The Utah Supreme Court has ordered a trial on a case that could cost Kennecott Corp. millions of dollars in back property taxes and change the way the state Tax Commission assesses mining property.
The unanimous decision, written by Justice I. Daniel Stewart, could result in a revaluation of Kennecott's property based not only on land prices and improvements, but also on the value of minerals beneath the soil.The latest Supreme Court ruling stems from a 1981 lawsuit filed by Kennecott against Salt Lake County. The suit sought a rollback in assessment rates to levels established in 1978 and a partial refund of property taxes paid those years.
The county countersued Kennecott, alleging the company owed back taxes for the previous five years. The county also filed a cross claim against the state Tax Commission protesting the way it valuates mining property.
The justices remanded the case back to 3rd District Judge Timothy Hanson, who had twice dismissed the county's claims.
The case had been to the Supreme Court once before, when Hanson ruled the county didn't have the legal right to file a counterclaim against Kennecott.
The justices ruled him wrong and sent the case back. Hanson then ruled that the portion of the Utah Constitution dealing with taxation of mines was inherently constitutional.
In its most recent ruling, handed down Friday, the justices said that wasn't necessarily the case and sent the case back to Hanson for reconsideration.
Deputy Salt Lake County Attorney Karl Hendrickson said that, depending on Hanson's decision this time, the case may return to the high court.
Hendrickson said that depending on Hanson's ruling, the county could recover back taxes of more than $35 million from Kennecott, or begin collecting higher taxes in the future.
Telephone calls to Kennecott's attorneys were not returned Tuesday.
Regardless, the lawsuit will likely change the way the state Tax Commission has valued mining property both in Salt Lake County and elsewhere.
Property taxes generally are assessed on the "fair market value" of the land, Hendrickson said. That figure is calculated by comparing property to surrounding land.
That may be fine for businesses or private property, Hendrickson said, but not for mining property, where much of the land's value is hidden underground.
"We've challenged that methodology for quite some time," he said. "They haven't looked at mineral claims, and we don't believe that's fair."
Hanson also must decide whether the county will be able to collect back taxes.
If the judge decides the state merely undervalued the property, then the county will not be able to collect the back taxes. However, if Hanson rules Kennecott escaped assessment on the mineral-bearing land altogether, then the county can seek the money.
Assessment then would be determined on the amount of money Kennecott made off its mining operation. In 1981, that was $570 million, Hendrickson said.