Oilpatch woes affecting municipalities’ tax bases

Oil and gas industry bankruptcies are making taxes hard to collect

Alberta’s lingering oil and gas downturn has municipalities chasing after unpaid taxes.

At the end of last November, Lacombe County had about 100 properties in various states of bankruptcy with $770,000 in taxes owing. The county has managed to clean up the books since then by writing off some historic bankrupt accounts and going after other payments through bankruptcy proceedings.

“With the continued downturn in the energy industry we’ve had a number of producing companies in Lacombe County that have either gone into receivership or outright declared bankruptcy,” said Lacombe County manager Tim Timmons on Friday.

“Unfortunately, if they are not able to pass their assets on to someone who is prepared to continue operating Lacombe County is stuck with the outstanding tax bill and the likelihood of recovery is remote.

“In some instances, we are able to recover some of the outstanding taxes and the penalties but more often than not it’s just pennies on the dollar.”

Many Alberta municipalities are in the same boat thanks to the oilpatch’s woes.

Between 2016-18, Red Deer County has about $2.2 million of oil and gas-related taxes that have not been paid as another example.

“Anybody who has oil and gas activity in their jurisdiction is quite likely facing the same issue we’re facing,” said Timmons. “This is not unique to Lacombe County.”

Since 2016, Lacombe County has written off about $374,000 in oil and gas property taxes.

Currently, the county has about $560,000 in taxes that are “deemed to be at risk.”

Lacombe County is working with an Edmonton-based legal firm to represent the municipality in the receivership process.

“We’re optimistic we will recover something. What that something is we don’t know at this time.”

Knowing that some taxes are not going to come in, the county has built a contingency fund, which sits at about $440,000, to cover shortfalls.

As well, Lacombe County is one of 11 municipalities that have joined a legal challenge to improve their chances of recovering tax dollars.

Alberta municipalities have been considered secured creditors when attempting to recover unpaid taxes from an insolvent property owner. However, a 2017 Alberta of Queen’s Bench ruling deemed municipalities unsecured creditors when it came to linear properties, which include oil and gas pipelines.

That status leaves municipalities far down the line when money becomes available, usually because a bankrupt company is sold to another oilpatch player, often at bargain basement prices.

The legal action is still before the courts.

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