BCBusiness

February 2020 – First Mover

With a mission to inform, empower, celebrate and advocate for British Columbia's current and aspiring business leaders, BCBusiness go behind the headlines and bring readers face to face with the key issues and people driving business in B.C.

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BCBUSINESS.CA FEBRUARY 2020 BCBUSINESS 57 Hungry competitors driving in from Alberta communities like Grand Prairie compound the troubles for B.C. companies by scavenging the few remaining scraps of work. Ninety-one rigs were operating in Alberta and 10 in B.C. near the end of last November, according to the Calgary-based BOE Report. At the same time of year in 2014, 299 rigs were drilling in Alberta and 50 in B.C. That's a lot of crews now left with little or nothing to do. Beech says he wouldn't be bothered so much if he could operate with the same lower costs and tax bills as the incoming out- siders. He points to the provincial sales tax ( PST) as a particularly troublesome burden that visiting Alberta businesses don't have to bear. Labour and fuel costs are higher in this province, too. "I have no problem with the competition," Beech explains. "But it's not a fair playing field right now." D.R.S. and other northeastern B.C. companies present a challenge for policy- makers: How can the province help its busi- nesses compete on more even terms—and maybe survive through these lean times? TAXING TIMES Julie Ziebart, first vice-chair of the Fort St. John Chamber of Commerce, is a partner at the local office of MNP, a national tax, accounting and business consulting firm. She says many people don't understand why PST causes so much concern for busi- nesses near the provincial border. Alberta doesn't charge a provincial sales tax, while B.C. has had one since 1948. That is, except for 2010-13, when the BC Liberal government replaced the PST with the har- monized sales tax. The 12-percent HST com- bined a 7-percent provincial value-added tax with the 5-percent federal goods and services tax (GST). B.C. consumers have long avoided PST or HST by shopping next door (even though the Provincial Sales Tax Act says they should pay PST on goods they bring in). For example, Dawson Creek residents can drive an hour and a half southeast to Grand Prairie and save 7 percent. The difference on big-ticket products like ATVs and appli- ances makes such trips worthwhile. Weekend traffic at the Grand Prairie Costco paints a good picture of what's happening. "I bet you half of those licence plates are from B.C., and they're all from our area," Ziebart says. Cross-border shopping hurts B.C. retail- ers, but that's just the most visible way the PST affects businesses. Companies in this province must pay the tax on many of their inputs, which adds to their costs before they perform any services or get their prod- ucts out the door. "We're not making any money, but we're forced to work for noth- ing just to keep our people," Beech says. His trucking firm pays PST when buy- ing vehicles, office furniture or tools. Com- petitors based in Alberta—or provinces with HST, like Ontario—don't share that expense. They can recover the GST or HST they pay on business expenditures through the Canada Revenue Agency's Input Tax Credits. No similar provincial credits apply to B.C.'s PST. It's hard for D.R.S. to outbid Alberta- based truckers on price when the PST makes doing business more expensive. "You're competing against an out-of- province contractor that doesn't have that embedded cost in their input," Ziebart, a chartered accountant, explains. THE HST IS DEAD. LONG LIVE THE PST Despite its flaws, no B.C. government is itching to replace the PST—again. Premier Gordon Campbell's government swapped the tax for the HST in 2010, but voters reversed that decision in a 2011 referen- dum. Campbell resigned amid the political fallout. Consumers saw that HST applied to many items exempted from PST, like gym memberships, bicycles and movie tickets. Few noticed HST's primary benefit—making PST's hidden costs disappear. Still, the province, under various administrations, has been listening to the business community's suggestions on how to level the playing field. For years, the BC Chamber of Commerce has written Vic- toria to offer policy recommendations, and the government has provided written responses. Sometimes messages get lost in translation. In 2016, northeast region chambers of commerce suggested that the government make sure visiting out-of-province busi- nesses follow local tax laws. Companies from other jurisdictions should be col- lecting and remitting PST from B.C.-based customers, and they should be paying PST on equipment they bring into the province. When Beech's competitors come to work a well site, they owe PST on trucks and other gear they bring in, according to a formula that accounts for how much time that equipment spends in B.C. Christy Clark's government opened a PST inspection field office in Dawson Creek that year, but it didn't work quite the way the local chambers envisioned. "We heard "It's been a pretty tough market up here for the last three-and-a-half, four years," explains Beech, who has led D.R.S. for six years after work- ing 15 for Swanberg Bros. Trucking, an oilfield services firm formerly headquartered in nearby Grand Prairie, Alberta. "Like, extremely tough to the point where you're seeing people go away, go broke or sell out because they can't afford it anymore." Global forces are ravaging the energy sector on both sides of the B.C.- Alberta border. The Peace district sits atop part of the 130,000-square- kilometre Montney Formation—one of the largest potential natural gas resources on Earth, lying beneath the two westernmost provinces. Canada's National Energy Board estimates that the formation holds 12,719 cubic kilometres of marketable gas reserves. That's about half the amount held by the world's biggest gas field, South Pars, which is shared by Iran and Qatar. But the Montney isn't flooding the Peace River Valley with jobs and cash. In 2019, North American gas prices fell to about half what they were a decade ago, curtailing demand for drilling across the continent. "You're competing against an out-of- province contractor that doesn't have that embedded [PST] cost in their input" – Julie Ziebart, first vice-chair, Fort St. John Chamber of Commerce, and partner, MNP

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