The Yellowstone County Board of Commissioners on Tuesday approved 10 years in tax benefits for CHS Inc. after construction completed last fall of the Laurel refinery’s $99 million hydrogen plant.
The vote was 2-0, with Commissioner Denis Pitman abstaining because he owns CHS stock.
The tax benefits are given to new or expanding industry and apply only to the $99 million value of the new hydrogen plant, which has allowed the refinery to expand capacity and be more efficient. Shelly Nauman, the refinery’s finance manager, said she estimates that even with the incentive, CHS will pay about $11.8 million in property taxes over the next 20 years solely on the value of the hydrogen plant.
CHS will be taxed at 50 percent of the improvement’s taxable value for the first five years of the program, rising by increments of 10 percent annually to 100 percent of taxable value by the 10th year.
The tax benefit does not apply to the rest of the cooperative refinery — only to the cost of the hydrogen plant construction.
The company had sought a tax benefits schedule that would have taxed the new construction at 25 percent of the improvement’s value over the first five years, but commissioners selected the 50-percent schedule instead. The 25-percent option would have saved CHS an estimated $2.1 million in property taxes over the next two decades.
At nearly $11.8 million in property taxes paid in 2017, the Laurel refinery is now the top taxpayer in Yellowstone County, having supplanted NorthWestern Energy, said Debbie Singer, an economic development specialist with NorthWestern Energy.
Pat Kimmet, CHS’ Laurel refinery manager, told commissioners that CHS and the Montana Department of Revenue “have resolved all issues” over the company’s tax appeals with Yellowstone County dating back to 2014. An agreement will be signed within the next two weeks, he said.
Linda Filpula, superintendent of Laurel Public Schools, said in an email that she doesn't yet know the specifics of the agreement and could not comment until the final settlement is announced.
The importance of incentives
It can be difficult, Kimmet said, to secure capital within CHS for expansion projects like the new hydrogen plant. “This (tax) incentive is important to building projects in Laurel,” he said. “We have to prove to the CHS board of directors that this is the best place to invest.”
During Tuesday’s public hearing, no one spoke against the CHS request, although a number of the refinery's contractors, suppliers and labor representatives spoke in favor of it.
The new construction added four new jobs and brings the refinery’s labor force to 378 full-time and 53 part-time employees. Together with benefits, the average union wage paid to refinery workers in Laurel is more than $67 per hour. The refinery’s annual payroll exceeds $50 million.
Between June and October last year, an average of 344 contractors were working each day constructing the new hydrogen plant, which helps the Laurel refinery produce about 56,000 barrels of gasoline and diesel per day. CHS sells about 69 percent of those barrels outside Montana, a key requirement of the tax benefit program.
More than $17.5 million of the $99 million construction cost was paid to local contractors.
Patrick Klugman of Big Sky Economic Development shared some figures around the refinery’s recently completed turnaround. About 2,400 people worked during the turnaround, pumping about $6 million into local hotels and motels, as well as retail and restaurant establishments. CHS paid another $8 million for materials and supplies during the turnaround.
Commissioner Robyn Driscoll said she opted for the 50-percent tax benefit option over the first five years after hearing Monday local medical and mental health providers tell commissioners about the effects of 2017 legislative cutbacks.
“You’ve made an amazing investment in the community, and we couldn’t appreciate it more,” Driscoll told Kimmet, Nauman and other CHS officials. “But the best compromise for me is to tax it at 50 percent incrementally.”