Rover Pipeline has recently filed a complaint in Franklin County (Ohio), alleging that the Tax Commissioner’s 2019 assessment of Rover’s public utility property tax valuation violates both the Ohio and the United States Constitutions in a number of ways.

This disagreement over their tax valuation was supposed to have been finalized when the Ohio Supreme Court rejected Rover’s appeals on August 13 and affirmed the decision by the Board of Tax Appeals (BTA), which valued Rover’s Ohio pipeline at $3.67 billion. Writing the opinion for the court, Justice Patrick F. Fischer noted that “[b]ecause we are not a ‘super board of tax appeals,’ we do not reweigh the board’s determination.” The court emphasized that its role was limited to determining whether any statutes were violated by the tax authorities, rather than wading into the merits of Rover’s argument.

The 713-mile Rover pipeline was built to transfer gas from processing plants in Ohio, Pennsylvania, and West Virginia to markets across the country and as far north as Ontario, Canada. Rover has claimed that, despite its best efforts and professional advice, its budgeting could not have anticipated rainfall 60% higher than historical averages during construction or a four-month pause following a contractor’s environmental mishap. These substantial delays pushed the final construction cost of the pipeline to $6.3 billion – more than 50% higher than the $4.08 billion that was budgeted.

To gain approval for the project from the Federal Energy Regulatory Commission (FERC), Rover entered into 15-year contracts with shippers that capped profits at 13% of their projected investment. Ensuring that they’re taxed at the true value of the pipeline, which Rover argues should not include cost overruns, becomes even more important in maintaining profitability. So far, Rover has found no relief for its claim that its tax liability has been substantially inflated.

Rover’s new complaint notes that its treatment runs counter to precedent, where the “state promised property owners a fair deal”: to be taxed on the true value of a property – defined as the price determined by the open market. From Rover’s perspective, a willing buyer would not replicate the excess costs, due primarily to unforeseen weather conditions, if building a replacement pipeline.

Justice Fischer noted that the Tax Commissioner was free to exclude these unanticipated costs if she felt another method better determined the “‘true value of the public utility’s taxable property.’” The Tax Commissioner, however, faulted Rover for not budgeting for “rainy weather” or anticipating the regulatory actions that inflated their construction costs.

Justice Fischer clarified that the Ohio Supreme Court saw the case as simply “a battle of appraisals,” and although Rover highlighted important legal questions on valuation doctrines, the relevant statutes afforded the BTA wide latitude in weighing competing evidence. Without any clear abuse of discretion by the Tax Commissioner or the BTA, the court affirmed the previous rulings.

While the courts could not fully engage Rover’s challenge on valuation because of the statutory latitude granted to the BTA, framing the complaint as a constitutional violation may open an avenue to analyze the Tax Commissioner’s decisions. Article XII, §2 of the Ohio Constitution states that “[n]o property, taxed according to value, shall be so taxed in excess of one per cent of its true value in money for all state and local purposes.” In its latest filing, Rover acknowledges that the statutory provisions do not foreclose the tax commissioner taking an unprecedented approach to property valuation by including unnecessary construction costs in their calculations. However, Rover argues that the commissioner departed from long-standing legal guidance from the courts by including unforeseeable cost overruns in their determination of true value, thereby violating the due process guarantee of fair notice.

In fact, Rover’s complaint alleges multiple constitutional violations in Ohio’s approach to the valuation of its pipeline. The absence of advance notice that the tax commissioner would treat cost overruns as determinative of the pipeline’s value, or that the tax commissioner would discount how depreciation alters true value, violates the Fourteenth Amendment’s due process guarantee of fair notice. By inflating its tax liability, Rover argues, the state violates the Fifth Amendment’s Takings Clause. Rover also states that the tax commissioner’s approach runs afoul of the Dormant Commerce Clause of the U.S. Constitution that prohibits undue state interference with interstate commerce.

The filing concludes by asserting that the Ohio Tax Commissioner is violating the Equal Protection Clauses of the Ohio and U.S. Constitutions. Legislation emerged from the General Assembly’s last session that will leverage private investment to ensure that affordable energy remains a driver of the state’s continued growth. The new law lowers the public utility property tax on new pipelines to only 25% of true value, a significantly lower rate than the 88% of true value that was in place when the Rover pipeline was completed. The new law will impose different tax assessment percentages on the same types of property, disregarding the constitutional requirement for a uniform tax mandate.

This new iteration of a years-old grievance highlights the need for greater clarity. The growth of data centers will continue to place a strain on supply and, without accompanying private investment, raise energy costs for consumers. The new law will spur investment, but the Rover case illustrates a worse-case scenario that may give potential investors cause for concern: that unforeseen costs can unfairly inflate tax liabilities for decades to come.