights holders, the tentative notice indicated that the appraised value of their mineral rights for the current tax year was three to four times higher than it was in 2022, as the tax now is being set by the amount of royalties received, along with the age of a well and other factors.

However, it appears as if the initial appraised values the state sent out in December and January were incorrect.

What is correct is that the way the state set the values for mineral rights has changed this year due to the 2021 passage of House Bill 2581. That legislation, which provided “for the valuation of natural resources property and an alternate method of proposed valuation of natural resources property,” came following a 2019 state Supreme Court decision that struck down part of the prior methodology used to value oil and natural gas wells.

The State Tax Department has been working for more than a year to get a new formula in place based on the guidance of HB 2581, and right out of the gate it appears to be experiencing issues.

Cutting Through the Red Tape

Local CPA Jeff Yourkovich specializes in helping his clients wade through mineral rights ownership at his firm Yourkovich & Associates in Wheeling. He also has a personal interest in understanding tax matters when it comes to mineral rights, as he has holdings of his own.

Yourkovich said he had been waiting for the State Tax Department to release the new methodology it is using to determine mineral rights values so he could better understand just what HB 2581 had changed. Like many others, he was asking questions about the new formula, but getting no answers.

When Yourkovich received his early appraisal from the state for his mineral rights, he was surprised to see his mineral holdings were being valued at about $68,000 for tax purposes. After more than two dozen phone calls to the State Tax Department, he finally received an answer as to how the state set that value. And in working through his own numbers and those of some of his clients, what he found shocked him.

Based on the state’s own formula, Yourkovich’s mineral rights actually should be appraised at about $33,000 — half of where the state set the value. That difference, if not fixed, would lead to an additional tax burden for Yourkovich of about $500 annually.

“One of the reasons I was able to figure this out is because I had my own property to use as an example,” he said. “The natural resources property valuation document used by the state goes into this really complicated capitalization rate. I get that but what I wanted to actually know is how does A plus B divided by C get to the right answer. No one (outside of the State Tax Department) knew what that was. … I just kept bugging someone there to give me an answer. I finally got to talk with Deanna Sheets (director of the Property Tax Division) and asked her for the formula … and she sent me the spreadsheet. So I plugged in my royalty numbers for 2021, the age of my well, and I come up with an appraised value of $33,000. So where did the state come up with $68,000?”

In trying to find that answer, Yourkovich said someone else at the State Tax Department then told him that many of the initial valuations were wrong due to the office switching computer systems and needing to get the notices mailed out before all the correct information was input into the system. That person said the mineral rights tax bills that go out this summer would reflect the accurate appraised mineral rights value.

That doesn’t sit right with Yourkovich — either personally or professionally.

“So now, West Virginia says we’ve corrected your (appraisal) to $33,000, but how do I know they actually made that change? I could call the county assessor to make sure what they show for my property is $33,000, but their system is not yet up to date. In reality, I won’t really know until the bill comes. That’s where the problems are,” he said. “How will we know that they’ve gone back through the tens of thousands of mineral owners and corrected them all?”

Phone and email messages left for Sheets and others at the State Tax Department were not immediately returned on Monday. An employee at the office who answered the phone did confirm that there have been issues with the initial mineral rights valuation notices.

Yourkovich didn’t stop with just raising the alarm, though. He’s also created a calculator on his website, www.yourkovichcpa.com, that can help local residents from Tyler County north to Hancock County see just what their 2023 mineral rights appraisal should be, based on the state’s formula. All you need to be able to compare the correct valuation to your early appraisal from the state is the amount of royalties you received in 2021 along with the age of the well.

If you don’t have your 2021 royalties, Yourkovich said it can be obtained by calling your county assessor’s office and asking for the amounts reported under your name for each well.

One final thing he urged all mineral rights holders to do is follow through with the state and the county assessor’s office to ensure mineral rights appraisals are corrected. If not, and a bill is issued at the wrong amount, the only avenue left is to go through tax court.

Yourkovich is not the only local resident who’s publicly expressed concern over the state’s new method of appraising mineral rights. During a stop in Wheeling last month, Gov. Jim Justice was questioned by Ohio County landowners Tom and Margaret Stenger over the matter. Their primary concern was that they had been leaving messages at the State Tax Department on their new appraisal, but no one had returned their calls.

Revenue Secretary Dave Hardy was with the governor, and Tom Stenger said Monday that he since has been told the same thing as Yourkovich — that the state made a mistake and was working to rectify the problem.

“The governor’s office did get back to us and gave us the correct information on how they figured our appraisal,” Tom Stenger said. “But in just getting the bill, you got no information. We just told them the biggest thing that we thought they should change is giving people the information. Send a letter out with how they arrived at the appraised value. I mean, that seems pretty easy and would have helped all of us.”

The Appeals Process

One avenue residents have to appeal their property valuations is through the Board of Equalization and Review. The board, comprised of county commissioners in each county, can change property valuations if a person appealing their value provides evidence it is wrong.

In Ohio County, the Board of Equalization and Review is set to convene at 6 p.m. Thursday. So far, about 120 county residents have signed up to address the board, and anyone else who wants to contest their appraisal can do so until the start of the meeting. This has led commissioners to move the meeting from their boardroom on the second floor of the City-County Building downtown to Wheeling City Council chambers, which is a bigger space located on the first floor.

Ohio County Administrator Randy Russell said representatives from the State Tax Department will be at the hearing, and will give a presentation at its start to help explain the new mineral rights appraisals.

“Obviously, our hope would be that this is going to be enough of an explanation to satisfy people. I doubt that that’s going to happen. So, we’ll go right into some hearings,” Russell said. “We’re trying to figure out how to get the bulk of these hearings scheduled probably the following week. And part of that is making sure someone from the State Tax Department is here to present their side of the story.”

Russell said he and his staff are working with county Assessor Tiffany Hoffman to ensure they have the right information for each person who has signed up to contest their appraisal.

“I’ll be honest with you, (the State Tax Department) sent out letters in December to a lot of folks, and then in January, they came back and sent out another set of letters. In the second letter, some of the valuations were higher than in the first letter, some were lower,” Russell said, noting that caused even more confusion. “So what we’re going through and doing is asking the assessor’s office to provide us with what’s in the computer system today, as far as mineral rights valuations for all of the 120 or so people that are coming, so that we can get a better idea. We’re not confident at this point that either one of the letters these folks have received has an accurate appraisal for their mineral rights.”

A message left Monday for Hoffman was not immediately returned.

Ohio County Commission President Don Nickerson said it’s imperative the State Tax Department work with counties to rectify this matter.

“It seems to me that there’s not been good communication with the taxpayers on this matter. That really troubles me,” Nickerson said, noting he had been told by the State Tax Department that it would have representatives in Ohio County only on Thursday. “If that’s the case that they’re only here Thursday, then that’s an injustice to the taxpayers of this county.”

And that goes back to Yourkovich and his concerns as to exactly how mineral owners can be assured the state will correct their valuations without having to go through the process of ending up before the state’s Office of Tax Appeals.

“This has been overly complicated for a mineral owner just wanting to know the answer as to how their property is being valued. You shouldn’t have to go through all these steps. And I think it’s all on the State Tax Department. They just have not administered this well,” he said.