Sask. RMs brace for commercial revenue shortage, tax increase likely

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Some rural Saskatchewan communities are preparing to make tough decisions after they say a provincial government-imposed tax change will cost them millions of dollars in commercial revenue.

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RMs say the new rules will require them to cut commercial property taxes, causing them to either cut services or raise taxes for other taxpayers. Communities with more oil and gas operators are expected to be more affected.

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“For Mervin’s RM, that’s $1.2 million in tax revenue that we’re losing. And for many RMs around here, it’s more than that,” Brenda Ottenbreit, RM’s chief administrative officer, said in an interview Monday. “We either have to change taxes or cut services because $1.2 million is a huge amount of money.”

Earlier this spring, the government told rural communities it was changing the way they can tax businesses and residents in 2023.

RMs were allowed to tax at a nine-to-one ratio, but the government changed that ratio to seven-to-one. (e.g. if A farm-class property assessed at $200,000 was taxed at 0.5 percent, amounting to a $1,000 levy. A commercial class rated at the same $200,000 could be taxed at a maximum of 3.5 percent, which was a $7,000 levy instead of 4.5 percent, and a $9,000 levy under the old system.)

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Lowering the ratio means that many municipalities will have to “shift” more of the tax burden from commercial units to farm and residential real estate.

For Ottenbreit, that means forgoing the $1.2 million that RM would have earned under the old commercial real estate system.

According to the Saskatchewan Association of Rural Municipalities (SARM), 21 RMs are affected by the changes.

In total, the tax shift will save commercial and industrial companies $5.84 million, SARM said. In return, farms pay $3.78 million more in taxes and residential properties pay $2.06 million more.

“There’s definitely going to be an economic hit and we’re concerned about that, too,” said SARM President Ray Orb. “We didn’t want the province to go ahead, but now they are. We haven’t come up with a plan to try and talk them out because I don’t think they will.”

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A spokesman for the Department of Government Relations said the changes were implemented to “improve tax equity” and that “the use of all local tax instruments and their impact on a municipality’s property tax distribution will be considered”.

However, some Reeves believe there is more to it than that.

Larry Lundquist, Eldon’s sheriff, said he believed oil and gas companies had lobbied the province to change the ratio so they could pay less tax.

Lundquist said he and a delegation met with provincial ministers about the change earlier this spring. Ministers told him oil companies felt they were being taxed unfairly compared to farms.

“There may have been some communities that did this, but in our case and most communities up here when the oil was hit so badly, we took $1 million off their taxes to help them “, he said. “And they didn’t seem to care.”

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He said Eldon anticipates a $700,000 shortfall due to the tax changes. He has considered cutting services, but he also understands the roads need to be safe for taxpayers.

He found that heavy oil equipment pollutes the roads.

“We have five classes that work five days a week every week of the year,” he said. “There is a direct result of the oil spill. Don’t get me wrong, it’s great to have your patch because it creates jobs.”

Lundquist said legislation needs to be changed to ensure oil companies pay for road maintenance when they make agreements.

He explained that Eldon once had a similar payment arrangement with companies in the area, but it was becoming difficult to ensure the community was paid.

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Ottenbreit said she would not mind if the government went back to the old rules. Otherwise she would like support.

“If the state government wants to enforce this and there are municipalities that are directly affected like us, then there should be some kind of compensation,” she said.

The ministry said municipalities unable to implement the changes can apply for an extension.

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