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Unequal State Tax Treatment of Gas Pipes is 'Economically Destructive'

State practices of assessing higher property tax rates on natural gas pipelines than on other commercial/industrial property are "economically destructive" to both pipelines and natural gas customers, an official with a Washington, DC-based think tank told a House panel Thursday.

The tax practices permit states to export the effects of their higher property tax rates on pipelines to unsuspecting natural gas consumers in other states, and it also discourages investment in gas pipelines, said Veronique de Rugy, a research fellow with the American Enterprise Institute for Public Policy.

Her comments came during a hearing of the House Judiciary Committee's Commercial and Administrative Law Subcommittee on legislation (H.R. 1369) that seeks to prevent certain discriminatory taxation of gas pipeline property. The measure was proposed by Rep. Chris Cannon (R-UT), subcommittee chairman.

Specifically, the bill would bar states or other taxing jurisdictions from assessing gas pipeline property at a higher rate to the true market value of natural gas pipeline property than the rate assessed for other commercial and industrial property in the same assessment jurisdiction; levy or collect an ad valorem property tax on gas pipeline property at a tax rate that exceeds the tax rate for commercial and industrial property; and impose any other tax that discriminates against gas pipelines that provide transportation subject to the jurisdiction of the Federal Energy Regulatory Commission.

"This is a very, very important bill to the industry," particularly in the wake of Hurricanes Katrina and Rita, said Laurence E. Garrett, senior counsel for El Paso Corp. It would relieve gas consumers of the burden of paying for higher property taxes on pipelines, he noted. Under the current system, the taxes "[are] borne by citizens [in other states] that had nothing to do with the imposition of that tax," he told the House panel.

The measure "does not limit states from imposing or raising their taxes" on gas pipelines, but it does require that pipelines and other commercial/industrial property be treated equally by tax assessors, Garrett said. The bill also gives gas pipelines the right to challenge decisions by states or other assessment jurisdictions in U.S. District Court.

Harley T. Duncan, executive director of the Federal of Tax Administrators, attacked the bill, saying it would disrupt the property tax systems in several states. He further noted that it would "insert the will of Congress" into state and local tax matters.

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