KILGORE — Kilgore ISD is looking to recoup funds lost in 2019 as the result of a statewide lawsuit that significantly changed how heavy oilfield equipment is taxed in Texas.
The lawsuit, EXLP Leasing LLC et al. v. Galveston Central Appraisal District, originated in 2011 when the Legislature changed the tax classification of oilfield gas compressors. The change means compressors will now be taxed in the county where their home yard is located, rather than in the county where the compressors are being used.
A years-long lawsuit followed and, in 2018, the Texas Supreme Court ruled in favor of oil and gas companies, leaving school districts and city governments across the state on the hook for millions in tax repayments.
“If y’all remember, right at a year ago, we were sitting here having to pay back about 12 to 15 companies in the East Texas area that had won a lawsuit statewide that got their values reduced tremendously. We had to pay some $600,000 back,” said Kilgore ISD Chief Financial Officer Revard Pfeffer said at the Nov. 16 board meeting.
“As part of the state funding formula, the greater your values, the less state money you get. So, it was simple. We lost that. We had to pay — I’m guessing about $40 million in values we lost — we had to pay some $600,000 back.”
Kilgore ISD set $668,046 aside for this purpose in August 2018.
The district absorbed the hit to its books with the money in savings and went on to make some $200,000 in interest payments.
However, House Bill 3, a massive Texas school funding bill passed in 2019, includes a rider that says the state will give back interest paid by school districts on the equipment lawsuits.
Now, the school may be able to reclaim more of the funds thanks to a reassessment of taxable values in Gregg and Rusk counties, which make up the district’s tax base.
Pfeffer said KISD’s tax attorneys, Linebarger Goggan Blair & Sampson, were able to file an audit with the state to reassess tax values of previous years.
“They look at our values every year to try to maximize our state revenue. The oddity about this one is, normally, after four years you can no longer go back and file an audit with the state to get your values reassessed to get revenue that you lost back then, but because it was a lawsuit, we were able to do that,” he said.
The attorneys filed protests with the Texas Education Agency for tax value assessments in the years 2012 through 2016.
Pfeffer said he didn’t know exactly how much KISD could get back but estimated it could be as much as 30% of the initial payment to the state.
“It may be a couple hundred thousand dollars we could get back from (the attorneys) doing this,” he said. “They have agreed to do this for these five years at no cost to us. In the next five months, I imagine we can expect to see some of those funds returned to us.”
He added the case is being reviewed by TEA Commissioner Mike Morath, who would have to sign off on the agreement, which Pfeffer expects him to do.
“It’s a great thing for us because we have nothing budgeted for it, so anything we gain is going to be a positive,” he said.
Board Trustee Dereck Borders asked Pfeffer to clarify where the returned funds would come from.
“If we paid the money back, are they going to reassess the people that own the (heavy oilfield) equipment?” Borders asked.
“All that money to those various companies, we paid it back,” Pfeffer said. “When we originally, eight years ago, did our summary of finance in 2012, it assumed that (there was) $40 million of value we were taxing on. Since we lost the lawsuit, that $40 million of value (is lower) — we had to give that money back for it. We get a lower property value on that summary of finance.”
“In other words, we’re getting money from the state, not from those companies?” Borders asked.
“Correct,” Pfeffer responded.