U.S. oil refineries pay property taxes 5 times higher than what N.B. refinery pays

A soon to be published study on levies and taxes paid by the petroleum industry in the United States shows property taxes charged on oil refineries south of the border average several million dollars more than what the Irving Oil refinery in Saint John has been paying. 

That could soon be a significant issue in Saint John, where multiple local political leaders have been signalling an interest in raising more tax revenue from large industry, if the province follows through on a commitment to give municipalities more authority over setting tax rates and categories.

"Council would definitely move it," Coun. Gerry Lowe said about whether the city would raise tax rates beyond current levels on its biggest businesses if allowed.

"More people talk about this all the time now, you know, and you're getting a council now that's very pro getting something done."

In the 2018 provincial election, New Brunswick Progressive Conservatives made a commitment to "empower municipalities to have greater control over their own affairs, including greater powers over taxation."

That was in response to New Brunswick municipalities, including Saint John, asking for the ability to independently set different property tax categories, with separate property tax rates for those categories, like most other Canadian communities already do.

High stakes for companies, communities

It's an issue the New Brunswick government committed to consider between 2023 and 2025 after new rural communities are fully restructured and up and running in January.

"This reform process is over four years," Local Government Minister Daniel Allain announced last year.    

"We have to work on restructuring and the regional collaboration piece first. The pillars on taxation and land-use planning come after."

It is unclear what individual New Brunswick communities would do differently with extensive control over their own property taxes, but new information suggesting the oil refinery in Saint John is currently among the least taxed on its property in North America shows how high the stakes could be for both companies and communities.

According to a working paper version of a study done by the Washington-based research group Resources for the Future, a review of property taxes paid by 19 large U.S. refineries in six states shows the average amount paid by oil companies to local communities in 2020 was $71.86 US for every barrel per day of processing capacity.

That suggests a facility the size of the Irving Oil refinery, with a capacity of 320,000 barrels per day, would on average have paid a U.S. host community $23 million US in property taxes in 2020.

It is about five times the $6 million Cdn that New Brunswick and Saint John collected in property taxes in 2020 on the refinery and related infrastructure, including the Canaport oil storage and off-loading facility.

There are more than 130 oil refineries in the United States, but half of those process fewer than 100,000 barrels per day.  In an interview, the lead author of the study, Daniel Raimi, said instead of documenting property taxes paid by every one, it was decided to look at a group of the largest. 

"Ideally, we would have gotten data on every refinery in the United States and been able to report the tax revenue they were paying each year, but it's very difficult to access that data," said Raimi. 

"What we did is we went on basically a scavenger hunt to try and find local property tax records from local property tax assessors that reported property taxes paid for some of the largest refineries in the United States. We ended up identifying what I think is a pretty reasonable number of refineries and aggregating data for them."

There were large differences in amounts of property taxes charged to individual facilities in the study, but none of the 19 refineries paid their local communities less than what Irving Oil is charged.

The final study has been accepted for publication in the U.K.-based Review of Environmental Economics and Policy, but Raimi said there are no substantial differences from what has already appeared in the working paper.

Tax burden shifting toward homeowners, says Lowe

Lowe has expressed frustration for several years over a lack of growth in the assessed value of industrial properties in Saint John that has been causing a shift in the city's tax burden toward homeowners, as the value of their properties accelerate.

The main Irving Oil refinery property in east Saint John has been part of that trend.  

It is assessed for taxes by Service New Brunswick to be worth $107 million Cdn for 2023. That has increased just $10.2 million in the last 10 years, about half the rate of inflation.

The tax bill that generates has been shrinking in real terms and is on the small side, not just in comparison to U.S. and western Canadian oil refineries, but also compared to other large New Brunswick operations.  

The Point Lepreau nuclear generating station has a property tax bill this year of $7.3 million, more than one per cent of the $500 million worth of electricity the plant produces each year.

Output at the Irving Oil refinery is 20 times greater, more than $10 billion per year, but its property tax bill is still $1 million lower.

Higgs promised review

In 2019, New Brunswick Premier Blaine Higgs promised a review of how Service New Brunswick values the refinery for taxes, but that was cancelled earlier this year by former Service New Brunswick minister Mary Wilson.

She told the legislature the agency did not think the undertaking would reveal any hidden taxable value. 

"Following ongoing discussions with the Service New Brunswick Property Assessment services team and a review of current information, government has been assured that the current assessment of the Irving Oil refinery falls within the acceptable range of value and that a review is not recommended at this time," said Wilson.

Without a higher assessment, the only way to raise more revenue from a property is through a higher tax rate.

In Burnaby, B.C., the city charges its local oil refinery a property tax rate 8.2 times higher than the city's residential rate to generate revenues similar to those charged on U.S. refineries. In New Brunswick, municipalities are not allowed to charge heavy industry a tax rate more than 1.7 times what homeowners pay.  

Lowe said if the province loosens those rules, it will be important not to charge businesses property tax amounts they cannot afford, but he believes there is a lot of room still to generate more money for the city in some areas.

"To me you'd have to distinguish between heavy industry and industry, because you don't want to put anybody out of business," said Lowe.  

"You got to be careful of the damage that you do. But, I mean, if you're an operation that makes billions, then I don't think it's going to hurt too much. If we could get $20 million in taxes out of the refinery, you know, the property tax for residential people that are living here, lived there all their lives would drop drastically."

Irving Oil did not respond to a request for comment about local property taxes paid by U.S. refineries, but in previous statements it has said it pays sufficient taxes already that are similar to amounts paid by six Canadian refineries in Quebec and Ontario. 

"Our per barrel taxes paid are much higher than our competition and above average in the market," said the company in a presentation to a legislature committee in 2019.

In a statement Thursday, the Department of Local Government and Local Governance Reform said potential municipal financial changes are already being discussed with municipalities, and there will be a summit next fall with municipal leaders on "reform and the financial questions.

"We will continue to examine the property tax system for potential improvements," said the statement.