Catalyst must pay millions in taxes, B.C. judges rule

Sandra McCulloch, Times Colonist December 23, 2009

The B.C. Supreme Court has declared the taxation bylaws of three Island towns valid and ordered Catalyst Paper to pay its outstanding 1998 property taxes. The three decisions affecting Campbell River, Powell River and Port Alberni follow one released Oct. 16 upholding North Cowichan's taxation bylaws. Catalyst was levied $5.9 million in 1998 property taxes by North Cowichan, $3.7 million by Powell River, $4.8 million by Port Alberni and $4.8 million by Campbell River. Catalyst, the biggest producer of paper in the province, paid just $1.5 million to each municipality. It's now calling on the province to provide interim relief to municipalities until it can come up with the rest. Catalyst is appealing all four decisions, said spokeswoman Lyn Brown. "As the B.C. Business Council noted in its priorities for 2010, B.C.'s business-property-tax regime is broken," said Brown in an e-mail. "This makes it an issue for everyone with an interest in the future of B.C., not just the coastal municipalities where Catalyst mills are located."

The fight is far from over, said Campbell River Mayor Charlie Cornfield. "Our city portion of the taxes and our tax bylaw was found to be entirely legal, proper and done right," said Cornfield. But the court found the way Campbell River collected $500,000 in taxes on behalf of the regional district was flawed. While this doesn't affect the Catalyst matter, it will cost money to set things right. Port Alberni Mayor Ken McRae said he's not optimistic Catalyst will come up with the cash to pay the bill. "Looking at their balance sheet, I don't think that's going to happen. "We're just asking [the province] to bridge finance and we'll pay them back -- we just can't do it in one or two years," said McRae. "It's a big deal for my community, I'll tell you that. If we have to find another $3.3 million, we can hardly survive as a bloody community, I'll tell you that." Port Alberni was once one of Canada's richest per-capita communities, but has since lost 6,000 forestry jobs.

Times are tough for the forest sector, which nationally lost an estimated $1.2 billion, according to the Conference Board of Canada. Catalyst has not paid a dividend to its shareholders since 2001. As of Dec. 31, 2008, the company was $880 million in debt. Richard Garneau, Catalyst president and CEO, said he wrote to Premier Gordon Campbell on Oct. 29 and Dec. 1 asking for immediate help with the shortfall and changes to the industrial taxation system used by municipalities.

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B.C. rejects plea to aid municipalities in tax dispute

From Monday's Globe and Mail Published on Sunday, Dec. 13, 2009

B.C. Finance Minister Colin Hansen is ruling out assistance for municipalities who are facing a tax revolt by struggling forestry companies, saying it would mean taxpayers throughout the province would be subsidizing low residential taxes in a handful of communities. “The question that everyone has to ask is: Should taxpayers in other parts of the province be asked to subsidize municipal services in a few municipalities that have allowed their industrial tax rates to get so high?” he said Sunday.

The industrial property tax issue has been simmering for most of this year, starting with a January ultimatum from Catalyst Paper Corp. that it would not pay its July tax bill. Catalyst and other forestry companies launched lawsuits against the municipalities of Castlegar, Powell River, Port Alberni, North Cowichan, Kitimat and Campbell River as part of that fight. But in October, the B.C. Supreme Court dismissed Catalyst's arguments that industrial tax rates up to 21 times higher than residential rates are “unreasonable and therefore illegal.” The company is appealing that decision, but at the same time Catalyst president and chief executive officer Richard Garneau has written to Premier Gordon Campbell, asking that the provincial government provide short-term financial assistance to the municipalities that are looking to collect millions in back taxes from his business.

Mr. Hansen said he has not seen that specific request, but he rejected the rationale behind it, saying it is up to local politicians to take steps to ensure that property taxes don't drive away businesses and kill jobs. Part of the problem, he said, is the imbalance between high tax rates for companies and relatively low residential rates.“The ultimate solution lies with the municipalities,” Mr. Hansen said, adding that the province's deficit means it is hardly awash in cash. However, Mr. Hansen said the move to a harmonized sales tax in July, 2010, will help forestry companies, saving the sector $144-million a year. In North Cowichan, Mayor Tom Walker said he has received a letter in recent days from Catalyst informing him that the company is asking the province to provide assistance to municipalities. The mayor said his council has yet to consider the matter, and so had no comment on the issue. But Mr. Walker said Catalyst's refusal to pay its tax bill has had “very serious” consequences for his municipality, with the $4.5-million shortfall representing a quarter of its tax base. The municipality has made some spending cuts, but made up for most of its forgone revenue by drawing from its reserve funds.

North Cowichan may be forced to borrow funds next year to make up the shortfall, if Catalyst has still not paid its bill. Mr. Walker said all options are being considered, and did not rule out increases to residential rates. He said he hopes to find a solution to allow Catalyst – the single largest employer in the area – to continue operating. “I want Catalyst to be a viable player in the community,” he said. “I also expect them to pay their taxes.”