Forest companies gain legal traction for tax revolt

A brewing tax revolt by B.C. forestry companies has gained a legal foothold after the B.C. Supreme Court found a Vancouver Island community cannot boost its tax rate for forest lands.

This week's court decision will cost the City of Campbell River $1.2-million, but it is also sending ripples through other B.C. communities where forest companies are withholding tax payments in what they say is a battle for survival.

The tax rebellion began in January, 2009, when Catalyst Paper Corp. announced it would not pay its tax bills in the communities where it operates, saying industrial tax rates are too high.

A series of lawsuits against the municipalities of Castlegar, Powell River, Port Alberni, North Cowichan, Kitimat and Campbell River soon followed from companies seeking tax relief.

TimberWest Forest Corp. joined the movement after getting a tenfold increase on its tax bill in Campbell River - a change designed to give other industry ratepayers a break.

"It seemed unreasonable, unrealistic," Steve Lorimer, a spokesman for TimberWest, said yesterday. "There is a bit of a discontent here with the tax rates, which are generally not related to how much profit you make." He said the rate increase would have made it even harder for the company, which has already branched out into real-estate development, to keep forestry operations afloat.

But Campbell River Mayor Charlie Cornfield said council will discuss next week whether to appeal the ruling. The city is already struggling to cope with an outstanding tax bill of more than $4-million from Catalyst - roughly 20 per cent of the city's budget.

"The difficulty that local governments face is that we have only one way to raise revenue, that's taxation," he said. "We still have to provide the services to our citizens and corporations, and that costs money."

Thursday's court ruling gives TimberWest some relief, but the victory is expected to increase pressure on the provincial government to intervene - especially if it encourages other companies to join the fray.

TimberWest's success in court is a first for the industry in this battle.

Catalyst Paper Corp. withheld $15-million in taxes in 2009, but has lost three court challenges in recent months. All three of those rulings are under appeal.

British Columbia's forest industry has been contracting heavily in the face of the high Canadian dollar, a devastating pine beetle infestation and the collapse of the U.S. housing market.

The downturn has taken its toll on the provincial coffers as well. Last fall, the B.C. budget was revised in part because forest companies clawed back corporate income taxes paid in previous years.

The provincial government has refused to get involved to date, but both industry and municipal governments say that must change.

"This is a provincial issue and it is just beginning," Castlegar Mayor Lawrence Chernoff said yesterday. "Corporations are watching this with an eagle eye and I have talked to mayors across the province and they are worried."

The forestry downturn has hit his Kootenays community hard. The main sawmill closed 18 months ago, and the only other major employer, the Celgar pulp mill, refused to pay its July tax bill.

Celgar's taxes usually cover 45 per cent of the city's entire budget. "We stopped paving," Mr. Chernoff said. Maintenance spending has been frozen, and the shortfall derailed planned infrastructure projects designed to attract new industry.

The mayor fought back, calling on Celgar's parent company to use some of the tens of millions of dollars of federal grant money it is getting for energy-efficiency efforts to settle its bills.

On Christmas Eve, the pulp mill's owners unexpectedly backed down. They delivered a cheque for $470,000 and promised to talk about a payment plan on the remaining $2.7-million bill.

Now Mr. Chernoff is worried that the TimberWest ruling could set back that bit of progress.

"We've got Teck Cominco [now Teck Resources]down the road, are they going to do the same thing? The corporations are saying, 'We just can't afford to pay no more.' "

The picture looked rosier for the municipal governments last October, when a B.C. Supreme Court judge dismissed Catalyst's claim against North Cowichan.

Mr. Justice Peter Voith noted that property tax rates on industry are "markedly higher" in B.C. than they are in Ontario or elsewhere in Western Canada, but he ruled that municipalities have the legal right to set tax rates. "These matters are properly addressed by different levels of government and not by the courts," he ruled.

On the heels of that ruling, Catalyst president Richard Garneau wrote to Premier Gordon Campbell, asking him to help secure interim relief for B.C. municipalities that heavily rely on an industrial tax base.

"Without your leadership, I fear efforts to resolve the challenge will lose the race against time," he wrote. "We need a made-in-B.C. ... solution to ensure our province retains and expands its industrial base."