Unpaid oil and gas taxes not an issue for all municipalities
While an uptick is being noted in the oil industry in Alberta, some companies still aren’t paying their oil and gas property taxes.
A report released March 8, by the Rural Municipalities of Alberta (RMA) showed an overall unpaid oil and gas property tax burden worth $268.5 million for municipalities across Alberta, or a 231.5 per cent increase from the amount owed to members in 2019, but not all municipalities are having issues with oil and gas companies.
Sheila Kitz, Chief Administrative Officer of the County of St. Paul, said the problem is not a significant issue for the County of St. Paul.
“I would estimate the total amount of unpaid municipal taxes from oil and gas companies to be around $35,000… Many of our rural municipal neighbours have much higher unpaid amounts,” said Kitz in an email.
Al Hoggan, Chief Administrative Officer for the MD of Bonnyville, said the problem isn’t significant for them either.
“We're one of the lucky municipalities because we virtually deal specifically with the four or five big players in the industry… statistically we don't have much of a problem with unpaid taxes in this municipality,” Hoggan said.
He said the MD of Bonnyville is owed $252,000 in unpaid oil and gas taxes and $205,000 of that is from a small junior oil company that may or may not be in existence today.
“When you take that company out of it, we're into the room to $40,000 in unpaid oil and gas taxes so that’s not significant. We’re into the decimal places in terms of percentage points in our budget,” he said.
Hoggan said they do however agree with the issue in terms of the response that many municipalities are having, “because we could one day have the issue, but today we don't.”
Brandon Low, manager of marketing and communications for the RMA said in an email they do not have permission to release information from individual municipalities.
The RMA has, however, broken down the total amount each district in Alberta is owed in their survey summary.
District five, which includes the MD of Bonnyville, the County of St. Paul, Lac La Biche County, the RM of Wood Buffalo, and the County of Vermillion River, Had an overall $77,001,099 worth of unpaid taxes, the highest amount of any district.
District one in southern Alberta is owed $21,897,350; district two, the Calgary region, is owed $69,397,190; district three, in the Edmonton area, is owed $36,010,929; and district four, in the north-westerly region of Alberta is owed $64,192,112 in unpaid property taxes.
The RMA found the $268.5 million to be a 6.1 per cent increase from the RMA’s 2022 survey, a 9.6 per cent increase from 2021, a 55.2 per cent increase from 2020.
Data from the survey summary showed seven municipalities have an unpaid burden above $10 million, two municipalities have no unpaid tax burden, and an additional seven have an unpaid tax burden below $100,000.
All 69 RMA members responded to the survey, which the RMA states “speaks to the importance of this issue across the province and the accuracy of the final data collected.”
“Rural municipalities and rural property owners continue to be forced to subsidize an industry in a massive boom period,” said Paul McLauchlin, RMA President in a press release.
In the summary, the RMA said from 2018 to 2020 unpaid taxes grew at an inverse rate to the number of new wells drilled, and as unpaid taxes increased, new wells also decreased — which the document states the problem was linked to the industry's economic struggles.
However, this connection has disappeared.
“Even as new well drills increased by 277.8 per cent from 2020 to 2022, unpaid taxes continue to increase. Clearly industry and government are prioritizing continued industry growth without the matching accountability,” the report reads.
The report also showed still-operating oil and gas companies are responsible for 41 per cent of unpaid taxes.
The number of non-operational companies owing taxes also continues to rise, the RMA report states, and though not impossible it is difficult to recover taxes from these companies.
“The Government of Alberta has allowed legislative and regulatory gaps to remain in place and industry continues to take advantage of them, even in good economic times,” explained McLauchlin, who believes the 41 per cent shows a failure by the Alberta Energy Regulator (AER) to ensure the industry operates in the public interest.
In an emailed statement the AER said they may consider unpaid municipal taxes and surface lease payments as factors when assessing unreasonable risk related to eligibility for energy development, and companies must disclose any unpaid amount to the AER when requested.
“This information allows us to better assess if a company has the financial capacity to maintain their eligibility to hold a licence and if they are able to meet their regulatory and liability obligations, including closing energy infrastructure,” the statement said.
The AER said it is, however, up to the municipalities to collect and enforce unpaid tax.
“The AER does not have jurisdiction to enforce payment of these taxes.”
The RMA would like to see the AER to prohibit company in arrears on property taxes or surface leases from operating. McLauchlin said they have gone “in circles with the province and the AER on this issue.
“The province has been unwilling to pursue this simple and rational regulatory solution presumably because doing so would push several companies that have no business operating into bankruptcy and create a messy situation for the province and the Orphan Well Association,” said McLauchlin.
In a statement, Minister of Municipal Affairs, Rebecca Schulz said the province agrees with the RMA that the problem is unacceptable, and they are consulting and exploring options with all of those involved.
“While the problem of unpaid oil and gas taxes persists for many Alberta municipalities, we have recently seen payment plans established from 25 companies for municipalities to receive approximately $48 million in owed taxes,” Schulz said.
The Canadian Association of Petroleum Producers (CAPP) also agrees that companies should be paying their taxes.
Jay Averill, spokesperson for the CAPP said in an emailed statement, they are continuing to see “lagging effects of a multi-year downturn for the oil and gas sector with many insolvencies having a long-term impact on the municipal system.”
Kitz said it’s unfortunate there are some bad players in the industry.
“This causes municipalities where the unpaid amounts are larger to increase taxes in subsequent years to offset the amounts not collected; meaning other taxpayers are picking up the shortfall,” she said.
Kitz said the province has increased options for municipalities in dealing with unpaid oil and gas taxes, but these tools are not easy or straightforward to use.
“It seems that if the Alberta Energy Regulator made payment of municipal taxes a requirement in order to get a new permit or transfer assets from one company to another the unpaid tax situation in the province could be resolved quite easily,” she said.
Barry Kalinski, Reeve MD of Bonnyville, said they are on top of the issue.
“Oil is crucial in our area…a lot of the great things we have comes from a lot of oil taxes already,” he said.
Jessica Nelson, Local Journalism Initiative Reporter, St. Albert Gazette