Taxing Feedlots in Alberta: Lethbridge County's Tax on Confined Feeding Operations
Creators: name: Dahlby, Bev
name: McMillan, Melville
name: Khanal, Mukesh
Publisher: name: The School of Public Policy Publications
Year: 2017

description: Lethbridge County introduced a new business tax on confined feeding operations (CFO), notably feedlots, in 2016. It was expected to bring in $2.5 million for county road maintenance in 2017. However, the tax could have a detrimental impact on feedlot owners and is not the fairest way to amass revenue for road repairs. Four criteria can be used to evaluate a particular form of taxation. They are fairness, efficient resource allocation, compliance and administration costs, and revenue stability. This paper examines the potential impacts of the tax and proposes three alternative methods for financing Lethbridge County road maintenance that meet those criteria. These alternatives create less of an impact on feedlot owners and share the tax burden more equitably. They also reduce the potentially negative ripple effects that the CFO levy may have on feed producers, cattle producers, meat packers and consumers. The current tax is based on livestock storage capacity, rather than on production volume. It’s counter-productive in the long run because the feedlot’s fixed costs of production are increased, while its variable costs remain unaffected. This permanent increase in fixed costs, estimated to be as high as 20 per cent of the average operating margin per head of cattle, lowers the return on feedlot investments. Thus, the new tax could result in some feedlots being closed for lack of a high enough return on investment.A more equitable revenue source for road maintenance would be user fees imposed on the trucking industry. This system is already in use in Oregon and New Zealand. It uses GPS technology to track trucks on the roads and then charges the trucking companies a fee based on road use. It would certainly be worthwhile for the province to initiate a pilot program to test the system’s efficacy on Alberta roads. Lethbridge County could also implement a usage levy that would be based on how much it spends on roads, combined with a feedlot’s capacity plus its distance from a provincial highway. Contributions to road maintenance would thus be directly tied to road usage. The new CFO tax does not distinguish between feedlots with a heavy use of county roads and those that don’t use the county roads as much because they are close to provincial highways. The current CFO levy creates an unfair distribution of the tax burden. Under a usage-levy system, 94 feedlots, or 72 per cent of feedlots in the county, would have their tax burdens lessened, while 18 feedlots located on provincial highways would pay no tax. The third option would be a tax based on an equation of how many livestock per feedlot exceed the actual capacity of that farm’s own crops to feed them. Those feedlots relying more heavily on trucked-in crops, and thus dependent on greater use of county roads to feed their animals, would pay higher taxes accordingly. The three alternatives would generate the same amount of revenue as the current levy and with similar degrees of predictability. However, these alternatives are fairer, more equitable and more efficient than the CFO levy. In the interests of maintaining both county roads and a healthy feedlot industry, Lethbridge County should replace the CFO levy with one of them.
description: The School of Public Policy Publications, Vol 10 (2017)