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Legislation needed for oil/gas companies not paying taxes; Harris

Posted on April 1, 2021 by Vauxhall Advance

By Cole Parkinson
Vauxhall Advance

As the number continues to climb, the Municipal District of Taber is hopeful the provincial government introduces legislation to force operating oil/gas companies to pay their taxes. With no clear way to get these companies to pay their outstanding taxes, the M.D. saw a climb in their financials.

“It has been building over a number of years. When I first got on council, I think in one year we wrote off maybe $200,000 worth of bad debts and I thought ‘holy cow, are you kidding me?’ Now, last year $1,022,897 was written off,” said Reeve Merrill Harris. “Municipalities all across the province are having the same struggle we are, it’s not just something unique to the M.D. of Taber. Municipalities across the province rely on property taxes to fund services and infrastructure the oil and gas industry uses daily. For example, our municipality manages roughly (2,400) kilometres, give or take, and 150 bridges. Without consistent payment of property taxes, sometimes you have no choice but to reduce service levels or close roads or bridges — but we have not done that yet. Property taxes help to maintain that infrastructure oil and gas industry uses.”

Within the municipality, there are still a large number of companies in operation. And while the majority of them do pay their taxes, a select handful have yet to pay their 2020 taxes — which is a burden on their budget. 

“In the M.D., we have roughly 48 oil and gas companies operating with assets producing oil and gas in our municipality. The majority of those companies are very good corporate citizens that contribute to the success of our municipality. However, there are about 18 oil and gas companies in 2020 that failed to pay their taxes by the end of 2020. Of that 18, six have now entered into different tax agreements with the municipality to get their taxes paid retroactively,” continued Harris. “Many have enrolled in the TIPP (Tax Instalment Payment) program — where they can pay their taxes monthly, rather than in one lump sum by Nov. 15. That leaves 12 that haven’t done anything about getting their taxes up-to-date.” 

In terms of lost revenue, the unpaid taxes have left a sizeable hole within the M.D. budget.

“In 2020, $2 million in current oil and gas property taxes went uncollected. This includes municipal taxes, as well as the requisitions — which are the school foundation. The M.D. collects that for the province to pay to school divisions to help run their operations. We collect those taxes and pass them onto school districts and the Taber and District Housing Foundation,” stated Harris. 

While provincial programs have been introduced, they still do not completely cover the shortfall.

The Provincial Education Requisition Credit (PERC) and Designated Industrial Requisition Credit (DIRC) programs have given municipalities a way to reclaim some of the lost funds, but the gap still remains.

“In 2017, the provincial government announced the PERC program to assist municipalities manage undue hardship experienced by municipalities, as a result of uncollectible education property taxes related to oil and gas properties. The total amount of PERC provided to all municipalities will not be more than $10 million annually. That PERC program has extended to the 2020 tax year subject to funds being available in the school foundation funds net,” continued Harris. “The province also did the DIRC, which provides affected municipalities with a credit equal to the designated industrial property requisition associated with the tax properties that are delinquent in payment. That program, as far as we know, doesn’t have an expiration date or specific maximum amount that they will fund.” 

With the M.D. enrolled in both programs, they’re still seeing over $1 million in shortfall.

“Even with the PERC and DIRC programs, the M.D. of Taber is left with about $1.02 million in unpaid oil and gas property taxes in 2020. Basically, this unpaid tax ends up on the rest of the taxpayers in the M.D. of Taber,” added Harris.

Heading into the 2021 tax season, the municipality is dealing with quite a large outstanding tax shortfall. With that comes a budget with cuts.

“At the end of December 2020, the M.D. has about $4.4 million in outstanding property taxes (year after year total). Of this, about $3.1 million is owed by oil and gas companies,” stated Harris. “The message we want to get out to those in the M.D. of Taber is we’ve done what we can with the budget to live within the means we have. Budgets have had to be trimmed.”

M.D. administration commended council for being able to adapt to the situation they have been presented with.

“Council has been able to pivot somewhat and do their best to absorb this challenge and face the challenge of reduced revenues,” said CAO Arlos Crofts. “That being said, as the reeve pointed out, it’s a challenge all rural municipalities are facing and working together to mitigate moving forward with discussions with the province and Rural Municipalities of Alberta.” 

And while the lack of funds from the oil/gas sector does come from the fact many businesses have gone bankrupt, many are still in operation.

Council has voiced their displeasure in the past around companies who continue to operate within the M.D. — but have skirted their taxes. Reeve Harris once again pointed out there needs to be legislation within the province that is strict on viable companies paying their taxes when they come due.

“The biggest concern is a lot of these companies are solvent, they are still operating. They are just choosing not to pay their taxes. If a company goes bankrupt and there are taxes still owning, it’s pretty hard to get money out of a dead bank account. There’s really nothing in the legislation in Alberta that absolutely forces them to pay their taxes. That’s one of the things, through RMA, they are advocating to try and get the legislation changed so paying taxes is not optional,” he said. “There’s certainly some optimism as the price of oil and gas goes up. There’s optimism companies will have the cash to pay their taxes.” 

With the brunt of the financial burden falling on taxpayers, the M.D. hopes residents will reach out to their local representatives to express their concerns.

“Contact the premier (Jason Kenney), the minister of Energy (Sonya Savage), minister of Municipal Affairs (Ric McIver) or their MLA. We have two — Minister (Grant) Hunter and MLA (Joseph) Schow, who represents the north half of the municipality. Getting that message to them through a phone call, e-mail or whatever, that it’s time to make some changes within the legislation that it’s necessary to make paying of taxes not a choice. If you lived in the M.D. and chose not to pay your taxes, eventually we can take that away from you. It’s a little bit different scale when you talk about taking over oil assets. As a municipality, do we want to take on the liability of those assets? And the answer is obviously no. But beyond that, we don’t really have any measure to collect those outstanding taxes,” continued Harris. “Lots of letters have been sent. There are probably stacks and stacks of letters on the issue. I know RMA has been working on it, but it has to be a provincial move to get the legislation changed.”  

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