Alberta: unpaid taxes from oil and gas leaving municipalities unsettled

Albertan oil and gas companies owe the province’s rural municipalities unpaid property tax, and the amount has doubled since the beginning of last year. Some people are referring to this trend as a tax revolt according to CTV News.

“If Alberta’s property tax system is not amended to prevent oil and gas companies from refusing to pay property taxes, many rural municipalities will struggle to remain viable,” association president Al Kemmere said in a release.

The municipalities want the province to change the rules in order to force companies accountable for the taxes they owe Kemmere explained. As it currently stands property taxes are controlled by the province and not the local communities.

“A lot of the oil and gas is doing their fair part as citizens, but we need legislation to force others to pay much like everybody else has to pay,” said Kemmere.

Rural Municipalities Alberta conducted a survey of the owed taxes and found that the number has increased 114 percent from a similar survey they conducted in the spring of 2019. According to the survey, oil and gas companies owe a total of $173 million.

Reeve Paul McLauchlin estimates that his municipality of Ponoka County, south of Edmonton, is owed about $2.6 million out of a total of $27 million. The oilpatch consultant said, “It creates operational constraints, our ability to provide community services. We have nonprofits asking for assistance. We say ‘no’ more and more.”

Many people in the industry believe that it’s the way that taxes are assessed that is driving companies out of business. The provincial government is in charge of assessing properties however they evaluate them based on replacement cost and not market value.

“We defend the need for the province to take a look at how assessment works and have it reflective of the market,” said Ben Brunnen, vice-president of the Canadian Association of Petroleum Producers.

“A lot of these unpaid taxes are coming in jurisdictions where you’ve got assets that are older and not as productive or economic. The choice for these types of assets is to shut (them) in or find a way to reduce costs.” he said.

Brunnen suggested that some municipalities are going to have to accept less revenue from oil and gas companies as a result of such shut-in walls which are often abandoned or never reclaimed after bankruptcy.

Last year it was ruled that municipalities are unsecured creditors by the Alberta Court of Appeal. This ruling effectively puts them at the back of the line when it comes to tax collection following a bankruptcy.

The Alberta Liabilities Disclosure Project works to comprehend the impact of old energy infrastructure on the province. Regan Boychuck, a researcher working for the project claimed, “Oilpatch property tax are now voluntary.”

About 40 per cent of unpaid taxes are from distressed companies that are feeling the effects of an industry hit by lower resource prices according to McLauchlin. The rest belongs to companies that continue to operate without paying.

“My personal opinion is that this is a tax revolt,” McLauchlin said. “They are using this as a lever to decrease their assessment and change those costs.”

One could argue that in a sense the process has already begun. Alberta’s United Conservative government brought in legislation that allowed municipalities to cut taxes on specific well by up to about one-third last year.

Initially, the cuts would be reimbursed by the province but the municipalities said that the program has been abandoned and they are left to deal with the loss.

Boychuck said despite the decline of oil and gas reserves the mill rates on wells and other facilities have remained unchanged for years.

“What industry is really saying is that they’ve depleted their wells so far they can’t cover operating costs. The wells are done and whatever wealth remains needs to be directed to clean up rather than looted any further before bankruptcy.”

The Orphan Well Association is an industry-funded group that was created to clean up abandoned wells. They currently have 3,400 abandoned wells under their care and that number is up by 300 since the beginning of last year.