Million Dollar Tax Battle: Catalyst
September 1, 2009 By Pulp & Paper Canada
Last fall, when Catalyst Paper Corp. CEO Richard Garneau revealed his company’s plans to withhold more than $17 million in property taxes from the four B.C. coastal towns that depend on its mills, he …
Last fall, when Catalyst Paper Corp. CEO Richard Garneau revealed his company’s plans to withhold more than $17 million in property taxes from the four B.C. coastal towns that depend on its mills, he wasn’t anticipating a long and messy legal battle.
“I had no clue then that this would end up going to court,” Garneau said in a recent interview. “It was probably dream- ing on my part to think the arguments we were making would prevail.”
After years of lobbying for reduced industrial tax rates in North Cowichan, Port Alberni, Campbell River and Powell River, with limited success, the company adopted a hard-line stance on the issue in the summer of 2008.
Garneau began meeting with the four mayors in July 2008 to communicate Catalyst’s growing discontent with tax rates it claims are three or four times higher than comparable jurisdictions in Canada and the U.S.
By the time the recession hit in mid-October, Garneau had made it “crystal clear” that Catalyst would pay each community no more than a $1.5-million flat fee based the company’s estimate of the municipal services it consumes.
In North Cowichan, where the tax assessment on Catalyst’s Crofton mill topped $6 million this year, the news translated into a potential shortfall of $4.5 million, more than 20% of the town’s annual tax revenue. Campbell River was left to grapple with a similar deficit, while Port Alberni ($3.3M) and Powell River ($2.2M) also faced huge revenue losses.
Left with no other option
As they struggled to balance their budgets this spring, desperate municipal councils offered Catalyst more incremental tax breaks, but the company, reeling from the economic downturn, was neither willing nor able to back down.
And so, in June, Catalyst filed petition with the B.C. Supreme Court asking for a judicial review of property tax rates in the four communities. With a flurry of court hearings scheduled for September, Garneau said in August the municipalities’ refusal to address the issue left Catalyst with no other option.
“The crux of our argument is the tax is unfair and it’s driving investment out of B.C.,” Garneau says. “We’ve done all we can to impress on municipal governments that this is a shared problem and that the viability of the industrial economy in coastal B.C. is at stake.”
A wave of layoffs at Catalyst’s West Coast mills last winter underscored the company’s precarious financial position.
About two-thirds of the 750 workers at Catalyst’s Crofton mill in North Cowichan were laid off in late February. Within days, the company shut down its Elk Falls mill outside Camp- bell River, eliminating about 350 jobs.
About 327 people remain employed at Catalyst’s Powell River mill, despite a wave of layoffs in February that sidelined 125 workers, while the Port Alberni mill, which employs 275 workers, has been largely unaffected by the recession.
Noting that the taxes on Catalyst’s Snowflake mill in Arizona are only $500,000 a year, Garneau said the rates in B.C. put the company at a “competitive disadvantage” with mills elsewhere in North America.
The company is quick to point out that industry is taxed at 26 times the residential rate in North Cowichan and more than 10 times the residential rate in Campbell River, Port Alberni and Powell River.
In Alberta, on the other hand, major industry rates are typically capped at four times the residential rate, Garneau says.
Company studies claim that Catalyst’s tax rates range from 6.5 to 8.7 times the cost of municipal services provided in the four communities.
“I would like to be able to sell our product at 8.7 times the cost. That would be nice,” Garneau says. “I think $1.5 million for the services we consume is very generous.”
Catalyst’s arguments are nearly identical to those being advanced by Zellstoff-Celgar Ltd. in a separate court action asking for a judicial review of “unreasonable” and “illegal” industrial tax rates in the East Kootenay town of Castlegar, where the company operates a pulp mill.
Like Garneau, Celgar general manager Al Hitzroth says his pleas for a major tax reduction fell on deaf ears last fall, prompting the company to force the issue in court.
“I clearly had asked them back in December for a 50% reduction. They came back with 1%,” he says. “That’s only $28,000 and we’re a major industry. It missed the mark completely.”
Unlike Catalyst, Celgar withheld its entire property tax bill, including the portion earmarked for hospitals and schools, delivering the news to municipal politicians less than 24 hours before the July 1 tax deadline.
“The decision was something we were contemplating to get some attention on this issue and we had run out of other alternatives,” Hitzroth said. “It was last-minute decision but it’s not a last-minute issue.”
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