Supreme Court: Property Taxes Due From Natural Gas Pipeline Owner Disputed

The company Rover Pipeline was created about 10 years ago to build an interstate pipeline to expand capacity for transporting natural gas from Marcellus and Utica Shale regions, which include parts of Ohio. The 713-mile pipeline travels across 18 Ohio counties and delivers natural gas to distribution points in and outside of the state and in Canada.

Business trade associations in Ohio note that natural gas is a valuable natural resource for the state, used for heating and producing electricity. Property taxes on a pipeline such as Rover’s also provide millions of dollars that are relied on by school districts and local governments. The U.S. Energy Administration reports that Ohio is one of the nation’s top 10 natural gas producers. And the trade associations point out that the demand is only rising throughout the United States – including for the growing need to generate electricity for data centers.

Rover originally projected the cost for constructing the pipeline at $4.08 billion. It was completed in November 2018 at a cost of $6.3 billion. Unanticipated costs, delays, and inspections occurred after historically high rainfall during construction and a cleanup following the release of drilling fluid into nearby wetlands, the company stated.

Because the pipeline runs through Ohio, Rover must pay public utility personal property taxes on it. In a tax appeal to be heard by the Supreme Court of Ohio next week, Rover objects to the pipeline’s valuation of $5.67 billion for tax year 2019. The valuation, accepted by the Board of Tax Appeals (BTA), was in part based on the cost to construct the pipeline. The Ohio taxable value, after adjusting for sections of the pipeline outside of Ohio or exempt from taxation, was determined to be $3.67 billion. Rover states that based on this value, its tax liability for 2019 alone would be $215 million.

A group of 18 county auditors, one school district in Henry County, and several associations, including the Ohio Library Council, submitted a brief supporting neither side but seeking prompt resolution of the case. The group highlights the financial impact on local governments, including approximately 70 school districts and 78 townships, given five years of disagreement over the pipeline’s tax value. Until the appeal is resolved, Rover makes reduced property tax payments, the group explains. Those reduced payments impact school districts and local construction projects. In the Napoleon Area City School District, for example, Rover has contested $10.32 million in total property taxes for tax years 2019 through 2023. Also, the group asserts that certain state funding for school districts is allocated based on full property values, not the reduced amounts Rover is paying. Local construction projects have been put on hold, which will increase costs and incur higher interest rates over time, the group adds.

BTA Adopts $3.67 Billion as Value for Ohio Section of Pipeline
For tax year 2019, the Ohio tax commissioner issued a preliminary assessment of $3.98 billion for the taxable value of the pipeline. Rover appealed to the BTA.

An expert for the tax commissioner presented two methods to the BTA for determining the pipeline’s value as of December 2018. One approach was “income-based,” and another approach was “cost-based.” The amounts were averaged to $5.67 billion. After adjusting for tax exemptions and the pipeline sections outside Ohio, the expert set the pipeline’s Ohio taxable value at $3.67 billion. Rover’s expert used a different approach and submitted a final valuation of $2.28 billion for the Ohio section of the pipeline.

In a 165-page decision, the BTA adopted the tax commissioner expert’s value. In April 2024, Rover appealed the decision to the Supreme Court of Ohio.

Methods Flawed for Calculating Pipeline Value, Company Maintains
Rover examined the two methods used by the tax commissioner’s expert. The company contends that the income-based approach valued the business as a whole rather than the pipeline only. The calculations also don’t account for wear and tear on the pipeline and likely repairs, Rover maintains. It argues the cost-based approach also led to an inaccurate value because the unexpected cost overruns from the rainfall and resulting disruptions weren’t excluded.

The taxes are supposed to be based on a property’s true value – what a buyer would be willing to pay for the property on the open market. Rover contends that neither of the tax commissioner expert’s calculations reflect the pipeline’s true value. The flawed analyses accepted by the BTA discourage companies from pursuing or broadening energy projects in Ohio, and the BTA should order new calculations, Rover concludes.

In an amicus brief, the Ohio Chamber of Commerce agrees, arguing that companies will be disincentivized from investing in energy infrastructure in Ohio if property values are based on the money spent on a project. The approach also injects uncertainty into the industry because companies must guess their tax liability, the chamber asserts. A joint amicus brief from the Ohio Oil and Gas Association and Ohio Manufacturers’ Association makes similar arguments and notes that the unexpected excess costs added no value to the pipeline. “Unforeseeable tax liabilities have a chilling effect on such investment,” the associations state.

Pipeline’s Valuation Thoroughly Evaluated by BTA, Tax Commissioner Asserts
The tax commissioner disagrees that its expert valued the Rover business rather than the property. Rover hasn’t presented support that any intangible assets were part of the expert’s valuation, the tax commissioner maintains. The commissioner also rejects the idea of reducing the pipeline’s value by the unexpected costs during construction. The state’s taxpayers shouldn’t be responsible for Rover’s budgeting mistake, the commissioner asserts.

In addition, the commissioner argues that deducting the excess costs would create odd incentives, such as encouraging utility companies to present unrealistic project budgets so that later additional costs can be deducted from their property values, the commissioner maintains.

The commissioner maintains that the BTA’s decision doesn’t threaten the natural gas industry in Ohio, as claimed by Rover and the trade associations. The appraisal of the pipeline was unique and complex, requiring the BTA to evaluate extensive evidence and testimony and apply the law, the commissioner argues. The BTA decision is entitled to deference, and local governments are entitled to the full amount of taxes that are due to them from Rover, the commissioner concludes.

Watch Oral Arguments Online
The Supreme Court will hear eight cases during oral arguments next week. Four cases will be considered on June 3, and four more, including Rover Pipeline v. Harris, tax commissioner of Ohio, will be heard on June 4.

Oral arguments begin at 9 a.m. They will be streamed live online at SupremeCourt.Ohio.gov and on the Ohio Channel, where they are archived.

Detailed case previews from the Office of Public Information are available by clicking on the case names in the article or in the list of cases in the sidebar.

Tuesday, June 3
Juvenile Bindover
A 16-year-old Cleveland teenager was caught on camera shooting and killing a man and firing shots at another person. A juvenile court found probable cause that he committed murder and transferred the case to adult court. In adult court, the teen pleaded guilty to murder, attempted murder, and illegally possessing a handgun. An appeals court vacated the attempted murder and weapons convictions because the charges weren’t first raised in juvenile court. In State v. Turner, the Court will consider if the adult court should have accepted pleas to charges not specifically raised in juvenile court or if the charges stem from the act of murder, for which the juvenile court did find probable cause.

Court Fees
After a man’s divorce case was finalized, the Medina County clerk sent him bills in 2017 and 2019 for court costs. The bills charged the man two fees – a per-page fee for a copy of the complete record and an additional computerization fee. The man sued in 2020, alleging that he and others were overcharged for the computerization fee – by more than $500 for his record and by more than $500,000 total for the proposed class members in the lawsuit. In Gault v. Clerk, Medina County Common Pleas Court, the county contends that the computerization fee statute allows the clerk to charge an additional $1 fee for each page of the record. The man counters that the computerization fee is limited to $1 for the service of providing the complete record. Appellate court decisions conflict on the law’s interpretation.

School Board Appeals
A school district board of education challenged the values of two properties for tax year 2022 to the county board of revision. The complaints were dismissed, and the school board appealed to the county common pleas court. Although school boards in the past could appeal adverse property tax decisions to the BTA, the General Assembly in 2022 eliminated a school board’s ability under R.C. Chapter 5717 to appeal there unless the board owns or leases the property. In Olentangy Local School District Board of Education v. Delaware County Board of Revision, the school board argues another statute offers a separate way to appeal a board of revision’s final orders, by filing a lawsuit in a common pleas court. The school board notes that 39 appeals were pending in the Fifth District Court of Appeals on the issue. The property owners respond that school boards have no standing to appeal these matters in a trial court.

Utility Submetering
A Columbus company requested that an electric utility transfer to the company the service of more than 1,000 customers living in five apartment complexes to them. The company would provide “submetering” services for the landlords and divide the common master bills so residents could pay their fair shares of utilities used. The utility refused, claiming the submetering company is operating as an illegal public utility. The Public Utilities Commission of Ohio rejected the claim and ordered the service transferred. In Ohio Power Company v. Nationwide Energy Partners, the Court will consider whether the commission should regulate the submetering company the same as a traditional utility.

Wednesday, June 4
Attorney-Client Privilege
A woman was hit in a car accident by an underinsured motorist. She asked her insurance company to pay $150,000, the maximum amount of her underinsured motorist coverage. The insurer offered to pay $33,312 to settle the claim. After a lawsuit was instigated, the insurer paid $150,000. The payment was made 292 days after the initial claim was made. The woman filed a second lawsuit, claiming bad faith “footdragging” by the insurer. She requested to view the insurer’s entire claim file. In Eddy v. Farmers Property Casualty Insurance Company, the Court will consider whether the insurer has to turn over the entire file or only provide information up until the date it paid $150,000. The insurer argues everything produced after it is paid is covered by attorney-client privilege.

Budget Bills
In 2019, the General Assembly passed the state budget bill, which included a law prohibiting healthcare providers from directly soliciting crime victims or car accident victims for 30 days. Another provision prevented disclosure of victim telephone numbers. Chiropractors sued, arguing that including the new laws in the budget bill violated the one-subject rule for legislation. The trial court found the laws unconstitutional and issued a permanent injunction. In Allied Health and Chiropractic v. State, the state notes that other bills amending the victim solicitation law and disclosure prohibition have become law since then. Because Revised Code sections are completely repealed and replaced when amended, the laws were revived and reenacted in a constitutional manner, the state argues. The chiropractors assert that statutes found unconstitutional can’t be presented as valid existing law in new bills proposing to amend the statutes.

Attorney Discipline
A Cincinnati attorney contests a proposed suspension from the practice of law for paying two Florida-based referral services that called auto accident victims and signed them up as his clients. Both the attorney and the bar association investigating the case suggest he receive a public reprimand. The attorney claims that it was not until he heard a recorded phone call that he became aware the telemarketers were representing themselves as his law firm employees. In Columbus Bar Association v. Cable, the Court will consider whether to issue a reprimand or impose the Board of Professional Conduct’s recommendation of a one-year suspension with six months stayed.