Counties still in limbo on well taxes as break set to expire

A long-promised review of how oil and gas wells are assessed for property tax purposes may proceed this year, according to Alberta Municipal Affairs, but tax breaks meant to stabilize the struggling shallow gas sector in 2019 and 2020 will expire.

The whole issue caused an uproar in Alberta’s counties and municipal districts – like Cypress and Newell counties, which depend heavily on such “linear assessment” – in 2020 as the provincial government responded to oil patch producers’ concerns about costs as commodity prices hit historic lows.

As a result, the province paused a review of how tax assessment formulas determined value of linear property – half the municipal tax equation – while introducing new tax breaks on new wells.

Now, a letter to local governments throughout Alberta from Municipal Affairs Minister Ric McIver states those tax breaks will expire as planned, and more information on the assessment review could be forthcoming.

That will be done through a “Stakeholder Steering Committee.”

“The committee was tasked with designing an engagement process that will assist in updating the regulated property assessment models in a fair and transparent manner,” the letter from McIver reads. “I am now carefully considering the committee’s proposed engagement plan.”

Work done in 2019 and 2020 promised to update assessment regulations. Producers argued at the time that declining value of the commodity should be reflected in the value of the property.

Rural councils argued that major changes would create and inflexion in their tax bases.

The province vowed to further study potential changes, but also extended a 35 per cent assessment reduction on shallow gas wells and pipelines, and some changes to depreciating low-production wells. A three-year tax holiday on new wells was also instituted in an attempt to spur exploration.

All measures will expire after the 2024 tax year, McIver states, but the “Well Drilling Equipment Tax” that was eliminated in 2020 will not return.

In 2020, Municipal Affairs released for feedback four potential optics for assessment reform, but the association of Rural Municipalities found all four would cause major upheaval for other tax payers.

RMA analysis stated the proposals would potentially cost its 67 members about $500 million per year in tax revenue.

The loss would be greater than 20 per cent of the annual tax revenue in 11 counties, including Cypress County, which is home to 20,000 shallow gas wells.

Cypress officials said the potential drop in revenue would be an “insurmountable” $8 million per year. To absorb the loss, tax hikes on other accounts would still be needed even if it cut 70 per cent of its operations budget.

Due to the proportion of linear taxes in the counties that typically have low population and little non-oilfield commercial account, taxes would need to triple or quadruple to cover the losses.

The M.D. of Taber stated the change would amount to $4 million, or about 17 per cent of its tax revenue, while the County of Newell would lose between $7.2 million and $11.6 million.