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Preamble:
WHEREAS the Government of Alberta manages 81% of the province’s mineral rights and resources on behalf of Albertans; and
WHEREAS the Government of Alberta sets conditions and the royalty framework for resource development, specifically, producing oil and/or gas wells and oil sand projects; and
WHEREAS rural municipalities provide delivery of essential services to industry, including the oil and gas industry, on behalf of the Government of Alberta; and
WHEREAS rural municipalities and the Government of Alberta have a rich tradition of positive partnership in solving problems for the benefit of Alberta residents and stakeholders; and
WHEREAS Alberta municipalities fall within the jurisdiction of the Government of Alberta including in the form of support in their role and mandate in delivering essential local services on their behalf;
Operative Clause:
THEREFORE, BE IT RESOLVED that the Rural Municipalities of Alberta (RMA) advocate that the Government of Alberta (GOA) require oil and gas developers and operators to pay municipal property taxes on oil and gas properties as a condition of being granted and/or retaining the right to develop oil and natural gas resources;
FURTHER BE IT RESOLVED that RMA advocate to the GOA to collect unpaid oil and gas municipal property taxes on behalf of municipalities through the collection of royalty revenue and distribute them accordingly.
Member Background:
Rural municipalities in Alberta rely on property tax revenue to fund the construction and maintenance of essential infrastructure, as well as the provision of essential municipal services. The majority of Alberta’s oil and gas exploration activities take place in the province’s rural municipalities. Oil and gas companies make use of rural municipal infrastructure, including roads and bridges, to reach well sites, pipelines, and privately owned infrastructure to extract these resources.
The Municipal Government Act grants municipalities the authority to impose property taxes on oil and gas assets situated within their municipal jurisdictions, including the ability to seize and sell delinquent properties. Due to gaps in provincial legislation and regulations, municipalities have been unable to apply many of these powers to recover unpaid taxes on oil and gas properties. The absence of effective enforcement mechanisms has led to some oil and gas companies disregarding their legal obligation to pay property taxes, often without consequence.
In 2021, the Alberta government updated the Municipal Government Act to provide greater clarity on the authority of municipalities to impose special liens on oil and gas properties to recover outstanding tax arrears, thereby enhancing their ability to address delinquent tax payments and uphold the tax obligations of the industry. However, this strategy does not address businesses who have no plans to expand, giving them the ability to keep operating while ignoring their tax responsibilities. Additionally, in 2021, the Alberta Energy Regulator (AER) updated Directive 067 to emphasize that the AER will consider the payment of property taxes as a factor when evaluating applications for oil and gas licenses, thereby integrating tax compliance into the licensing process and emphasizing the importance of responsible tax stewardship within the industry. Neither change has resulted in a meaningful solution to this issue, as the amount of unpaid taxes continues to grow, even amidst favourable market conditions. –
The accumulation of unpaid property taxes in rural municipalities has far-reaching consequences, including diminished service levels, burdensome tax hikes on other property owners, negative impact on local business communities that provide services to the oil and gas industry, and strained regional cooperation. The failure to pay property taxes by some property owners affects the entire community, ultimately resulting in either higher tax rates or reduced municipal services for all taxpayers, as uncollected property tax revenue is made up through increased burdens on others.
The Alberta Government conceivably should have the ability to collect unpaid municipal property taxes by leveraging its existing framework for collecting resource royalties. By integrating unpaid municipal tax collection – specifically with respect to the bad actors within the oil and gas resource sector – into the royalty payment system, the province could require resource developers to remit royalties and outstanding municipal property taxes directly to the Government. This approach could involve the establishment and/or outlining of legislative and/or systems-based changes where oil and gas resource operators, as part of their royalty agreements, must include payments for municipal taxes. The Alberta Government could then properly allocate these property taxes to the respective and impacted municipalities, ensuring they receive the revenues that are owed to them. This method could enhance efficiency and compliance, as the province already has a robust mechanism for managing and monitoring royalty payments. It could also relieve the burden on municipalities by giving them an effective way to ensure property tax collection.
References
Royalty overview (2024) Alberta.ca. Available at: https://www.alberta.ca/royalty-overview#:~:text=A%20royalty%20is%20the%20share,federal%20government%2C%20individuals%20and%20corporations. (Accessed: 30 July 2024).
Alberta, G. of (2024) The Municipal Government Act – Revised Statutes of Alberta 2000 Chapter M-26, Alberta King’s printer: Available at: https://kings-printer.alberta.ca/1266.cfm?page=m26.cfm&leg_type=Acts&isbncln=9780779848546 (Accessed: 30 July 2024).
Canadian Charter of Rights and Freedoms, s 15, Part I of the Constitution Act, 1982, being Schedule B to the Canada Act 1982 (UK), 1982, c 11, (QL). Available at: https://guides.douglascollege.ca/legalcitation/charter#:~:text=Citing%20the%20Charter%20of%20Rights%20and%20Freedoms,of%20the%20Constitution%20Act%2C%201982.&text=Canadian%20Charter%20of%20Rights%20and,)%2C%201982%2C%20c%2011.
Low, B. (2024) Band-aid solutions fall short: Some oil and gas companies continue to ignore property taxes as regulator sits on hands, RMA. Available at: https://rmalberta.com/news/band-aid-solutions-fall-short-some-oil-and-gas-companies-continue-to-ignore-property-taxes-as-regulator-sits-on-hands/ (Accessed: 30 July 2024).
Cobb, M. (2017) The MGA Special Lien – What is it and how to use it, Security. Available at: https://www.techtarget.com/searchsecurity/answer/Adobe-Acrobat-Chrome-extension-What-are-the-risks (Accessed: 30 July 2024).
Alberta, G. of (no date) The Municipal Government Act – Revised Statutes of Alberta 2000 Chapter M-26, Alberta King’s printer: Available at: https://kings-printer.alberta.ca/1266.cfm?page=m26.cfm&leg_type=Acts&isbncln=9780779848546 (Accessed: 30 July 2024).
RMA Background:
ER1-22S: Alberta Energy Regulator Action to Require Oil and Gas Companies to Pay Municipal Property Taxes
THEREFORE, BE IT RESOLVED that the Rural Municipalities of Alberta (RMA) urge the Government of Alberta to direct the Alberta Energy Regulator (AER) to amend the directives, policies and other processes (including directives 067 and 088) necessary to require any company regulated by the AER to pay all current and historical municipal property taxes in full as a condition of operating in Alberta; and
FURTHER BE IT RESOLVED that the AER replace its current practice of relying on industry self-reporting of property tax payments by collaborating with the RMA and rural municipalities to develop a system by which rural municipalities can easily share unpaid property tax information with the AER.
Click here to view the full resolution.
Alberta Municipal Affairs and Alberta Energy & Minerals
While most oil and gas companies pay their property taxes, the Government of Alberta is aware of the impact of unpaid property taxes on rural municipalities, and we have taken a series of actions to address this issue in recent years.
The Minister of Energy and Minerals directed the Alberta Energy Regular (AER), via Ministerial Order 043/2023, to require payment of municipal taxes as a condition for approving new well licences and well licence transfers, effective May 1, 2023. The AER will not approve licensing applications from companies with over $20,000 in cumulative provincewide arrears. We have seen signs that these actions have resulted in municipalities receiving overdue taxes from some operational companies.
The original directive was amended, effective September 15, 2024 (Ministerial Order 096/2024), to allow for the transfer of productive assets in tax arrears to operators with no arrears (above the threshold). This facilitates the acquisition of assets by companies that can continue to operate them productively. A company receiving assets in arrears will be liable for any previously unpaid amounts related to those assets, which should also aid in tax recovery.
An additional tool under development will provide municipalities with a process to refer companies with persistent unpaid taxes to the AER for further compliance and enforcement actions.
Additional tools will be explored as necessary, and government continues to involve RMA in efforts to promote tax recovery. While systems in place to collect resource royalties may seem like a straightforward means of collecting unpaid property taxes, several complicating factors would need to be considered before government could pursue such a course of action.
Any avenue for the recovery of property taxes through the royalty system would achieve little for most unpaid amounts because most of the companies in arrears are insolvent or no longer operating and likely not generating production that is subject to royalties. Property taxes and royalties are governed by two separate legislative frameworks, the Municipal Government Act (Municipal Affairs) and the Mines and Minerals Act (Energy and Minerals, and Environment and Protected Areas).
Considerable legislative changes would be necessary before property tax arrears could be recovered under different legislation.
Development:
The government response acknowledges the impact that unpaid oil and gas taxes have on rural municipalities and outlines some of the steps the province has taken to address this issue, including Ministerial Orders 043/2023 and 096/2024.
In April 2023, MO 043/2023 required payment of municipal taxes as a condition for approving new well licenses and transfers, and was a partial solution to the unpaid tax issue; when an oil and gas company wanted to sell or purchase an asset, both parties in the transfer needed to be current on their municipal taxes. While this did not solve the broader issue of operating companies not paying taxes, it did limit their ability to transfer assets in such cases.
Then, in September 2024, MO 096/2024 provided an exemption to the conditions set out in MO 43/2023, stating that the conditions do not apply when the asset being transferred has been designated as an orphan. The intent of this exemption appears to be to prevent producing assets held by a company with tax arrears from becoming orphaned assets that require abandonment and reclamation by the Orphan Well Association; this was to be accomplished by decreasing the up-front cost for an operational company to purchase and continue operating the asset.
RMA learned that this exemption was designed such that the tax arrears on the asset being transferred become the obligation of the new owner, but without an enforcement tool or Ministerial Order, there were no mechanisms that required the purchasing company to actually pay municipal tax arrears. RMA is cautiously optimistic that the “additional tool under development” will lead to more positive outcomes and the payment of municipalities’ tax arrears, but RMA will reserve a full analysis of the tool’s efficacy until it is officially implemented. Therefore, it will not impact the status of this resolution at this time.
As for the second ask of this resolution, being the collection of unpaid municipal taxes through the royalty system, the government’s response outlines the difficulty in making “considerable legislative changes” to the existing royalty framework under three separate ministries, and the challenges in tying a non-operational company’s unpaid tax burden to its royalty payments, which they would also not be paying due to being non-operational and not producing any resources. However, the response seemed to focus solely on non-operational companies, despite RMA’s considerable advocacy around “Zombie” oil and gas companies throughout 2024; Zombie companies are those that still hold and operate producing assets (and pay royalties) but are otherwise unable to meet their obligations.
At this time, RMA assigns this resolution a status of Intent Not Met. RMA will continue advocating for the payment of municipal property tax arrears owed by oil and gas companies, for the development of new tools to assist municipalities in collecting these unpaid property tax debts from the oil and gas industry, and for the province to actually commit to making “considerable legislative changes” instead of half-measures that fail to make our members whole.
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