Municipal Recourse for Solvent Companies Choosing Not to Pay Taxes

Following the downturn in the energy industry in 2014 expenses have consistently come under pressure in the energy industry. Beginning with layoffs and contract negotiations in 2015 and 2016, the industry has aggressively cut costs. As a result, new projects have nearly ground to a halt in many areas of the province. Due to this, the assessment base of many municipalities has also been on a steady decline, often leading to increased taxes on the remaining ratepayers and reduced municipal expenditures on infrastructure and service delivery.

Reductions in assessment, while not desirable, are a normal part of running a municipality and the extent to which taxes will be raised or expenditures cut is the purview of council. Addressing the effects of these changes, be they good or bad, are also the responsibility of council. This is the law as it is written in the Municipal Government Act (MGA) and whether a ratepayer agrees with the decision or not, they must abide by it. For example, if a farmer disagrees and refuses to pay their property taxes the MGA has several prescriptions for recovering the lost revenue, including the seizure and sale of property.

The MGA provides for no such prescription when dealing with the energy industry. The Government of Alberta, through the Alberta Energy Regulator, has the ability to licence energy companies to operate. AER Directive 067 states the following:

Acquiring and holding a licence or approval for energy development in Alberta is a privilege, not a right. This directive ensures that this privilege is only granted to responsible parties. It sets out requirements for applying for, maintaining, and amending licence eligibility. It also identifies the circumstances in which the AER may revoke or restrict licence eligibility.

With regards to the circumstances for which the AER would revoke a licence, Section 9 states:

1) failure to provide complete and accurate information and ensure that information remains complete and accurate by advising the AER of material changes within 30 days;

2) after consideration of the factors in section 4, a finding by the AER that, as a result of a material change or compliance history, the licensee poses an unreasonable risk; or

3) the licensee fails to acquire or hold licences or approvals within one year following granting of licence eligibility.

Section 4 lists a number of factors which, taken together, are meant to give a picture of the company as a responsible operator that is able to meet its environmental, financial and legal obligations:

In assessing whether the applicant poses an unreasonable risk, the AER may consider any of the following factors:

• the compliance history of the applicant, including its directors, officers, and shareholders, in Alberta and elsewhere, including in relation to any current or former AER licensees that are directly or indirectly associated or affiliated with the applicant or its principals;
• the compliance history of entities currently or previously associated or affiliated with the applicant or its directors, officers, and shareholders;
• experience of the applicant, including its directors, officers, and shareholders;
• corporate structure;
• the financial health of the applicant;
• outstanding debts owed by the applicant or current or former AER licensees that are directly or indirectly associated or affiliated with the applicant or its directors, officers, or shareholders;
• outstanding non-compliances of current or former AER licensees that are directly or indirectly associated or affiliated with the applicant or its directors, officers, or shareholders;
• involvement of the applicant’s directors, officers, or shareholders in entities that have initiated or are subject to bankruptcy or receivership proceedings or in current or former AER licensees that have outstanding non-compliances; and
• naming of directors, officers, or shareholders of current or former AER licensees under section 106 of the Oil and Gas Conservation Act.

While this section almost certainly implies that not paying debts, such as property taxes, are grounds for the termination of licenses, it does not say so explicitly. Rural municipalities now face a situation in which companies are using the lack of a specific threat to either seize their property or shut them down to extort municipalities into favourable tax treatment over their fellow businesses operating in the community. It is important to remember that this resolution is referring to solvent companies. It would be difficult to imagine this situation if the threat were directed at federal and provincial business taxes or royalties.