Alta. oil sector’s unpaid property taxes soar

Rural municipalities say 57 percent of the energy companies with outstanding tax bills are still operating in the province

Alberta’s rural municipalities are now owed an unprecedented $245 million in total unpaid property taxes by oil and gas companies, despite agreeing to several tax breaks in 2020 to help the province’s ailing energy industry.

“We are seeing 57 percent of those non-paying companies are still operating, making no gestures to enter into payment plans or any other mechanisms that can be used to pay those taxes,” said Paul McLauchlin, president of the Rural Municipalities of Alberta (RMA).

He said there is no legal way for municipalities to get them to pay, raising fears that rural property owners such as farmers and ranchers will end up carrying more of the tax burden for services such as roads that are essential for agriculture.

“The most straightforward provincial solution would be to amend the process through which the Alberta Energy Regulator approves the acquisition and transfer of energy licenses and approvals,” said a statement by the RMA.

It currently “doesn’t consider whether the acquiring company has outstanding municipal property taxes, a condition that could easily be added.”

The provincial government could also amend the Municipal Government Act to give rural municipalities the power to address non-payment of oil and gas property taxes, said the statement. Other options include no longer requiring “municipalities to provide education property tax funds to the province on properties for which taxes are uncollectible,” it said.

“Under the current model, not only are municipalities not able to recover unpaid oil and gas property taxes, they are actually on the hook for forwarding a portion to the province, even if they are unable to collect it from the property owner. Unfortunately, the province has yet to take any action, despite repeatedly indicating that they take the issue seriously over the past several years.”

The provincial government announced an exemption Oct. 19 on municipal property taxes for three years for companies that build new pipelines or drill new wells. It will be reflected in the 2021 assessed values and applied from 2022-24.

Other cuts included reducing tax assessments for less productive wells, eliminating a tax on well-drilling equipment, and extending a 35-percent cut in tax assessment on shallow gas wells for three years.

Most oil and gas companies are either paying their taxes on time or working with municipalities to create agreements to extend deadlines or pay in installments, said the RMA statement.

However, a recent RMA survey found total unpaid oil and gas property taxes had tripled over the last three years to about $245 million, up from $81 million in 2019 and $173 million in early 2020.

“The fact that every rural municipality in the province took the time to complete this survey speaks to the anxiety and frustration that rural leaders are facing on this unpaid tax issue,” said McLauchlin in the statement.

“In some municipalities, unpaid tax amounts are so high that service levels are being reduced, municipal staff are being laid off, and serious discussions are occurring about whether the municipalities can continue to function.”

The issue is part of a larger picture of thousands of Alberta farmers and ranchers not receiving surface rental payments they are owed for disruptions on their land caused by oil and gas wells. A class action lawsuit was launched last year.

Only three municipalities in the RMA have a tax base that doesn’t include oil and gas revenue, said McLauchlin in an interview. The average from such sources for most municipalities is usually $3.5 million per year, with some receiving as much as $28 million, he said.

Unpaid oil and gas taxes are “causing tremendous impairment to just about all of 66 out of 69 municipalities,” he said. The ones that are particularly hard hit are those with older shallow legacy oil and gas fields, he said, pointing to areas such as Alberta’s border country near Saskatchewan.

Rural municipalities look after about 70 percent of the roads in Alberta, or 174,000 kilometres, and about 60 percent of the bridges, or about 8,800. The system almost entirely depends on property taxes and is relied on by farmers, ranchers and the energy industry.

It requires regular maintenance due to damage caused by heavy equipment in both sectors.

“If municipalities are unable to depend on taxes being paid, they may be unable to manage roads and bridges at a level required by the oil and gas and other industries,” said the RMA statement.

“While municipalities can take action to recover unpaid taxes on most residential and commercial properties, the oil and gas industry is subject to a legislative loophole that does not allow municipalities to place special liens or use other tax recovery tools on linear property,” it said.

“This puts rural municipalities in a powerless position to enforce the payment of property taxes on oil and gas companies and has made recovering unpaid taxes from both operational and non-operational companies extremely difficult.”

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