BC Business
Local companies servicing the struggling energy sector complain that our province's tax policies give rivals from neighbouring Alberta an unfair edge. But as businesses based in both provinces fight for work, the industry's problems are much bigger
Short of work for his Fort St. John business, Sandy Beech wants a level playing field with Alberta-based competitors
November marks the start of drilling season in the Peace River Regional District in northeastern B.C. Temperatures start falling consistently below freezing, hardening the swampy roads that cut through the boreal forest outside cities like Fort St. John and Dawson Creek. The giant 24-wheel, 11-axle trucks that haul oilfield rigs and heavy equipment to well sites would sink if the mud weren’t frozen solid.
Winter should bring hectic times for Sandy Beech, owner and president of Fort St. Johnbased D.R.S. Energy Services and president of the Northern B.C. Truckers’ Association. His business specializes in moving rigs for oil and gas companies like Calgary-based ARC Resources and Storm Resources and U.S. giant ConocoPhillips. He employs between 40 and 50 people to operate 27 trucks, plus trailers, pilot cars and other vehicles, which add up to about 130 pieces of equipment. This year, however, Beech isn’t racing to fulfill contracts. He’s fighting to keep his business afloat and operating in B.C.
“It’s been a pretty tough market up here for the last three-and-a-half, four years,” explains Beech, who has led D.R.S. for six years after working 15 for Swanberg Bros. Trucking, an oilfield services firm formerly headquartered in nearby Grand Prairie, Alberta. “Like, extremely tough to the point where you’re seeing people go away, go broke or sell out because they can’t afford it anymore.”
Global forces are ravaging the energy sector on both sides of the B.C.-Alberta border. The Peace district sits atop part of the 130,000-square-kilometre Montney Formation—one of the largest potential natural gas resources on Earth, lying beneath the two westernmost provinces. Canada’s National Energy Board estimates that the formation holds 12,719 cubic kilometres of marketable gas reserves. That’s about half the amount held by the world’s biggest gas field, South Pars, which is shared by Iran and Qatar. But the Montney isn’t flooding the Peace River Valley with jobs and cash. In 2019, North American gas prices fell to about half what they were a decade ago, curtailing demand for drilling across the continent.
Hungry competitors driving in from Alberta communities like Grand Prairie compound the troubles for B.C. companies by scavenging the few remaining scraps of work. Ninety-one rigs were operating in Alberta and 10 in B.C. near the end of last November, according to the Calgary-based BOE Report. At the same time of year in 2014, 299 rigs were drilling in Alberta and 50 in B.C. That’s a lot of crews now left with little or nothing to do.
Beech says he wouldn’t be bothered so much if he could operate with the same lower costs and tax bills as the incoming outsiders. He points to the provincial sales tax (PST) as a particularly troublesome burden that visiting Alberta businesses don’t have to bear. Labour and fuel costs are higher in this province, too. “I have no problem with the competition,” Beech explains. “But it’s not a fair playing field right now.”
D.R.S. and other northeastern B.C. companies present a challenge for policy-makers: How can the province help its businesses compete on more even terms—and maybe survive through these lean times?
Julie Ziebart, first vice-chair of the Fort St. John Chamber of Commerce, is a partner at the local office of MNP, a national tax, accounting and business consulting firm. She says many people don’t understand why PST causes so much concern for businesses near the provincial border.
Alberta doesn’t charge a provincial sales tax, while B.C. has had one since 1948. That is, except for 2010-13, when the BC Liberal government replaced the PST with the harmonized sales tax. The 12-percent HST combined a 7-percent provincial value-added tax with the 5-percent federal goods and services tax (GST).
B.C. consumers have long avoided PST or HST by shopping next door (even though the Provincial Sales Tax Act says they should pay PST on goods they bring in). For example, Dawson Creek residents can drive an hour and a half southeast to Grand Prairie and save 7 percent. The difference on big-ticket products like ATVs and appliances makes such trips worthwhile.
Weekend traffic at the Grand Prairie Costco paints a good picture of what’s happening. “I bet you half of those licence plates are from B.C., and they’re all from our area,” Ziebart says.
Cross-border shopping hurts B.C. retailers, but that’s just the most visible way the PST affects businesses. Companies in this province must pay the tax on many of their inputs, which adds to their costs before they perform any services or get their products out the door. “We’re not making any money, but we’re forced to work for nothing just to keep our people,” Beech says.
His trucking firm pays PST when buying vehicles, office furniture or tools. Competitors based in Alberta—or provinces with HST, like Ontario—don’t share that expense. They can recover the GST or HST they pay on business expenditures through the Canada Revenue Agency’s Input Tax Credits. No similar provincial credits apply to B.C.’s PST.
It’s hard for D.R.S. to outbid Alberta-based truckers on price when the PST makes doing business more expensive. “You’re competing against an out-of-province contractor that doesn’t have that embedded cost in their input,” Ziebart, a chartered accountant, explains.
Despite its flaws, no B.C. government is itching to replace the PST—again. Premier Gordon Campbell’s government swapped the tax for the HST in 2010, but voters reversed that decision in a 2011 referendum. Campbell resigned amid the political fallout. Consumers saw that HST applied to many items exempted from PST, like gym memberships, bicycles and movie tickets. Few noticed HST‘s primary benefit—making PST‘s hidden costs disappear.
Still, the province, under various administrations, has been listening to the business community’s suggestions on how to level the playing field. For years, the BC Chamber of Commerce has written Victoria to offer policy recommendations, and the government has provided written responses. Sometimes messages get lost in translation.
In 2016, northeast region chambers of commerce suggested that the government make sure visiting out-of-province businesses follow local tax laws. Companies from other jurisdictions should be collecting and remitting PST from B.C.-based customers, and they should be paying PST on equipment they bring into the province. When Beech’s competitors come to work a well site, they owe PST on trucks and other gear they bring in, according to a formula that accounts for how much time that equipment spends in B.C.
Christy Clark’s government opened a PST inspection field office in Dawson Creek that year, but it didn’t work quite the way the local chambers envisioned. “We heard from our businesses that these auditors were actually spending a little bit more time auditing B.C. businesses, not so much auditing Alberta businesses,” Dan Baxter, director of policy development, government and stakeholder relations for the BC Chamber of Commerce, says with a laugh.
Last summer, the NDP government asked Baxter’s group to try a more intimate approach to their discussions, sending deputy ministers and staff throughout the province to talk with local chambers of commerce. Besides offering further recommendations on how to minimize problems caused by PST, the chambers raised concerns that the new employer health tax could be too bruising—especially for small businesses.
Victoria is still working through any policy changes that might result from the talks, but Baxter says he’s heard at least one encouraging response: “They’re looking at making sure there’s a little bit more balance in how they’re doing audits up in the northeastern regions.”
The government continues its efforts to help the province’s businesses, said Finance Minister and Deputy Premier Carole James in a statement: “Our government partnered with the federal government to deliver $800 million in tax reductions over four years for businesses investing in machinery and equipment in our province. We also moved quickly to support B.C. businesses by phasing out PST on electricity for businesses.”
James’s ministry said it operates an audit program focused on out-of-province companies doing business here.
Of course, tweaks to tax collection policies won’t help much, as long as the industry keeps pulling investment from the province’s gas fields. LNG Canada, a $40-billion project in Kitimat, will liquefy natural gas from the Montney for export to Asia after its projected completion in 2025. That will allow B.C. producers to steer out of the energy glut depressing prices on this continent. Until then, the province must do more to encourage gas companies to stay vested here, says Mike Bernier, BC Liberal MLA for Peace River South and a former mayor of Dawson Creek.
That includes thinking about changes that reduce the tax burden on businesses, even if it requires overhauling the government’s budget, Bernier argues. “We’re starting to see that uncertainty take place—that lack of investment,” he says. “Which is going to be a huge hit to the bottom line of government.”
And yet tax rates don’t pose the greatest danger for energy companies operating in northeastern B.C. Dale Bumstead is Bernier’s successor in Dawson Creek’s mayor’s chair. He recently returned home from Calgary, where he met with top energy executives to reinforce the importance of supporting local small businesses and communities.
“The biggest risk that industry faces today is the risk of a project not moving ahead,” Bumstead explains. He points to Kinder Morgan’s long-delayed Trans Mountain Expansion Project from Edmonton to Burnaby as an example. Kinder Morgan grew weary of fighting legal battles to complete the pipeline expansion, so it sold the whole project to the federal government. “The risk hasn’t been as a result of a financial burden, but it’s been the social pushback by communities and residents opposed to the project,” Bumstead says.