Part 8 Property Tax is Regressive
The unfair feature here is not the property tax or the business tax rate. but the fact that the property tax is extremely regressive, both for business and for the homeowner.But this will scarcely trouble the owner of a $20 million dollar building. It is clearly unfair to the more than 60% of the homeowners who make up the majority of the residential class and cannot take the income tax advantage or the other benefits for business (deductions for property tax, mortgage interest, depreciation operating expenses). The value of a property is not determined by the city or in any subjective way, but is determined by the BC Assessment Authority, an independent Crown corporation over which the City of Vancouver has no influence. The problem, then for the homeowner, is in the tax rate, which reflects the class share and the share assigned to business begins to appear as far too small. If we can imagine the business class as in any real way burdened by this tax, it is the more than 60% of the small business part of the class who are burdened.
The way in which the city proceeds is, sort of backwards. The city determines what new money it will need for the current year to operate, and then will apply that, the LEVY against the existing distribution for the previous year, then make the division and the resulting tax rates. "Given the share distribution of classes in 2005, it would then be the case that 57% would be paid by residential and 43% by business (ignoring the other small classes). and the distribution of the tax to be paid by each rate payer in these classes would then be worked out against the fair market value of the property concerned on the basis of a certain amount of money for each $1000.00 of market value. And this money contribution based on the "mill" rate (the tax rate per each $1000 of value in a property) wold be the contribution of each member of the class proportionate to the total amount of the money needed, in the LEVY, as the share of the class. In other words, any argument relating to affordibility or whether business are doing well or not, would be completely irrelevant just as it would be for the homeowner in the case where property value suddenly were rising very quickly.
So the procedure is basically one of averaging. Both business and residential will find out how much they are to pay by multiplying each unit of $1000 of their property value against the "mill" or tax rate. AS we have mentioned, in 2005 that is just over $3 for residential and over $16 for business. But that rate is the result of dividing the total mass of money to be collected from the class (its share of the LEVY) by the total mass of money that is the sum of all the values of all the properties in that class.
One can say it is fair because every owner will have to pay at the same "rate". And it is clear that each class will have to come up with its "share" based on the total values of all the property in the class. However, it is well known that and average is not fair (or useful) where there are large values clustered away from the center of the usual distribution (the usual is the bell shaped distribution) and one then speaks of distributions that are "skewed". This one is royally skewed. The reason for that in this case is because the tax rate takes a unit value based on simple division, but there are very large numbers at one end of the distribution.
Inquiries to the City Finance Department produce the injformation that of the 12,341 properties in the business class 62% are valued at $500,000 or less; 15% are from that figure up to $1,000,000; 18% are from $1 to $5 million'; and 5% are greater than $5 million. Recalling that many of the last group will be in the hundreds of millions, it is clear that a simple average is not fair, that is, is not representative of any central tendency in the distribution. On the residential side, out of over 156,000 properties, 10% have values up to $200 thousand; 50% up to $500,000; 36% up to $1,500,000; and 3% are worth more than $1,500,000, so that the same problem is present. A small number of people/units, own or possess most of the property value. The great mass of the tax is born by those who have the greatest number of properties (over 60%) but the least wealth in property value individually. It is true the tax is based on a single rate for each class, but $4 per $1000 of assessed value is a far greater money weight to the person whose wealth is reflected in a $500,000 house than one in a $1,500,000 million house. Are there not wealthy people in modest houses? We would not doubt it, but we can say that fortunately the most obvious characteristic of the rich is that there are very few of them.
Calgary Leads the Pack in 2001 in the West
We have mentioned that according to the CFIB, as of 2001, it is Calgary rather than Vancouver which has the highest business property tax contribution in Western Canada related to the tax rate. As of 2001 Calgary commenced an inquiry into its separate business tax to see whether it should be continued or disposed of in some way, much like Vancouver had done in the 1980s. When the report came in several years later (2003) the Calgary Council decided to keep its separate business tax. As the Vancouver business tax had been, the Calgary business tax is a tax on the value of the occupied space and is paid by the business, not the owner of the space.
[City of Calgary; Preliminary Project Report; September 2002; Business Tax Review Page 8. The Calgary City Council decision was made at July 2003].
In other words, the place in Western Canada where the business share in absolute terms is the geeatest is Calgary and that position has recently been reviewed by an exceedingly pro-busines Council in a pro-business town and the position has been maintained. There does not appear to be any good reason to think that Vancouver should not be able to match Calgary in terms of business tax contributions. Certainly, it would not be a reason for business to relocate from Vancouver to Calgary.
Part 9 to come
Saturday, September 22, 2007
Monday, September 17, 2007
WEIRD AND MORE WEIRD EVENTS IN THE USA
CURRENT events in the USA bring to mind the last days of the CIA invasion of Cuba back in the 60s. There was the swirl of absolute BS at that time, with guns lined up on American beaches, tales of brave pilots who had escaped with their lives and their planes from Cuba, mysterious references to code phrases using symbolic language about "the fish", there was a bunch of news items every day. But in the last days, just as we heard about the landing in the Bay of Pigs, it seemed nothing could stop the news stories about Cuban farmers running down to the beach to attack the CIA troops (actually mercenaries) with long knives used to cut sugar cane erupting out of the Radio.
But that was the weird thing. In the very media that was carrying the American propaganda line we also saw each of these stories burned to a crisp within hours. The most spectacular was the way newsmen at Miami stormed over the story of the brave pilots and tore it to shreds in 6 hours, with a series of news flashes to the radio and TV audience as each item emerged from the furious struggle of truth against fiction. I remember so clearly how one newsman went out to look at one of the escaping planes and denounced the story after he had seen the calibre of the bullet holes stitched across the belly of one plane.
But all this came to a riveting climax late one night as a newsman came on the radio, broadcasting from New York, and it was one of the main media network corporations. I heard the words, strong and clear coming over the radio from a studio high in a New York building: "....it is now believed the entire operation was organized, financed, and led by the CIA...". The news reader sounded confident, as though he stood at the head of a very large organization, and this that he spoke was the "word". I guess in retrospect he did, and it was.
And that was it, since the whole murderous attempt to wrench the history of Cuba away from the people and hand it back to US commercial interests and gangsters foundered in a furious episode of hand to hand combat on a Cuban beach. We later saw footage of flashing knives and bodies floating in the surf, we heard on the radio many voices crying "We are with you Fidele" (as later translations identified) and saw people not dressed like soldiers running in small groups down the beach as the invaders tried to swim away.
Well the Cubans were surely very brave and very, very together. But look, at the American media, it worked very well on that occasion. And there was something about the way it worked, so much like a storm tide swelling up the beach in powerful wave after wave, that is much like what is starting up now in the USA. Maybe there is something about human history we completely miss with our restless search to nail down the facts and lay them out in proper order before we announce conclusions. We have to do this, it is our duty as human beings, and this task well done becomes the foundation of true history. But there are times, as Thomas Paine said, that "try men's souls" and I think this is when the big waves come roaring up the beach.
Decline and fall of the CIA invasion was far more significant to me than the Missile Crisis, which seemed staged on all sides like an opera, All very predictable and after the first days a bit boring.
But the Bay of Pigs was something else. And I suspect, well, I hope, we are moving very quickly into another one of those historical moments when murder, and the truth will out. The great lie that is being fostered now is that there is any reason at all for the USA to invade, or more likely, bomb Iran. There is large and reasonable suspicion that there is a plan to use nuclear weapons, the very thing that Bush claimed he wished to invade Iraq to stop the use of , weapons of mass destruction. We need a high tide of truth about Bush, the USA, the truly destructive role of Israel, and an accounting for the millions that have been slaughtered by the US doomed pursuit of Empire, and we need the truth to to come out now.
And surely the Cubans are entitled, at long last, to recovery of their property at Guantanamo. There is a need to destroy all the recent constructions there,and for the ground to be plowed with salt. I hope that time comes soon as well. But that needs a big change in American policy, so I guess it has to be a very big wave indeed.
But that was the weird thing. In the very media that was carrying the American propaganda line we also saw each of these stories burned to a crisp within hours. The most spectacular was the way newsmen at Miami stormed over the story of the brave pilots and tore it to shreds in 6 hours, with a series of news flashes to the radio and TV audience as each item emerged from the furious struggle of truth against fiction. I remember so clearly how one newsman went out to look at one of the escaping planes and denounced the story after he had seen the calibre of the bullet holes stitched across the belly of one plane.
But all this came to a riveting climax late one night as a newsman came on the radio, broadcasting from New York, and it was one of the main media network corporations. I heard the words, strong and clear coming over the radio from a studio high in a New York building: "....it is now believed the entire operation was organized, financed, and led by the CIA...". The news reader sounded confident, as though he stood at the head of a very large organization, and this that he spoke was the "word". I guess in retrospect he did, and it was.
And that was it, since the whole murderous attempt to wrench the history of Cuba away from the people and hand it back to US commercial interests and gangsters foundered in a furious episode of hand to hand combat on a Cuban beach. We later saw footage of flashing knives and bodies floating in the surf, we heard on the radio many voices crying "We are with you Fidele" (as later translations identified) and saw people not dressed like soldiers running in small groups down the beach as the invaders tried to swim away.
Well the Cubans were surely very brave and very, very together. But look, at the American media, it worked very well on that occasion. And there was something about the way it worked, so much like a storm tide swelling up the beach in powerful wave after wave, that is much like what is starting up now in the USA. Maybe there is something about human history we completely miss with our restless search to nail down the facts and lay them out in proper order before we announce conclusions. We have to do this, it is our duty as human beings, and this task well done becomes the foundation of true history. But there are times, as Thomas Paine said, that "try men's souls" and I think this is when the big waves come roaring up the beach.
Decline and fall of the CIA invasion was far more significant to me than the Missile Crisis, which seemed staged on all sides like an opera, All very predictable and after the first days a bit boring.
But the Bay of Pigs was something else. And I suspect, well, I hope, we are moving very quickly into another one of those historical moments when murder, and the truth will out. The great lie that is being fostered now is that there is any reason at all for the USA to invade, or more likely, bomb Iran. There is large and reasonable suspicion that there is a plan to use nuclear weapons, the very thing that Bush claimed he wished to invade Iraq to stop the use of , weapons of mass destruction. We need a high tide of truth about Bush, the USA, the truly destructive role of Israel, and an accounting for the millions that have been slaughtered by the US doomed pursuit of Empire, and we need the truth to to come out now.
And surely the Cubans are entitled, at long last, to recovery of their property at Guantanamo. There is a need to destroy all the recent constructions there,and for the ground to be plowed with salt. I hope that time comes soon as well. But that needs a big change in American policy, so I guess it has to be a very big wave indeed.
Sunday, September 16, 2007
PROPERTY TAX IN VANCOUVER 7
Part 7
The Facts About Tax Deductions
It was the Federal tax deduction in the United States which led to a judicial review in one city in Canada as well as questions in others. As we have mentioned, people in one city saw that not only could business deduct the real estate taxes as expenses, from taxes, as well as other items, but so could the homeowner. Then and now business in the United States could deduct property or real estate taxes among other expenses or laying out funds with a view to producing an income.
[United States Tax Code; Internal Revenue Service; Department of the Treasury Publication 530 (2003)"What you can and cannot Deduct"]
In a current publication the following is stated with regard to the homeowner:
"...most state and local governments charge an annual tax on the value of real
property. This is called a real estate tax. You can deduct the tax if it is
based on the assessed value of the real property and the taxing authority
charges a uniform rate on all property in its jurisdiction. The tax must be for
the welfare of the general public and not be a payment for a special privilege
granted or service rendered to you."
The position is very different in Canada. Business could make its deductions just as in the United States [Income Tax Act, Section 18[ but the homeowner could not with respect to residential property. So, business could deduct the whole property tax, showing that as a cost of doing business. It could and does pay no property tax at all in result and its receipt of the tax from its customers will not be considered income for taxation. Since the tax LEVY of business or its share in 2005 was about $239 million in Vancouver, we can say that is the amount that business did not ultimately pay. It was initially paid by business, but was part of their expenses added to the amount paid to them by their customers as part of the total price of the good or service, and then was deducted from taxes on their income payable to the Federal government. So, business property property tax is intended to flow through to their customers. It is paid by business customers which in most cases are also people who pay the residential property tax except for those business owners who live outside the City and who will doubtless pay property tax to some other taxing authority.
Against this reality the business claim that the property tax is an unfair burden on them is irrational. They do not pay it at all. They also benefit, as does the homeowner,described below, who uses a part of their home for the operation of a business. There are deductions from the income of such business for not only property tax, but also mortgage interest, maintenance, operating expense, depreciation, all proportionate to the amount of the property that is used.
But the homeowner does pay, and the homeowner in Canada unlike 280 million Americans, who have a very similar economic system and can make a variety of property related deductions, the Canadian homeowner cannot unless it based on a business.
This fact is mentioned very briefly by the consultant KPMG, and the small group of people representing residents on the advisory committee to Council which considered the property tax in 1995. This group all said they opposed the shifting of the property tax in favor of business from 1995 as business was demanding (these were 5 of the 12 persons on the Committee) but it seems no heed was paid to them by the pro business majority making the recommendation that the "burden" on business should be lightened.
[Report to Council; Standing Committee on CS&B dated April 13, 1995; Page 3,4]
[and see City of Vancouver; Task Force on Property Tax; Report 1995; at p;age 19]
In one City in Atlantic Canada, as we have mentioned, after the 1944 review, the response of the Municipal Council was to let the business rate drift upward. In other words, follow a policy of higher contribution rates for business. This pattern is to be found all across Canada today, in the big cities as in the small centers. The contribution share for the business class in Toronto is much higher than for Vancouver, and that for Calgary seems a little more, due to the combination of a business tax as well as the property tax (as of 2001). One of the publications of the Vancouver Board of Trade we have mentioned has an attached schedule of municipal tax shares which shows tax rate ratios which vary from levels of more than 7 to 1 down to 1 to 1 for 150 Municipalities in BC. Paradoxically, in this document, the Board of Trade is calling for a "level playing field" though it is not clear how that is to be achieved with such a spread, nor does it take into account the difference between tax share and tax rate. A 1:1 tax share will not produce a 1:1 tax rate as regards residential:business. As is usual in pro business publications, the implication is that any distribution at all which is greater than 1 to 1 is unfair to business, so how they settle on any in the range of ratios from more than seven to one on down is not clear. Nor do they explain the fact that business does not pay anything where the full tax is recovered from customers and is, moreover, tax deductible. It is difficult to see now even a tax rate ratio of 1:1 would deliver what business wants since that depends on the numbers of business and the money required from the class as a proportion when set against the total of all property values in the class, that is, the mass of market values for business properties and the stated business share of the tax LEVY.
Another argument contended against in the foregoing pro business material was the claim that business had a greater ability to pay, or that business is better able to afford it. But both of these arguments is a misdirection. Businesses are being taxed on property, wealth, whether or not they have the greater ability to pay, not depending on whether or not they are better able to afford it, than someone else. If it were otherwise there would have to be a separate class for property owners whose income was limited to the CPP or th OAP (Canada Pension Plan; Old Age Pension). In some cases that is not enough to maintain the grounds around some homes, let alone pay the taxes on long owned and clear title homes. The owners are being taxed on the basis of the market value of their property after the city has determined the total financial tax LEVY it requires to operate for the current year and made a division as to what share of that levy will be paid by each of the property classes. The result is based on that market value and has noting whatever to do with ability to pay or success of a particular business, just as the incomes of individuals is not relevant. It stands to reason that if the property is the site of a business at all then that business is going about its operations to produce a good or service and collecting, in its pricing for the normal costs of operation and profit, then such property tax will be recovered as sales progress and will not be recovered if sales do not progress. But that case is no basis at all for special relief as it is not for relief for the residential share. Of course, it is usually the case that advocates of both shares will often seek relief for their interest, but since that is not a justification for the residential side, it is even less so on the business side due to the severely regressive features of the property tax. Indeed, where a particular business pays a lot more among business property owners, that is simply a reflection of wealth and the absolute size of what is in fact a subsidy. In other words, the other side of tax regresivity is a subsidy.
There are other large bonuses for business.The chief business advocate against the property tax is the Vancouver Board of Trade and that body usually publishes its broadsides at dinners in hotels where the event is set up by one of their allies, such as the Downtown Vancouver Business Improvement Association. We have noted elsewhere in this study how this organization operates with assistance from the City, which collects membership fees for it, gives the whole thing the appearance of a required municipal payment by setting out the fees in the yearly Tax Notice ,then hands over all the money with no deduction for collection cost to the resulting wholly Artificial DVBIA. A subsidy within a subsidy, one might say.
[Letter from City of Vancouver Financial Planning, dated February 28,2006;l response to inquiries as to the financing of DVBIA].
Another free rider is the hotels. Here the City collects a hotel tax then pays every dollar of it to Tourism Vancouver and other business apparently without deduction of one cent for this extraordinary service. Tourism accounts for about 5% of the GDP Gross Domestic Product of the Province, and that has been the high number for decades, often settling below that figure, so there is no reasonable justification for this gift to the free rider hotels. All jobs in a field of commerce or industry are valuable, but why such a gift to this particular interest? Tourism rose to just over 5% of GDP in the year of Expo 86, a successful trade fair or exhibition which lasted six months, after which it gradually drifted back down to 3.9% where it stayed for years and only inched up to nearly 5% by 2001 with the low Canadian dollar period. Since the decline of the American dollar, clearly a long run trend with the Canadian dollar now near parity, the bonus due to a very low Canadian dollar has very nearly disappeared, so we can expect a decline to historical levels again in tourism. The only reasonable conclusion is that Vancouver's gift to the Hotels has not really been of much public benefit at all.
[See Tourism industry publications of BC Stats and StatsCan. The author is preparing as study of the Tourism Industry in BC but that will not be posted till about Fall,2007]
Since a tourist is defined as someone who travels more than 80 kilometers from their home and is away from home for up to a year, there is no effective separation between business and tourism as most people would understand it. As the term is used in the "industry" it will also include large numbers of people who come into the airport or across the border on their way to somewhere other than Vancouver or BC. In general it is clear there is no such thing as a tourist "industry" really since tourism is an activity with features involving many occupations and numbers need to be plucked out of many fields or industries like accommodation, travel, and restaurants with resulting lack of testability. It is very hard to regard a continuous stream of consultants heading for one of the three Prince George Pulp mills as tourists in any rational sense of the word, though that is a big item in plane travel to and from Prince George, but there it is.
Tourist discussion seems to be infected, as well, by the Dare to be Great School of Business Forecasting, as promoted by the business advocates we have mentioned and Tourism BC, another beneficiary of public subsidy via the Hotel Tax, which has a Board of Governors dominated by hotel "industry" personnel. Where the City has plowed millions into tourist promotion by handing it to business which seems to spend a lot of it in denouncing an "inequitable property tax" or is congratulating themselves on what wonderful people they are at ratepayer paid for dinners, where no discernible public improvement has resulted, it is time to put a stop to such waste. We put quotation marks around the reference "tourist industry" because of its elusive nature, its dubious value in terms of the claims made and its vulnerability to excessive enthusiasm due to the use of severely exaggerated statistics such as the unreasonable multiplication of each dollar spent without rational justification.
(This field is thick with claims based on a technique very like a Pyramid scheme which insiders call "the multiplier"). Our point here is that if Business wishes to spend money as is presently done, and make these claims, let it support the activity with its own money. Here they do not pay it once but they are taking it twice.
[Value of Tourism; Tourism BC; February 2003, pages 5 to 7]
We can note that as of 2005 the collections for business improvement areas and Hotel Tax were $5,469 and $8,657 millions, respectively, or a total of $14,126 million. All of this sum went to these private organizations, a figure which is close to one half of the revenues collected by the Parks Board ($32,969 millions) where the ordinary taxpayer will still have to pay over $4.00 to go to a public swimming pool. These funds are not within the property tax, but may be used to compare the relative value of the remarkable services provided to business by the City, for which business pays not one thin dime. It is a fair conclusion that most of the tax that seems to be "imposed" on business is in fact paid by the same people who pay the residential tax, and over 60% of those are living in houses valued at under $500,000.
[City of Vancouver; 2005 Budget; Revenue details]
[Letter from City of Vancouver February 28,2006; Finance Department; re property tax distribution; response to inquiries.]
So we have business leadership taking the money collected for them gratis by the City and using these funds derived from membership fees squeezed from thousands of small businesses to attack a tax they do not even pay, in the end, and complaining about how they are mistreated. We say"squeezed" because it appears the membership fees collected by the city show up as an item on the property tax statement, so that it would be a bold small businessman who would quarrel about that.
It is interesting to see how the people behind some of these organizations think. One person was a representative of Point Grey Village BIA, one of the 18 Business Improvement Associations in Vancouver and one that has a business address not even in the four blocks of the "Point Grey Village" on 10th Avenue (its address miles away from Point Grey). He spoke at a dinner meeting about the business tax costs for a building in downtown Vancouver which was being converted from offices to residential. He said that the building as an office building was assessed at $20 million but would be worth $47 million as a residential building. The present property tax of $576,000 would be changed to $310,850. He said that was a $260,000 difference that would have to be made up somewhere, and he thought that it would be business that would pay. Why the speaker believed the public should be forced to give this business a huge double subsidy is not explained.
[Vancouver Board of Trade; Event Summary; dated March 16,2005; Speech of Point Grey Village Representative, page 1]
What is most noteworthy about these remarks is that the speaker must have known that the City of Vancouver does not define property classes into residential and business. The Province of BC does that in the Assessment Act. And it is the Provincial Assessment Authority under that act (not controlled or influenced by the City under its Provincial legislative act the Vancouver Charter) that sets the value of properties. The senior government, the Province, sets the market value of properties, not the City.
If a building owner is playing a card game with other owners where all have contributed a start up pot of $10 each for 10 players, and one decides to leave and take his $10 with him, then the rest will have to come up with a further contribution of $1./11 to make up the same pot (plus one cent), but that is not because the City (to leave the analogy) has set the class definition of a class or the value of each members' property. In fact, if any member decided to leave the "business" game and go over to the "residential" game, taking his pot (building) with him as he renovates it and switches the class it belongs to in result, he will simply find a different "pot" rule in place. That is an investment decision taken by a single member in a completely voluntary way. All the City did was to say there would be different pots for each class and the members of each class must each one contribute their proportionate amount to the total money that constitutes that class share and pay in the relation that it stands to the total values of all the "member" (property values). That normally leads to a contribution by a business that derives from a tax rate that is a number of times the residential rate. The Board of Trade is not even claiming that the ratio should end, only that it should be smaller than 5:1 and they a talk about (sometimes) 3:1.
Since there is no suggestion by the speaker that the converted building is not valued properly at a much higher figure in residential use than was the case in commercial use, it is hard to see what the complaint is here. Should the player who leaves the business class game still be responsible to leave his pot (tax rate and value) when he leaves? Should he be entitled to enter the next (residential) game subsidized by all the others members in that class by having to pay in a much smaller pot than the other players in that game have had to pay in? Further, unless the City starts giving the business class a tax rate that produces a ratio of considerably less than 1:1 the same result in general will happen whenever a use changes in this way. The argument here seems even more unreasonable than the usual ones.
As to the tax being so high it will scare off business, the fact is that the property tax is a very small amount against the scale of any genuine business located on the property and the property tax itself is such a small burden that studies have not found any substantial evidence that the property tax makes any difference at all as to their choice of what location to operate in. If a business could not afford the property tax, unlikely as that seems since the tax was based simply upon the market value of the property, the property could readily be sold and some other location found where the business could operate. If that cannot be done, then either there is no economic future for that business or there is some reason why the community should totally subsidize that small businessman (or that big businessman such as is claimed for sports stadiums, convention centers and other money losing white elephants and the like). It is not at all unlikely that this may seem reasonable to someone who would like to operate such a business, but that is not the usual economic posture (so far as what they will say openly) that one sees in the fulminations of the Canadian Tax Foundation, the Board of Trade, the CFIB and their front men.
Another argument made by business is the claim that while business can deduct the property tax from income, the homeowner has a similar benefit since he is not taxed on rent that he would have to pay if he lived elsewhere, or that he would earn if he did not live at home. This is called imputed rent.
It is one of those debater's points about which one can say there is far less here than meets the eye. Net rental income from rental property is not large. From the gross the landlord will deduct property tax, other operating expenses, depreciation and mortgage interest ( all of which business can and does do now). Then there is the large administrative cost for the nation of requiring many millions of people to do this and document it on their tax returns, with no objective measure of what the costs and returns should be, and checks to see it has been done, by Revenue Canada. The total costs of this must be set against the a extra amount collected, to evaluate the usefulness of this whole scheme. Depreciation alone can be 20% of the rent and property tax would eat up much of the rest while even a reasonable amount of renovation wold easily use up much of the rest of the "rent". Repair and maintenance would leave little for Ottawa. If taxpayers have to do this you can bet they are going to be "aggressive" in their cost estimations. Then if there is a substantial mortgage on the property, likely if the owner is actually renting it or being compared to someone who does, there may even be a negative quantity (another deduction) at the end of the reckoning. The imaginary "renter" may wind up with a further deduction for some of his expenses of various kinds from his tax otherwise payable (that is, tax not calculated from rent income).
Anyhow, the property tax is based on the market value and that must be taken to include , since it is a measure of wealth the capitalized value of future imputed rental income. In other words, the property tax is already a tax on this imputed rent since it is tax on wealth as measured by the market. So this claim for imputed rent is misconceived and may well be far more trouble than it is worth to collect it. It could even be a negative quantity in many cases. One suspects that experienced tax specialists within government have long since reviewed the likely yield from a tax on imputed rent and reached this conclusion, so that is why we do not hear of it except in academic writing.
[Comment on article"Income Tax Concessions for Owner Occupied Housing"; John C., Weicher; Hudson Institute; Housing Policy Debate; Volume 11, Issue No. 3; Fannie May Foundation 2000].
Part 8 to come
The Facts About Tax Deductions
It was the Federal tax deduction in the United States which led to a judicial review in one city in Canada as well as questions in others. As we have mentioned, people in one city saw that not only could business deduct the real estate taxes as expenses, from taxes, as well as other items, but so could the homeowner. Then and now business in the United States could deduct property or real estate taxes among other expenses or laying out funds with a view to producing an income.
[United States Tax Code; Internal Revenue Service; Department of the Treasury Publication 530 (2003)"What you can and cannot Deduct"]
In a current publication the following is stated with regard to the homeowner:
"...most state and local governments charge an annual tax on the value of real
property. This is called a real estate tax. You can deduct the tax if it is
based on the assessed value of the real property and the taxing authority
charges a uniform rate on all property in its jurisdiction. The tax must be for
the welfare of the general public and not be a payment for a special privilege
granted or service rendered to you."
The position is very different in Canada. Business could make its deductions just as in the United States [Income Tax Act, Section 18[ but the homeowner could not with respect to residential property. So, business could deduct the whole property tax, showing that as a cost of doing business. It could and does pay no property tax at all in result and its receipt of the tax from its customers will not be considered income for taxation. Since the tax LEVY of business or its share in 2005 was about $239 million in Vancouver, we can say that is the amount that business did not ultimately pay. It was initially paid by business, but was part of their expenses added to the amount paid to them by their customers as part of the total price of the good or service, and then was deducted from taxes on their income payable to the Federal government. So, business property property tax is intended to flow through to their customers. It is paid by business customers which in most cases are also people who pay the residential property tax except for those business owners who live outside the City and who will doubtless pay property tax to some other taxing authority.
Against this reality the business claim that the property tax is an unfair burden on them is irrational. They do not pay it at all. They also benefit, as does the homeowner,described below, who uses a part of their home for the operation of a business. There are deductions from the income of such business for not only property tax, but also mortgage interest, maintenance, operating expense, depreciation, all proportionate to the amount of the property that is used.
But the homeowner does pay, and the homeowner in Canada unlike 280 million Americans, who have a very similar economic system and can make a variety of property related deductions, the Canadian homeowner cannot unless it based on a business.
This fact is mentioned very briefly by the consultant KPMG, and the small group of people representing residents on the advisory committee to Council which considered the property tax in 1995. This group all said they opposed the shifting of the property tax in favor of business from 1995 as business was demanding (these were 5 of the 12 persons on the Committee) but it seems no heed was paid to them by the pro business majority making the recommendation that the "burden" on business should be lightened.
[Report to Council; Standing Committee on CS&B dated April 13, 1995; Page 3,4]
[and see City of Vancouver; Task Force on Property Tax; Report 1995; at p;age 19]
In one City in Atlantic Canada, as we have mentioned, after the 1944 review, the response of the Municipal Council was to let the business rate drift upward. In other words, follow a policy of higher contribution rates for business. This pattern is to be found all across Canada today, in the big cities as in the small centers. The contribution share for the business class in Toronto is much higher than for Vancouver, and that for Calgary seems a little more, due to the combination of a business tax as well as the property tax (as of 2001). One of the publications of the Vancouver Board of Trade we have mentioned has an attached schedule of municipal tax shares which shows tax rate ratios which vary from levels of more than 7 to 1 down to 1 to 1 for 150 Municipalities in BC. Paradoxically, in this document, the Board of Trade is calling for a "level playing field" though it is not clear how that is to be achieved with such a spread, nor does it take into account the difference between tax share and tax rate. A 1:1 tax share will not produce a 1:1 tax rate as regards residential:business. As is usual in pro business publications, the implication is that any distribution at all which is greater than 1 to 1 is unfair to business, so how they settle on any in the range of ratios from more than seven to one on down is not clear. Nor do they explain the fact that business does not pay anything where the full tax is recovered from customers and is, moreover, tax deductible. It is difficult to see now even a tax rate ratio of 1:1 would deliver what business wants since that depends on the numbers of business and the money required from the class as a proportion when set against the total of all property values in the class, that is, the mass of market values for business properties and the stated business share of the tax LEVY.
Another argument contended against in the foregoing pro business material was the claim that business had a greater ability to pay, or that business is better able to afford it. But both of these arguments is a misdirection. Businesses are being taxed on property, wealth, whether or not they have the greater ability to pay, not depending on whether or not they are better able to afford it, than someone else. If it were otherwise there would have to be a separate class for property owners whose income was limited to the CPP or th OAP (Canada Pension Plan; Old Age Pension). In some cases that is not enough to maintain the grounds around some homes, let alone pay the taxes on long owned and clear title homes. The owners are being taxed on the basis of the market value of their property after the city has determined the total financial tax LEVY it requires to operate for the current year and made a division as to what share of that levy will be paid by each of the property classes. The result is based on that market value and has noting whatever to do with ability to pay or success of a particular business, just as the incomes of individuals is not relevant. It stands to reason that if the property is the site of a business at all then that business is going about its operations to produce a good or service and collecting, in its pricing for the normal costs of operation and profit, then such property tax will be recovered as sales progress and will not be recovered if sales do not progress. But that case is no basis at all for special relief as it is not for relief for the residential share. Of course, it is usually the case that advocates of both shares will often seek relief for their interest, but since that is not a justification for the residential side, it is even less so on the business side due to the severely regressive features of the property tax. Indeed, where a particular business pays a lot more among business property owners, that is simply a reflection of wealth and the absolute size of what is in fact a subsidy. In other words, the other side of tax regresivity is a subsidy.
There are other large bonuses for business.The chief business advocate against the property tax is the Vancouver Board of Trade and that body usually publishes its broadsides at dinners in hotels where the event is set up by one of their allies, such as the Downtown Vancouver Business Improvement Association. We have noted elsewhere in this study how this organization operates with assistance from the City, which collects membership fees for it, gives the whole thing the appearance of a required municipal payment by setting out the fees in the yearly Tax Notice ,then hands over all the money with no deduction for collection cost to the resulting wholly Artificial DVBIA. A subsidy within a subsidy, one might say.
[Letter from City of Vancouver Financial Planning, dated February 28,2006;l response to inquiries as to the financing of DVBIA].
Another free rider is the hotels. Here the City collects a hotel tax then pays every dollar of it to Tourism Vancouver and other business apparently without deduction of one cent for this extraordinary service. Tourism accounts for about 5% of the GDP Gross Domestic Product of the Province, and that has been the high number for decades, often settling below that figure, so there is no reasonable justification for this gift to the free rider hotels. All jobs in a field of commerce or industry are valuable, but why such a gift to this particular interest? Tourism rose to just over 5% of GDP in the year of Expo 86, a successful trade fair or exhibition which lasted six months, after which it gradually drifted back down to 3.9% where it stayed for years and only inched up to nearly 5% by 2001 with the low Canadian dollar period. Since the decline of the American dollar, clearly a long run trend with the Canadian dollar now near parity, the bonus due to a very low Canadian dollar has very nearly disappeared, so we can expect a decline to historical levels again in tourism. The only reasonable conclusion is that Vancouver's gift to the Hotels has not really been of much public benefit at all.
[See Tourism industry publications of BC Stats and StatsCan. The author is preparing as study of the Tourism Industry in BC but that will not be posted till about Fall,2007]
Since a tourist is defined as someone who travels more than 80 kilometers from their home and is away from home for up to a year, there is no effective separation between business and tourism as most people would understand it. As the term is used in the "industry" it will also include large numbers of people who come into the airport or across the border on their way to somewhere other than Vancouver or BC. In general it is clear there is no such thing as a tourist "industry" really since tourism is an activity with features involving many occupations and numbers need to be plucked out of many fields or industries like accommodation, travel, and restaurants with resulting lack of testability. It is very hard to regard a continuous stream of consultants heading for one of the three Prince George Pulp mills as tourists in any rational sense of the word, though that is a big item in plane travel to and from Prince George, but there it is.
Tourist discussion seems to be infected, as well, by the Dare to be Great School of Business Forecasting, as promoted by the business advocates we have mentioned and Tourism BC, another beneficiary of public subsidy via the Hotel Tax, which has a Board of Governors dominated by hotel "industry" personnel. Where the City has plowed millions into tourist promotion by handing it to business which seems to spend a lot of it in denouncing an "inequitable property tax" or is congratulating themselves on what wonderful people they are at ratepayer paid for dinners, where no discernible public improvement has resulted, it is time to put a stop to such waste. We put quotation marks around the reference "tourist industry" because of its elusive nature, its dubious value in terms of the claims made and its vulnerability to excessive enthusiasm due to the use of severely exaggerated statistics such as the unreasonable multiplication of each dollar spent without rational justification.
(This field is thick with claims based on a technique very like a Pyramid scheme which insiders call "the multiplier"). Our point here is that if Business wishes to spend money as is presently done, and make these claims, let it support the activity with its own money. Here they do not pay it once but they are taking it twice.
[Value of Tourism; Tourism BC; February 2003, pages 5 to 7]
We can note that as of 2005 the collections for business improvement areas and Hotel Tax were $5,469 and $8,657 millions, respectively, or a total of $14,126 million. All of this sum went to these private organizations, a figure which is close to one half of the revenues collected by the Parks Board ($32,969 millions) where the ordinary taxpayer will still have to pay over $4.00 to go to a public swimming pool. These funds are not within the property tax, but may be used to compare the relative value of the remarkable services provided to business by the City, for which business pays not one thin dime. It is a fair conclusion that most of the tax that seems to be "imposed" on business is in fact paid by the same people who pay the residential tax, and over 60% of those are living in houses valued at under $500,000.
[City of Vancouver; 2005 Budget; Revenue details]
[Letter from City of Vancouver February 28,2006; Finance Department; re property tax distribution; response to inquiries.]
So we have business leadership taking the money collected for them gratis by the City and using these funds derived from membership fees squeezed from thousands of small businesses to attack a tax they do not even pay, in the end, and complaining about how they are mistreated. We say"squeezed" because it appears the membership fees collected by the city show up as an item on the property tax statement, so that it would be a bold small businessman who would quarrel about that.
It is interesting to see how the people behind some of these organizations think. One person was a representative of Point Grey Village BIA, one of the 18 Business Improvement Associations in Vancouver and one that has a business address not even in the four blocks of the "Point Grey Village" on 10th Avenue (its address miles away from Point Grey). He spoke at a dinner meeting about the business tax costs for a building in downtown Vancouver which was being converted from offices to residential. He said that the building as an office building was assessed at $20 million but would be worth $47 million as a residential building. The present property tax of $576,000 would be changed to $310,850. He said that was a $260,000 difference that would have to be made up somewhere, and he thought that it would be business that would pay. Why the speaker believed the public should be forced to give this business a huge double subsidy is not explained.
[Vancouver Board of Trade; Event Summary; dated March 16,2005; Speech of Point Grey Village Representative, page 1]
What is most noteworthy about these remarks is that the speaker must have known that the City of Vancouver does not define property classes into residential and business. The Province of BC does that in the Assessment Act. And it is the Provincial Assessment Authority under that act (not controlled or influenced by the City under its Provincial legislative act the Vancouver Charter) that sets the value of properties. The senior government, the Province, sets the market value of properties, not the City.
If a building owner is playing a card game with other owners where all have contributed a start up pot of $10 each for 10 players, and one decides to leave and take his $10 with him, then the rest will have to come up with a further contribution of $1./11 to make up the same pot (plus one cent), but that is not because the City (to leave the analogy) has set the class definition of a class or the value of each members' property. In fact, if any member decided to leave the "business" game and go over to the "residential" game, taking his pot (building) with him as he renovates it and switches the class it belongs to in result, he will simply find a different "pot" rule in place. That is an investment decision taken by a single member in a completely voluntary way. All the City did was to say there would be different pots for each class and the members of each class must each one contribute their proportionate amount to the total money that constitutes that class share and pay in the relation that it stands to the total values of all the "member" (property values). That normally leads to a contribution by a business that derives from a tax rate that is a number of times the residential rate. The Board of Trade is not even claiming that the ratio should end, only that it should be smaller than 5:1 and they a talk about (sometimes) 3:1.
Since there is no suggestion by the speaker that the converted building is not valued properly at a much higher figure in residential use than was the case in commercial use, it is hard to see what the complaint is here. Should the player who leaves the business class game still be responsible to leave his pot (tax rate and value) when he leaves? Should he be entitled to enter the next (residential) game subsidized by all the others members in that class by having to pay in a much smaller pot than the other players in that game have had to pay in? Further, unless the City starts giving the business class a tax rate that produces a ratio of considerably less than 1:1 the same result in general will happen whenever a use changes in this way. The argument here seems even more unreasonable than the usual ones.
As to the tax being so high it will scare off business, the fact is that the property tax is a very small amount against the scale of any genuine business located on the property and the property tax itself is such a small burden that studies have not found any substantial evidence that the property tax makes any difference at all as to their choice of what location to operate in. If a business could not afford the property tax, unlikely as that seems since the tax was based simply upon the market value of the property, the property could readily be sold and some other location found where the business could operate. If that cannot be done, then either there is no economic future for that business or there is some reason why the community should totally subsidize that small businessman (or that big businessman such as is claimed for sports stadiums, convention centers and other money losing white elephants and the like). It is not at all unlikely that this may seem reasonable to someone who would like to operate such a business, but that is not the usual economic posture (so far as what they will say openly) that one sees in the fulminations of the Canadian Tax Foundation, the Board of Trade, the CFIB and their front men.
Another argument made by business is the claim that while business can deduct the property tax from income, the homeowner has a similar benefit since he is not taxed on rent that he would have to pay if he lived elsewhere, or that he would earn if he did not live at home. This is called imputed rent.
It is one of those debater's points about which one can say there is far less here than meets the eye. Net rental income from rental property is not large. From the gross the landlord will deduct property tax, other operating expenses, depreciation and mortgage interest ( all of which business can and does do now). Then there is the large administrative cost for the nation of requiring many millions of people to do this and document it on their tax returns, with no objective measure of what the costs and returns should be, and checks to see it has been done, by Revenue Canada. The total costs of this must be set against the a extra amount collected, to evaluate the usefulness of this whole scheme. Depreciation alone can be 20% of the rent and property tax would eat up much of the rest while even a reasonable amount of renovation wold easily use up much of the rest of the "rent". Repair and maintenance would leave little for Ottawa. If taxpayers have to do this you can bet they are going to be "aggressive" in their cost estimations. Then if there is a substantial mortgage on the property, likely if the owner is actually renting it or being compared to someone who does, there may even be a negative quantity (another deduction) at the end of the reckoning. The imaginary "renter" may wind up with a further deduction for some of his expenses of various kinds from his tax otherwise payable (that is, tax not calculated from rent income).
Anyhow, the property tax is based on the market value and that must be taken to include , since it is a measure of wealth the capitalized value of future imputed rental income. In other words, the property tax is already a tax on this imputed rent since it is tax on wealth as measured by the market. So this claim for imputed rent is misconceived and may well be far more trouble than it is worth to collect it. It could even be a negative quantity in many cases. One suspects that experienced tax specialists within government have long since reviewed the likely yield from a tax on imputed rent and reached this conclusion, so that is why we do not hear of it except in academic writing.
[Comment on article"Income Tax Concessions for Owner Occupied Housing"; John C., Weicher; Hudson Institute; Housing Policy Debate; Volume 11, Issue No. 3; Fannie May Foundation 2000].
Part 8 to come
Saturday, September 15, 2007
PROPERTY TAX IN VANCOUVER 6
Part 6
Other Arguments Put Forward by Business Advocates
We have mentioned that business seeks to claim that it is somehow unfair that there is any disproportion in the tax shares paid. This seems to be largely an argument put forward by implication since there is no direct commentary on it, but that is what must be inferred from an argument like that set out by the CFIB in its submission to the City of Saskatoon in 2005, where we see the following at Paragraph 2.2:
"2.2 Property Tax Misconceptions-many people believe that business should face
higher property taxes than residents, that the tax gap is, in fact warranted. It
is a commonly held view that business should pay more because they have a
greater ability to pay and are able to deduct property taxes from income taxes.
However, these reasons are misconceptions and it is important to set the record
straight."
[CFIB web page. Submissions to Saskatoon City Council Re Budget; April 11,2005; Para. 2/2]
We would think the first point for the business advocate to explain before complaining about the distribution of shares is to explain why there is any uneven distribution at all, why there are separate classes, and how the existing distribution came to be at all. This they fail to do. Since they say that it is unfair that business should pay more and this is based on a misconception, they are saying by implication businesses should not pay more at all. But the only evidence on this point at all that can be found in the record is the vague impression conveyed to the KPMG accountants in 1995, which confirms that business believed it should be paying more than residential.
In the next paragraph, they set out as follows:
"A lasting but inaccurate justification for imposing higher property taxes on
business has been that they are better sable to afford it. This is simply not
true. Many small firms operate on very tight profit margins and when high
property taxes squeeze these margins further, they have fewer resources to put
back in the business. As a result, firms may have to forgo opportunities for
expansion which means job creation opportunities are also lost."
[CFIB- Brief to Submissions to the Saskatoon City Council; Re: 2005 Bidget; dated
April 11,2005, Page 2.]
Taking these points in order, we see again that the argument is being made that it is simply unfair that there should be any higher property taxes on business than there are on residential owners. The complete failure of the business advocates to explain or comment at all on the fact that the distribution is similar all across Canada as a pattern of the taxes payable by the business class being a multiple of those paid by the residential class, operates as something of an admission that there should be such a distribution. In other words, the only question left is whether the distribution is somehow unreasonable in the case of Vancouver where it is apparently reasonable for just about everyone else in the country. This is perhaps the most outstanding feature of all business propaganda on the different shares of the property tax, a very loud silence on the question of where did it come from and why is it there at all. We have to note that the share paid in Vancouver by business is not much different from that paid in Calgary (tax ratio of 5.33 according to the CFIB at 2004) let alone Toronto where the business share is 64% of taxes paid, that is, the shares division of the two classes alone is that high.
[City of Vancouver, Policy Report; Finance Director; Committee on CS&B, April 28, 2005, Page 12; where Toronto non residential % of total tax LEVY is stated at 64%]
The next argument made has to do with tax deductibility, and here the business advocates say as follows:
"The argument that business benefit from a tax deductibility of property taxes
and therefore they can absorb higher tax rates does not stand up either. It
presumes that all businesses are able to benefit from tax deductions. Business
that are struggling, just breaking even, or losing money don't receive a
deductibility "benefit" ".
[CFIB Submission to City of Saskatoon; April 11, 2005, Page 2; and see also CFIB
Property Tax Inequities in BC; (2003) at Page 6 (which can be obtained on CFIB web page).
The Statement is wrong in a number of ways. First of all, if a property owner cannot pay their house taxes, they cannot phone up the City and say: "Hello fellows, I haven't got it for you this year, had a bad year due to layoff, etc. Phone me in a couple of years and I will let you know if I can afford it then.: If the homeowner does not pay his property tax, he will be assessed a penalty by way of a punishing claim for interest for several years and if he cannot pay it all off by three years, the city will put the property up for sale in order to obtain payment of the taxes and interest. In general there is no ability of the homeowner to throw off his tax obligation and so there is no basis for the business to argue that they should either. There can be delays, or deferments, but these measures do only that,defer what must be paid. They are usually done to favor business as well and mean that all the ratepayers in the class who do not receive them have to pay more since no one can reduce the tax LEVY as the City is not allowed to operate on a deficit. In result such measures just ratchet up the regressive features of the tax.
As to whether or not the business may "benefit" from the deduction we doubt there is a business that will not claim it, or fail to include it proportionately in the price of its good or service. The fact is that from a tax deductibility point of view it is not a matter of it being some kind of a deductible benefit, the simple fact is that a business must either own property or rent it to use as a place to bring its employees to work on material to make a product or a service and sell it.
All of the costs of that productions are what the business is doing, and the property taxes are much the same as an other other expense which must be paid in order to produce a product or service and sell it. Whether the business is doing well or not is beside the point, just as it would be for a homeowner. So this argument is not valid in terms of the equivalence or the payment obligation of the different classes. The home owner has to pay it all; business can deduct it all. Does business expect a deduction greater than 100%?
Another claim put forward by business is that the homeowner is not taxed on the capital gain when the home is passed on to the next generation and this is somehow unfair to business. This is a deferment, not a tax reduction, and even where the gain is taxed at a specially low rate it hardly compares with the fountain of tax favors that go to business. The fact is business is able to benefit from a very large number of subsidies, exemptions, favorable rules, grants, special low interest provisions (like the capital gains exemption for small business) all apparently based on some idea of public policy to aid business. It has also long been public policy in many advanced western countries to favor economic activity and social stability by encouraging home ownership. This leads to a policy of eliminating capital gains on the principal residence where the ratepayer lives as well and refusing to introduce imaginary or "imputed" rent on one's own home.
Ownership of the home is the main and often the only significant property that is owned by the majority of the population which until recently did not have much stock ownership and even now mainly hold institutional claims in the form of tax deferment (Registered Retirement Savings Plans or RRSPs) to support retirement. It is an important influence on the distribution of wealth, and it is clearly vital for the majority of the population to have some stake in the social order for the goal of social stability. House values will not jump to the same beat as volatile stock market changes so that the goal of maintaining social stability is best advanced by broader home ownership, at younger ages, across most of the general population as a valuable social goal. So far as meeting any claim that such a policy is "unfair: to business, the first answer is simply that this is nonsense, but even if someone thinks it is unfair this is an intended unfairness. The community, which in this case is the nation, has decided that social stability and other goals of the nation, including supporting house construction, are usefully advanced by this policy.
Part 7 to follow
Other Arguments Put Forward by Business Advocates
We have mentioned that business seeks to claim that it is somehow unfair that there is any disproportion in the tax shares paid. This seems to be largely an argument put forward by implication since there is no direct commentary on it, but that is what must be inferred from an argument like that set out by the CFIB in its submission to the City of Saskatoon in 2005, where we see the following at Paragraph 2.2:
"2.2 Property Tax Misconceptions-many people believe that business should face
higher property taxes than residents, that the tax gap is, in fact warranted. It
is a commonly held view that business should pay more because they have a
greater ability to pay and are able to deduct property taxes from income taxes.
However, these reasons are misconceptions and it is important to set the record
straight."
[CFIB web page. Submissions to Saskatoon City Council Re Budget; April 11,2005; Para. 2/2]
We would think the first point for the business advocate to explain before complaining about the distribution of shares is to explain why there is any uneven distribution at all, why there are separate classes, and how the existing distribution came to be at all. This they fail to do. Since they say that it is unfair that business should pay more and this is based on a misconception, they are saying by implication businesses should not pay more at all. But the only evidence on this point at all that can be found in the record is the vague impression conveyed to the KPMG accountants in 1995, which confirms that business believed it should be paying more than residential.
In the next paragraph, they set out as follows:
"A lasting but inaccurate justification for imposing higher property taxes on
business has been that they are better sable to afford it. This is simply not
true. Many small firms operate on very tight profit margins and when high
property taxes squeeze these margins further, they have fewer resources to put
back in the business. As a result, firms may have to forgo opportunities for
expansion which means job creation opportunities are also lost."
[CFIB- Brief to Submissions to the Saskatoon City Council; Re: 2005 Bidget; dated
April 11,2005, Page 2.]
Taking these points in order, we see again that the argument is being made that it is simply unfair that there should be any higher property taxes on business than there are on residential owners. The complete failure of the business advocates to explain or comment at all on the fact that the distribution is similar all across Canada as a pattern of the taxes payable by the business class being a multiple of those paid by the residential class, operates as something of an admission that there should be such a distribution. In other words, the only question left is whether the distribution is somehow unreasonable in the case of Vancouver where it is apparently reasonable for just about everyone else in the country. This is perhaps the most outstanding feature of all business propaganda on the different shares of the property tax, a very loud silence on the question of where did it come from and why is it there at all. We have to note that the share paid in Vancouver by business is not much different from that paid in Calgary (tax ratio of 5.33 according to the CFIB at 2004) let alone Toronto where the business share is 64% of taxes paid, that is, the shares division of the two classes alone is that high.
[City of Vancouver, Policy Report; Finance Director; Committee on CS&B, April 28, 2005, Page 12; where Toronto non residential % of total tax LEVY is stated at 64%]
The next argument made has to do with tax deductibility, and here the business advocates say as follows:
"The argument that business benefit from a tax deductibility of property taxes
and therefore they can absorb higher tax rates does not stand up either. It
presumes that all businesses are able to benefit from tax deductions. Business
that are struggling, just breaking even, or losing money don't receive a
deductibility "benefit" ".
[CFIB Submission to City of Saskatoon; April 11, 2005, Page 2; and see also CFIB
Property Tax Inequities in BC; (2003) at Page 6 (which can be obtained on CFIB web page).
The Statement is wrong in a number of ways. First of all, if a property owner cannot pay their house taxes, they cannot phone up the City and say: "Hello fellows, I haven't got it for you this year, had a bad year due to layoff, etc. Phone me in a couple of years and I will let you know if I can afford it then.: If the homeowner does not pay his property tax, he will be assessed a penalty by way of a punishing claim for interest for several years and if he cannot pay it all off by three years, the city will put the property up for sale in order to obtain payment of the taxes and interest. In general there is no ability of the homeowner to throw off his tax obligation and so there is no basis for the business to argue that they should either. There can be delays, or deferments, but these measures do only that,defer what must be paid. They are usually done to favor business as well and mean that all the ratepayers in the class who do not receive them have to pay more since no one can reduce the tax LEVY as the City is not allowed to operate on a deficit. In result such measures just ratchet up the regressive features of the tax.
As to whether or not the business may "benefit" from the deduction we doubt there is a business that will not claim it, or fail to include it proportionately in the price of its good or service. The fact is that from a tax deductibility point of view it is not a matter of it being some kind of a deductible benefit, the simple fact is that a business must either own property or rent it to use as a place to bring its employees to work on material to make a product or a service and sell it.
All of the costs of that productions are what the business is doing, and the property taxes are much the same as an other other expense which must be paid in order to produce a product or service and sell it. Whether the business is doing well or not is beside the point, just as it would be for a homeowner. So this argument is not valid in terms of the equivalence or the payment obligation of the different classes. The home owner has to pay it all; business can deduct it all. Does business expect a deduction greater than 100%?
Another claim put forward by business is that the homeowner is not taxed on the capital gain when the home is passed on to the next generation and this is somehow unfair to business. This is a deferment, not a tax reduction, and even where the gain is taxed at a specially low rate it hardly compares with the fountain of tax favors that go to business. The fact is business is able to benefit from a very large number of subsidies, exemptions, favorable rules, grants, special low interest provisions (like the capital gains exemption for small business) all apparently based on some idea of public policy to aid business. It has also long been public policy in many advanced western countries to favor economic activity and social stability by encouraging home ownership. This leads to a policy of eliminating capital gains on the principal residence where the ratepayer lives as well and refusing to introduce imaginary or "imputed" rent on one's own home.
Ownership of the home is the main and often the only significant property that is owned by the majority of the population which until recently did not have much stock ownership and even now mainly hold institutional claims in the form of tax deferment (Registered Retirement Savings Plans or RRSPs) to support retirement. It is an important influence on the distribution of wealth, and it is clearly vital for the majority of the population to have some stake in the social order for the goal of social stability. House values will not jump to the same beat as volatile stock market changes so that the goal of maintaining social stability is best advanced by broader home ownership, at younger ages, across most of the general population as a valuable social goal. So far as meeting any claim that such a policy is "unfair: to business, the first answer is simply that this is nonsense, but even if someone thinks it is unfair this is an intended unfairness. The community, which in this case is the nation, has decided that social stability and other goals of the nation, including supporting house construction, are usefully advanced by this policy.
Part 7 to follow
Sunday, September 9, 2007
PROPERTY TAX IN VANCOUVER 5
Part 5
Misrepresentations of business advocates
As we have noted, the Vancouver Board of Trade [see Board of Trade Events Calendar, published March 16,2005] claims that business was unfairly paying huge subsidies and
we have quoted their bold claim:
"Business has paid huge subsidies in property taxes. Property taxes paid by
business to city government-and particularly the civic property tax on business properties in the City of Vancouver-are badly distorted."
One difficulty with this argument is that nowhere in the business propaganda does on find any explanation of how it comes about there is a disproportion between the business and residential tax share,or how the history of that developed, or why the business share in Vancouver is any more or less unfair than anywhere else in the Province or the Country. In dealing with this matter at City Council over the years, there has been quite a surprising vagueness about this critical historical fact.
At the time when business advocates were particularly vociferous, the Vancouver City Council retained some accountants to make a study. In this study, which was brought to Council at March 17, 1995, the accountants did not state that any particular policy was preferred but simply that there appeared to be some kind of consensus:
"While further work would be required to address these other issues, much of the
impetus for the study has been concern from the business sector that the
present tax rate and consumption ratios are too high. It is not necessary at
this stage, to define the 'ideal' long run relationship so long as it can be
agreed that the preferred long run consumption ratio is no more than 3 to 1."
[Project Report; Study of Consumption of Tax Reported City Services; Volume
1;Main Report; KPMG, Page 7]
As we stated earlier, it was after this report that on five of ten years, the city did effect a systematic shift, loading many millions of the tax onto the residential ratepayers.
We note however that there is an avoidance of any appearance of recommendations in the report. At Page 33, the consultant's comments were as follows:
"The selection of the preferred long-run target policy is a subjective one.
Most of the individuals with whom we reviewed this issue, have acknowledged
that there should be a distinction between residential and business properties.
There is considerable support for the view that the target consumption payment
ratio should be not more than 3 to 1. In the long run, we understand that much
of the impetus for the study has been a concern from the business sector."
It is quite clear from this quotation from the consultant's report, that no recommendation is attached, indeed they have very nearly framed the words in neon lights, that what they are submitting to the Council, is what the business interests have presented to them. And this has to do not with class shares but the tax rate
and what members of each class pay per each $1000 of market value.
All the more strange then that we often find in the publications of the business advocates the constant complaint that the tax is unfair because business does not vote, that business is shouldered aside in the municipal government. The truth, as regards the history of property tax policy, is that a great deal of the adjustment and measurement, and studying, and introduction of delays, caps, three year averaging and continual revisions in the property tax shares (five times in ten years) has been in response to constant self obsessed complaints of business. When one considers the occasions when the residential interest was served, the fact is that the severely skewed distribution of values of residences in Vancouver means once again it was the wealthy rate payers who gained most, just as wealthy business did. Residential rate payers only gained a little bit in what has really been a series of favors mostly to business with a few to the rich residential owners. The same is true of the property tax deferment measures as to amount. Them as has, gets; as they say.
[For the recital of benefits to business, and residential since 1989 see City of Vancouver Report of Finance Director to Committee on CS&B April 28,2005; Appendix E at pages 1, 2]
This is true even in the few cases of relief, supposedly for the benefit of homeowners on fixed incomes, such as three year averaging. It is true that this procedure smooths out a big increase that may come in one year, but the total amount of taxes that needs to be raised in that year (the tax LEVY) is still the same. If one homeowner does not pay as much of it as the system requires then some other homeowner and ratepayer must do so since that is what the city needs to operate, and the Provincial law requires that there be no deficit. If one asks what rate payers will make up the difference it will be all the rate payers who do not benefit, and given the numbers, that means the great majority of rate payers who have property values at $500,000 or less (that is, more than 60% of business and more than 96% of residential at values under $1,500,000).
[Letter from City Finance Department; February 28, response to inquiry re distribution of property ownership]
That is about as regressive as you can get.
"It must also be recognized that many people truly do not care that their
houses have risen steeply in value because they do not have any interest in
selling and moving. In this sense the increase in their wealth is illusory. In
many of these cases, the increase in wealth is not matched by any increase in
income.It is also true however that to soften the blow for those receiving the
large assessment increases means that those whose assessments increased less
will to pay more in taxes than otherwise."
[City of Vancouver; Report of Municipal Taxation Review Commission ; March 1989; Page 22]
It may be noted that the ordinary ratepayers of Vancouver, the great number of residential homeowners, are generous in their disposition of provide for what is needful, while the business people are mostly cheap and constantly complaining:
"Angus Reid reported that 68% of business community members surveyed believe
the current level of property taxes they pay are too high, a full 22% more
than residents. Further, Angus Reid reported that over 60% of residents
surveyed supported paying an additional eight percent in property taxes to help
maintain the level of services they currently receive. This compares to only
one third of all business respondents supporting a 4% tax increase."
[City of Vancouver; Director of Finance Report to Committee on CS&B April 24, 1997. Page 1. See also Ipsos Reid poll reported March 31,2004, Residents Prefer Property Tax Increase over Municipal service Cuts; Press Release.This latter
survey is residents, but does not report business].
And this conduct, as indicated in the Angus Reid survey, is despite the fact that there is no doubt the property tax is severely regressive. The regressive structure of the tax has been noted in several studies of the property tax in Canada:
"A comparison of the results of the different models generates some useful
observations. Regardless of the model, each suggests that the property tax is
regressive at the lower levels of the income scale."
[Property Taxation in Canada; Harry M. Kitchen; 1992; Canadian Tax Foundation; Page 52]
The same hands-off theme that we noted in the accountants' report when no opinion supporting the claim for business tax relief was offered, has been echoed in the comments of the City Manager of the City of Vancouver over the years, most recently in a policy report relating to property taxation. This policy report was presented by the Direct0r of finance to the Standing Committee on City Service at April 28,2005.
[City of Vancouver Policy Report--Property Tax; April 28,2004, CS&B Committee)
In this report we find the following at Page 2:
"The city manager notes that establishing property tax policy, is one of the
most difficult decisions a council must make. There is no formula and no right
or wrong answer to the question of how the cost of the city's tax report
and services should be distributed among the various property classes. Every
municipality throughout the Province must determine how their taxation
objectives should be reflected in tax distribution."
The city manager's opinion, so far as one is stated in this report, is shown in the next two paragraphs:
"The business community argues that the taxes on business classes are
inequitable compared to the residential classes and proposes a major change
in how tax rates are calculated and in the distribution of the LEVY. The city
manager is not supportive of this approach, noting that the proposal could
result in considerable instability in the distribution of the tax LEVY from
year to year, a result that council would be unable to control."
"As to the question of whether the business sector is bearing an unreasonable
share of the tax burden, the answer is not so straightforward. In the mid 1990s
the Council acknowledged an inequity and in five of nine years in 1994 to 2003
approved shifts of the tax levy totaling $15 million from the business to
residential classes. However, no target distribution was ever established."
The report goes on to note that what business was proposing as of 2005, was a whopping 18% increase to the residential class or $82 million shifted from the business class. The clearly excessive character of this claim shows a lack of good faith by business and their advocates. The point we make here is, is that there has never been, and there is not today, any justification given for such a massive change in tax policy, which already favors business to an extreme degree. And we maintain that the already existing tax policy is to be found right across the country.
Returning to some of the representations made by the business propagandists, we have noted that in the submissions of the Canadian Federation of Independent Business
and the Vancouver Board of Trade, we have seen no mention of the transfer of the business tax, the fact that any comparability of Vancouver with other western cities has to start with adding their business tax to their property tax, or the full appreciation of the advantages of passing on a tax, and tax deductibility that go to business.
To the contrary, where they mention tax deductibility at all it is for the purpose of complaining that many small business have a hard time making their way, as though there was any relief at all for the residential homeowner. Of course there is not, in the great majority of cases, and after three years of non-payment (with interest added every year) the property will be posted for tax sale. Why does the same CFIB which is constantly complaining about the myriad subsidies it sees everywhere, calling for the small business owner to be subsidised to the amount of a tax it passes on, will deduct, and therefore does not finally pay? Such an argument would be contradictory but it would make about as much sense as many of the propositions one can find in the arguments of the business advocates, that is, no sense at all.
Accordingly, there has been a standard and well-established history of a disproportion in property tax between business and residential shares for many years in Canada, affecting thousands of municipalities, at least 153 in BC alone.
There is further reason for an extra element of disproportion in Vancouver noting the the cancellation of the business tax in 1983. The very recent comparisons with other Western cities show that Calgary collects even more than Vancouver from business (at 2001 according to the figures published by a business advocate) when the merger of the business tax is taken into account. Also there is the critically important fact that the Federal and Provincial tax treatment of homeowners and business is unequal for good and necessary reasons in Canada. Compare the US homeowner who can make all the deductions. None of these matters are reflected reasonably (or at all, for the most part) in the propaganda of the Vancouver downtown business interest.
One has to wonder what would happen if the Federal government stopped allowing any of the various deductions that business can claim on property, such as the property tax, as it now forbids homeowners. Would business seek to recover it twice? It has already claimed the property tax now is an unfair burden on business, and that is under present conditions when deduct can deduct it.
Part 6 to come
Misrepresentations of business advocates
As we have noted, the Vancouver Board of Trade [see Board of Trade Events Calendar, published March 16,2005] claims that business was unfairly paying huge subsidies and
we have quoted their bold claim:
"Business has paid huge subsidies in property taxes. Property taxes paid by
business to city government-and particularly the civic property tax on business properties in the City of Vancouver-are badly distorted."
One difficulty with this argument is that nowhere in the business propaganda does on find any explanation of how it comes about there is a disproportion between the business and residential tax share,or how the history of that developed, or why the business share in Vancouver is any more or less unfair than anywhere else in the Province or the Country. In dealing with this matter at City Council over the years, there has been quite a surprising vagueness about this critical historical fact.
At the time when business advocates were particularly vociferous, the Vancouver City Council retained some accountants to make a study. In this study, which was brought to Council at March 17, 1995, the accountants did not state that any particular policy was preferred but simply that there appeared to be some kind of consensus:
"While further work would be required to address these other issues, much of the
impetus for the study has been concern from the business sector that the
present tax rate and consumption ratios are too high. It is not necessary at
this stage, to define the 'ideal' long run relationship so long as it can be
agreed that the preferred long run consumption ratio is no more than 3 to 1."
[Project Report; Study of Consumption of Tax Reported City Services; Volume
1;Main Report; KPMG, Page 7]
As we stated earlier, it was after this report that on five of ten years, the city did effect a systematic shift, loading many millions of the tax onto the residential ratepayers.
We note however that there is an avoidance of any appearance of recommendations in the report. At Page 33, the consultant's comments were as follows:
"The selection of the preferred long-run target policy is a subjective one.
Most of the individuals with whom we reviewed this issue, have acknowledged
that there should be a distinction between residential and business properties.
There is considerable support for the view that the target consumption payment
ratio should be not more than 3 to 1. In the long run, we understand that much
of the impetus for the study has been a concern from the business sector."
It is quite clear from this quotation from the consultant's report, that no recommendation is attached, indeed they have very nearly framed the words in neon lights, that what they are submitting to the Council, is what the business interests have presented to them. And this has to do not with class shares but the tax rate
and what members of each class pay per each $1000 of market value.
All the more strange then that we often find in the publications of the business advocates the constant complaint that the tax is unfair because business does not vote, that business is shouldered aside in the municipal government. The truth, as regards the history of property tax policy, is that a great deal of the adjustment and measurement, and studying, and introduction of delays, caps, three year averaging and continual revisions in the property tax shares (five times in ten years) has been in response to constant self obsessed complaints of business. When one considers the occasions when the residential interest was served, the fact is that the severely skewed distribution of values of residences in Vancouver means once again it was the wealthy rate payers who gained most, just as wealthy business did. Residential rate payers only gained a little bit in what has really been a series of favors mostly to business with a few to the rich residential owners. The same is true of the property tax deferment measures as to amount. Them as has, gets; as they say.
[For the recital of benefits to business, and residential since 1989 see City of Vancouver Report of Finance Director to Committee on CS&B April 28,2005; Appendix E at pages 1, 2]
This is true even in the few cases of relief, supposedly for the benefit of homeowners on fixed incomes, such as three year averaging. It is true that this procedure smooths out a big increase that may come in one year, but the total amount of taxes that needs to be raised in that year (the tax LEVY) is still the same. If one homeowner does not pay as much of it as the system requires then some other homeowner and ratepayer must do so since that is what the city needs to operate, and the Provincial law requires that there be no deficit. If one asks what rate payers will make up the difference it will be all the rate payers who do not benefit, and given the numbers, that means the great majority of rate payers who have property values at $500,000 or less (that is, more than 60% of business and more than 96% of residential at values under $1,500,000).
[Letter from City Finance Department; February 28, response to inquiry re distribution of property ownership]
That is about as regressive as you can get.
"It must also be recognized that many people truly do not care that their
houses have risen steeply in value because they do not have any interest in
selling and moving. In this sense the increase in their wealth is illusory. In
many of these cases, the increase in wealth is not matched by any increase in
income.It is also true however that to soften the blow for those receiving the
large assessment increases means that those whose assessments increased less
will to pay more in taxes than otherwise."
[City of Vancouver; Report of Municipal Taxation Review Commission ; March 1989; Page 22]
It may be noted that the ordinary ratepayers of Vancouver, the great number of residential homeowners, are generous in their disposition of provide for what is needful, while the business people are mostly cheap and constantly complaining:
"Angus Reid reported that 68% of business community members surveyed believe
the current level of property taxes they pay are too high, a full 22% more
than residents. Further, Angus Reid reported that over 60% of residents
surveyed supported paying an additional eight percent in property taxes to help
maintain the level of services they currently receive. This compares to only
one third of all business respondents supporting a 4% tax increase."
[City of Vancouver; Director of Finance Report to Committee on CS&B April 24, 1997. Page 1. See also Ipsos Reid poll reported March 31,2004, Residents Prefer Property Tax Increase over Municipal service Cuts; Press Release.This latter
survey is residents, but does not report business].
And this conduct, as indicated in the Angus Reid survey, is despite the fact that there is no doubt the property tax is severely regressive. The regressive structure of the tax has been noted in several studies of the property tax in Canada:
"A comparison of the results of the different models generates some useful
observations. Regardless of the model, each suggests that the property tax is
regressive at the lower levels of the income scale."
[Property Taxation in Canada; Harry M. Kitchen; 1992; Canadian Tax Foundation; Page 52]
The same hands-off theme that we noted in the accountants' report when no opinion supporting the claim for business tax relief was offered, has been echoed in the comments of the City Manager of the City of Vancouver over the years, most recently in a policy report relating to property taxation. This policy report was presented by the Direct0r of finance to the Standing Committee on City Service at April 28,2005.
[City of Vancouver Policy Report--Property Tax; April 28,2004, CS&B Committee)
In this report we find the following at Page 2:
"The city manager notes that establishing property tax policy, is one of the
most difficult decisions a council must make. There is no formula and no right
or wrong answer to the question of how the cost of the city's tax report
and services should be distributed among the various property classes. Every
municipality throughout the Province must determine how their taxation
objectives should be reflected in tax distribution."
The city manager's opinion, so far as one is stated in this report, is shown in the next two paragraphs:
"The business community argues that the taxes on business classes are
inequitable compared to the residential classes and proposes a major change
in how tax rates are calculated and in the distribution of the LEVY. The city
manager is not supportive of this approach, noting that the proposal could
result in considerable instability in the distribution of the tax LEVY from
year to year, a result that council would be unable to control."
"As to the question of whether the business sector is bearing an unreasonable
share of the tax burden, the answer is not so straightforward. In the mid 1990s
the Council acknowledged an inequity and in five of nine years in 1994 to 2003
approved shifts of the tax levy totaling $15 million from the business to
residential classes. However, no target distribution was ever established."
The report goes on to note that what business was proposing as of 2005, was a whopping 18% increase to the residential class or $82 million shifted from the business class. The clearly excessive character of this claim shows a lack of good faith by business and their advocates. The point we make here is, is that there has never been, and there is not today, any justification given for such a massive change in tax policy, which already favors business to an extreme degree. And we maintain that the already existing tax policy is to be found right across the country.
Returning to some of the representations made by the business propagandists, we have noted that in the submissions of the Canadian Federation of Independent Business
and the Vancouver Board of Trade, we have seen no mention of the transfer of the business tax, the fact that any comparability of Vancouver with other western cities has to start with adding their business tax to their property tax, or the full appreciation of the advantages of passing on a tax, and tax deductibility that go to business.
To the contrary, where they mention tax deductibility at all it is for the purpose of complaining that many small business have a hard time making their way, as though there was any relief at all for the residential homeowner. Of course there is not, in the great majority of cases, and after three years of non-payment (with interest added every year) the property will be posted for tax sale. Why does the same CFIB which is constantly complaining about the myriad subsidies it sees everywhere, calling for the small business owner to be subsidised to the amount of a tax it passes on, will deduct, and therefore does not finally pay? Such an argument would be contradictory but it would make about as much sense as many of the propositions one can find in the arguments of the business advocates, that is, no sense at all.
Accordingly, there has been a standard and well-established history of a disproportion in property tax between business and residential shares for many years in Canada, affecting thousands of municipalities, at least 153 in BC alone.
There is further reason for an extra element of disproportion in Vancouver noting the the cancellation of the business tax in 1983. The very recent comparisons with other Western cities show that Calgary collects even more than Vancouver from business (at 2001 according to the figures published by a business advocate) when the merger of the business tax is taken into account. Also there is the critically important fact that the Federal and Provincial tax treatment of homeowners and business is unequal for good and necessary reasons in Canada. Compare the US homeowner who can make all the deductions. None of these matters are reflected reasonably (or at all, for the most part) in the propaganda of the Vancouver downtown business interest.
One has to wonder what would happen if the Federal government stopped allowing any of the various deductions that business can claim on property, such as the property tax, as it now forbids homeowners. Would business seek to recover it twice? It has already claimed the property tax now is an unfair burden on business, and that is under present conditions when deduct can deduct it.
Part 6 to come
Thursday, September 6, 2007
PROPERTY TAX IN VANCOUVER 4
PART 4
Reasons why the proportionate shares vary
Nowhere in the reports and commentary in the City of Vancouver web page, nor in the literature relating to property taxation do we find any explanation of how the different proportions of class shares came to exist in the first place. In one study, it is set out that in 1944 in Halifax an inquiry was carried out by a judge because people were concerned that American homeowners just across the border were taxed on a quite different basis than those in Canada. In the USA, then as now, a homeowner could deduct his property or 'real estate' tax from his federal income tax. A homeowner in Canada could not do that. A business in Canada however, could deduct their property tax from their corporate income tax just as a business could in the USA.
This position continues to this day. There is and was an obvious unfairness to this since the property tax was already profoundly regressive and there was no good reason to make it even more so. In Vancouver, about 5%of the properties (business) are worth over $5 million and more than 60% of the 12341 business (approximately) properties are worth $500,000 or less. In residential as well we find a similar distribution with over 60% of the 156,000 (approx.) properties having a value of less than $500,000 and only 3% having a value of $1.5 million or greater. With all properties taxable on the basis of the same tax rate (for each $1000 of market value) this is a wealth tax that rides lightly on the wealthy group of property owners but heavily on the majority, and is enough to break the economic endurance of many on fixed incomes. There will be some who have lavish homes long since paid for who are land rich but cash poor, but they will be few since the distribution of wealth is even more skewed than that of income in Canada.
[Letter. Vancouver City Finance response to inquiry. February 28,2006, as to the distribution of property values]
With business properties, the regressive range is even greater. But business will deduct its' property tax as part of the expenses of doing business. It will pay them when due, probably, but account for them as an expense and recover them as part of the price charged to its customers for its goods or services. When tax time comes, the business will be able to deduct that property tax from the taxes that it must pay to the government. For these reasons it seems odd that business would protest a tax that is so small it does not appear to form a significant role in the reasons why a business will locate in this or that city, and probably amounts to a cost of less than 2.5% of the tax burden of a business; In general business does not pay taxes, it passes them on.
Further, business will be able to deduct various other property connected expenses, such as mortgage interest, operating costs, as well as capital costs,and depreciation.
"Businesses ultimately do not bear taxes, they simply pass them on to
others-to customers in the form of higher prices, to suppliers and labor
through lower costs and wages, and to those who supply capital through lower
returns. But because businesses organize so much of our economic activity there
are circumstances that require them to be taxed so that the overall tax system
is more efficient , fairer, and easier to administer. One of the primary roles
of business taxation and particularly of the corporate income tax is to help
insure that all income of individuals is fully taxed, including corporate income
accruing to their benefit."
[Government of Canada, Dept. of Finance, Technical Committee on Business Taxation 1996 (members of the committee included persons from Ogilvy Renault, Ernst Young, Price Waterhouse, and various economists)].
Homeowners also, in the case of property used in part as a business, could make a tax deduction, though only proportionate to use. For instance, if a homeowner in Vancouver should renovate their property to make several basement rooms, which are then rented out to University students, or set aside a room fitted up as an office for their consulting home-based business, then the costs of that renovation based on this, could be charged off as a deduction against tax related to the income obtained based on the proportion of the square footage of the space used compared with the square footage of the house.
If there was a mortgage the mortgage interest could be deducted (proportionately). The expenses for heat and light, even cable TV can also be deducted from the income that is received from such "business". And, as well as the property tax, there is depreciation, renovation, all operating costs. What a person who uses a few hundred square feet of their home can charge off for business use,a business can do to the extent of 100%.
These are important advantages or relief from the property tax based upon the
tax law, and, the unfairness of double taxation in principle, as noted at Halifax.
From these provisions in the Canadian Federal Law [Income Tax Act, Sec.18] one can see that business has a very great advantage and relief from double taxation already built into tax law. There is every reason for Canadians across the country and in Vancouver to require not only that business should pay more of the of the property tax than residential homeowners, but that it should pay a lot more.
If there was any reasonable limit to what business should pay, some standard to use for a taxable limit, there does not appear to have been any effort by business advocates to say what that should be. They just complain about whatever now exists and show no lower limit or possible end to their demands. Perhaps they have been too busy complaining about what is really a big subsidy they do already receive.
We have noted that in the publications of the Board of Trade, there was reference to a 2.5:1 or even a 1:1 standard but even that, the business advocates claim, would still be a case of business providing a subsidy to residential owners. To the contrary we would say they, the businessmen, are the ones receiving a subsidy.
They do not admit or state a lower limit because they do not accept the idea that they should pay a tax. And they do not get specific about how much they can deduct because they could find themselves accused of receiving the subsidy, which is in fact the case. And when they talk about the property tax as "coming out of their profit" that is indeed what they mean. You could say that we have here a sort of Freudian slip. They perhaps are thinking of the profit they take out of the community.
The result of the inquiry in Halifax was that the Council stopped the rise in residential taxes and let the business tax start trending upward for a number of years. The picture we see clear across Canada is the one in Halifax and that is the standard one in Canada today.
So far we see three good reasons for the tax share of property tax to be much greater for business than for residential. There is the fact that business can deduct the tax paid from Federal and Provincial Income Tax, and deduct a variety of other costs on the basis of costs made or incurred in order to produce an income. the ability that business has to pass on the tax to its customers, and the merging of the Vancouver business tax into the property tax.
Part 5 to come
Reasons why the proportionate shares vary
Nowhere in the reports and commentary in the City of Vancouver web page, nor in the literature relating to property taxation do we find any explanation of how the different proportions of class shares came to exist in the first place. In one study, it is set out that in 1944 in Halifax an inquiry was carried out by a judge because people were concerned that American homeowners just across the border were taxed on a quite different basis than those in Canada. In the USA, then as now, a homeowner could deduct his property or 'real estate' tax from his federal income tax. A homeowner in Canada could not do that. A business in Canada however, could deduct their property tax from their corporate income tax just as a business could in the USA.
This position continues to this day. There is and was an obvious unfairness to this since the property tax was already profoundly regressive and there was no good reason to make it even more so. In Vancouver, about 5%of the properties (business) are worth over $5 million and more than 60% of the 12341 business (approximately) properties are worth $500,000 or less. In residential as well we find a similar distribution with over 60% of the 156,000 (approx.) properties having a value of less than $500,000 and only 3% having a value of $1.5 million or greater. With all properties taxable on the basis of the same tax rate (for each $1000 of market value) this is a wealth tax that rides lightly on the wealthy group of property owners but heavily on the majority, and is enough to break the economic endurance of many on fixed incomes. There will be some who have lavish homes long since paid for who are land rich but cash poor, but they will be few since the distribution of wealth is even more skewed than that of income in Canada.
[Letter. Vancouver City Finance response to inquiry. February 28,2006, as to the distribution of property values]
With business properties, the regressive range is even greater. But business will deduct its' property tax as part of the expenses of doing business. It will pay them when due, probably, but account for them as an expense and recover them as part of the price charged to its customers for its goods or services. When tax time comes, the business will be able to deduct that property tax from the taxes that it must pay to the government. For these reasons it seems odd that business would protest a tax that is so small it does not appear to form a significant role in the reasons why a business will locate in this or that city, and probably amounts to a cost of less than 2.5% of the tax burden of a business; In general business does not pay taxes, it passes them on.
Further, business will be able to deduct various other property connected expenses, such as mortgage interest, operating costs, as well as capital costs,and depreciation.
"Businesses ultimately do not bear taxes, they simply pass them on to
others-to customers in the form of higher prices, to suppliers and labor
through lower costs and wages, and to those who supply capital through lower
returns. But because businesses organize so much of our economic activity there
are circumstances that require them to be taxed so that the overall tax system
is more efficient , fairer, and easier to administer. One of the primary roles
of business taxation and particularly of the corporate income tax is to help
insure that all income of individuals is fully taxed, including corporate income
accruing to their benefit."
[Government of Canada, Dept. of Finance, Technical Committee on Business Taxation 1996 (members of the committee included persons from Ogilvy Renault, Ernst Young, Price Waterhouse, and various economists)].
Homeowners also, in the case of property used in part as a business, could make a tax deduction, though only proportionate to use. For instance, if a homeowner in Vancouver should renovate their property to make several basement rooms, which are then rented out to University students, or set aside a room fitted up as an office for their consulting home-based business, then the costs of that renovation based on this, could be charged off as a deduction against tax related to the income obtained based on the proportion of the square footage of the space used compared with the square footage of the house.
If there was a mortgage the mortgage interest could be deducted (proportionately). The expenses for heat and light, even cable TV can also be deducted from the income that is received from such "business". And, as well as the property tax, there is depreciation, renovation, all operating costs. What a person who uses a few hundred square feet of their home can charge off for business use,a business can do to the extent of 100%.
These are important advantages or relief from the property tax based upon the
tax law, and, the unfairness of double taxation in principle, as noted at Halifax.
From these provisions in the Canadian Federal Law [Income Tax Act, Sec.18] one can see that business has a very great advantage and relief from double taxation already built into tax law. There is every reason for Canadians across the country and in Vancouver to require not only that business should pay more of the of the property tax than residential homeowners, but that it should pay a lot more.
If there was any reasonable limit to what business should pay, some standard to use for a taxable limit, there does not appear to have been any effort by business advocates to say what that should be. They just complain about whatever now exists and show no lower limit or possible end to their demands. Perhaps they have been too busy complaining about what is really a big subsidy they do already receive.
We have noted that in the publications of the Board of Trade, there was reference to a 2.5:1 or even a 1:1 standard but even that, the business advocates claim, would still be a case of business providing a subsidy to residential owners. To the contrary we would say they, the businessmen, are the ones receiving a subsidy.
They do not admit or state a lower limit because they do not accept the idea that they should pay a tax. And they do not get specific about how much they can deduct because they could find themselves accused of receiving the subsidy, which is in fact the case. And when they talk about the property tax as "coming out of their profit" that is indeed what they mean. You could say that we have here a sort of Freudian slip. They perhaps are thinking of the profit they take out of the community.
The result of the inquiry in Halifax was that the Council stopped the rise in residential taxes and let the business tax start trending upward for a number of years. The picture we see clear across Canada is the one in Halifax and that is the standard one in Canada today.
So far we see three good reasons for the tax share of property tax to be much greater for business than for residential. There is the fact that business can deduct the tax paid from Federal and Provincial Income Tax, and deduct a variety of other costs on the basis of costs made or incurred in order to produce an income. the ability that business has to pass on the tax to its customers, and the merging of the Vancouver business tax into the property tax.
Part 5 to come
Sunday, September 2, 2007
PROPERTY TAX IN VANCOUVER 3
Part 3
Tax Shares across Canada and some history
It can be seen that the different municipalities have a great range of variance in their tax policy on the residential and business split in property tax shares. It would be impossible to take a meaningful average or even a useful central number. One could say that where Vancouver business is complaining that the ratio is as high as 5 to 1 for the amount paid by business compared to the amount paid by residential (per $1000 of market value) they could always relocate, for example, to Thasis, where the ratio is very nearly 1 to 1. But then one does not expect a large business such as a department store like The Bay or a big building owner like Bentall or a large employer like the telephone company to do that, except for setting up small branch locations. Such businesses are in Vancouver because that is where the people are who are the mass of tenants, customers, or, employees that permit the development of large businesses that have need of many people, people with cars. One does not expect to find a Wall Mart in Thasis.
Why should the Vancouver ratio be even compared to Thasis? Where is this Vancouver Island metropolis' international seaport and container docking facilities; where is their international airport; their transcontinental rail center; the million plus concentration of population made easily mobile to the whole Lower Mainland area by a super modern road, rail,Skytrain, Seabus, and cheap bus network. In fact it would be very easy to go on with as many tag lines as are found in the tourist propaganda used by business to lure employees and customers to Vancouver, including sports stadiums, mountain chair rides, water pleasures in a harbor littered with little sail boats and all the way up to giant ocean liners. There is no rational basis for any business claim for any sort of "fair"average when this is the range in the distribution of municipal types.
The same is true across Canada. If we consider the largest seven Western cities we find that the the business versus the residential share of property tax ranges from 1.9 in Regina to 5.3 in Calgary (greater than the claim business makes against Vancouver). That is to say the business tax actually paid by business as its share in Calgary is 5.3 times the residential tax. Vancouver is second at 5.2 with Edmonton at 3.4 and Victoria is 2.6. The average of the seven western cities is 3.3. Once again we see the range is so great that we could not fix a reasonable average as a class or central tendency. We could also notice that these figure are from 2001, and Vancouver is not the highest, for that is Calgary, known to be place seething with extreme pro business propaganda.
[Canadian Federation of Independent Business; April 11,2005. Submission to Saskatoon City Council; Commercial to Residential Property Tax Ratios, Page 1--no source is given except CFIB calculations but the numbers are the same as found in another CFIB publication in 2004 titled Alberta's Property Tax System where there is reference to the source as the Government of Alberta, Department of Municipal Affairs for the Alberta numbers].
The Vancouver level of business tax is greater than what is stated for some other cities in part because in Vancouver a business tax which existed until 1983, was shifted in that year to the property tax, and the separate business tax on the value of rented property was discontinued. After 1983, there is no separate business tax in Vancouver where the property tax was reworked to add in the business tax (a $36 million transfer at the time). While such a tax does continue in cities like Calgary, Edmonton, and Winnipeg. In fact, Calgary recently complete a several year study and concluded the City should keep the business tax, as well as the property tax, so the argument for the business tax reduction as constantly made in BC would not fall on
fertile ground in in Calgary.
For this reason one has to add the business tax to those other cities before making a comparison to Vancouver. The comparison we have chosen here,is one that we found published by the Canadian Federation of Independent Business. This is one of the more extreme of the business advocates continually attacking the business share of the tax right across the country. In their writings it seems they do not believe any share greater than 50% is fair, and since they never actually say what share would be fair, one suspects that if the share was 50% they would stop demanding a level playing field and turn to some other complaint (such as what a hard time small business had making a dollar-as though the ordinary home owner did not- even though the property tax is deductible from Federal and Provincial Tax for business but not for the homeowner).
[CFIB-Submission to Saskatoon City Council Re: 2005 Operating Budget, April 11,2005]
In other words, even if the Vancouver business share translated into an actual total payment at a ratio of 1:1 for business, in order to make a comparison with the other large cities in Western Canada, on the basis of the tax rate (not the share of the LEVY)) one would have to add the business tax revenue, as it would total today, to the business tax to add up their payment obligations in Vancouver which they must maintain in addition to the business property tax. The ratios stated for the other cities need to have the two taxes added together, for a comparison.
But it is clear that when the business tax was ended it was not canceled but moved over, added, to the existing property tax in Vancouver:
"The business tax was phased out over three years, however the city did not
reduce its' revenue requirements. The foregoing business tax revenue was added
to the assessment based property tax levy. By 1985 this represented a transfer
of approximately $36 million from the business tax to assessment based taxes."
[Letter , Director of Finance, City of Vancouver, August 16,2004; Response to personal inquiry]
The reason for this is not clear but it seems to be related to the Expo 86 effect when many property values rose a lot from 1981 forward, and there was a good deal of property speculation, as there were expectations of financial rewards associated with the six month Expo 86 Exhibition. This must have led to big change in the mass of residential and business property values which would lead to a jump in the amount of property taxes payable by business, whether or not there was a similar rise in business properties value due to the number of properties, because of the business share of the LEVY and the effect of the relative numbers. On the other hand there are accounts which speak of a rapid rise of rates within the business class. The City had not yet, as of 1983, been awarded the right to set variable rates for the classes of properties. Since these matters became uncertain with the calling of an election, the City considered the only way it could redistribute with certainty some of the LEVY to the residential side was by this means. It is not clear why that should be a goal of City finance at all, but this is the account that this writer has seen bits of in the various City documents. This then may be yet another example of the City helping out business, as has been done so often.
Part 4 to follow
Tax Shares across Canada and some history
It can be seen that the different municipalities have a great range of variance in their tax policy on the residential and business split in property tax shares. It would be impossible to take a meaningful average or even a useful central number. One could say that where Vancouver business is complaining that the ratio is as high as 5 to 1 for the amount paid by business compared to the amount paid by residential (per $1000 of market value) they could always relocate, for example, to Thasis, where the ratio is very nearly 1 to 1. But then one does not expect a large business such as a department store like The Bay or a big building owner like Bentall or a large employer like the telephone company to do that, except for setting up small branch locations. Such businesses are in Vancouver because that is where the people are who are the mass of tenants, customers, or, employees that permit the development of large businesses that have need of many people, people with cars. One does not expect to find a Wall Mart in Thasis.
Why should the Vancouver ratio be even compared to Thasis? Where is this Vancouver Island metropolis' international seaport and container docking facilities; where is their international airport; their transcontinental rail center; the million plus concentration of population made easily mobile to the whole Lower Mainland area by a super modern road, rail,Skytrain, Seabus, and cheap bus network. In fact it would be very easy to go on with as many tag lines as are found in the tourist propaganda used by business to lure employees and customers to Vancouver, including sports stadiums, mountain chair rides, water pleasures in a harbor littered with little sail boats and all the way up to giant ocean liners. There is no rational basis for any business claim for any sort of "fair"average when this is the range in the distribution of municipal types.
The same is true across Canada. If we consider the largest seven Western cities we find that the the business versus the residential share of property tax ranges from 1.9 in Regina to 5.3 in Calgary (greater than the claim business makes against Vancouver). That is to say the business tax actually paid by business as its share in Calgary is 5.3 times the residential tax. Vancouver is second at 5.2 with Edmonton at 3.4 and Victoria is 2.6. The average of the seven western cities is 3.3. Once again we see the range is so great that we could not fix a reasonable average as a class or central tendency. We could also notice that these figure are from 2001, and Vancouver is not the highest, for that is Calgary, known to be place seething with extreme pro business propaganda.
[Canadian Federation of Independent Business; April 11,2005. Submission to Saskatoon City Council; Commercial to Residential Property Tax Ratios, Page 1--no source is given except CFIB calculations but the numbers are the same as found in another CFIB publication in 2004 titled Alberta's Property Tax System where there is reference to the source as the Government of Alberta, Department of Municipal Affairs for the Alberta numbers].
The Vancouver level of business tax is greater than what is stated for some other cities in part because in Vancouver a business tax which existed until 1983, was shifted in that year to the property tax, and the separate business tax on the value of rented property was discontinued. After 1983, there is no separate business tax in Vancouver where the property tax was reworked to add in the business tax (a $36 million transfer at the time). While such a tax does continue in cities like Calgary, Edmonton, and Winnipeg. In fact, Calgary recently complete a several year study and concluded the City should keep the business tax, as well as the property tax, so the argument for the business tax reduction as constantly made in BC would not fall on
fertile ground in in Calgary.
For this reason one has to add the business tax to those other cities before making a comparison to Vancouver. The comparison we have chosen here,is one that we found published by the Canadian Federation of Independent Business. This is one of the more extreme of the business advocates continually attacking the business share of the tax right across the country. In their writings it seems they do not believe any share greater than 50% is fair, and since they never actually say what share would be fair, one suspects that if the share was 50% they would stop demanding a level playing field and turn to some other complaint (such as what a hard time small business had making a dollar-as though the ordinary home owner did not- even though the property tax is deductible from Federal and Provincial Tax for business but not for the homeowner).
[CFIB-Submission to Saskatoon City Council Re: 2005 Operating Budget, April 11,2005]
In other words, even if the Vancouver business share translated into an actual total payment at a ratio of 1:1 for business, in order to make a comparison with the other large cities in Western Canada, on the basis of the tax rate (not the share of the LEVY)) one would have to add the business tax revenue, as it would total today, to the business tax to add up their payment obligations in Vancouver which they must maintain in addition to the business property tax. The ratios stated for the other cities need to have the two taxes added together, for a comparison.
But it is clear that when the business tax was ended it was not canceled but moved over, added, to the existing property tax in Vancouver:
"The business tax was phased out over three years, however the city did not
reduce its' revenue requirements. The foregoing business tax revenue was added
to the assessment based property tax levy. By 1985 this represented a transfer
of approximately $36 million from the business tax to assessment based taxes."
[Letter , Director of Finance, City of Vancouver, August 16,2004; Response to personal inquiry]
The reason for this is not clear but it seems to be related to the Expo 86 effect when many property values rose a lot from 1981 forward, and there was a good deal of property speculation, as there were expectations of financial rewards associated with the six month Expo 86 Exhibition. This must have led to big change in the mass of residential and business property values which would lead to a jump in the amount of property taxes payable by business, whether or not there was a similar rise in business properties value due to the number of properties, because of the business share of the LEVY and the effect of the relative numbers. On the other hand there are accounts which speak of a rapid rise of rates within the business class. The City had not yet, as of 1983, been awarded the right to set variable rates for the classes of properties. Since these matters became uncertain with the calling of an election, the City considered the only way it could redistribute with certainty some of the LEVY to the residential side was by this means. It is not clear why that should be a goal of City finance at all, but this is the account that this writer has seen bits of in the various City documents. This then may be yet another example of the City helping out business, as has been done so often.
Part 4 to follow
Saturday, September 1, 2007
PROPERTY TAX IN VANCOUVER 2
Part 2
Review of the shares
Despite the modest majority share contribution of business, the business advocates lose no opportunity to protest that this is unreasonable. In a Vancouver Board of Trade publication dated March 16, 2005 (found on their website) we see the following:
"Businesses pay huge subsidies in property taxes. Property taxes paid by business
to City governments-and particularly the civic property tax on business properties in the City of Vancouver are badly distorted."
The fact is that the proportions as stated above can scarcely be described as "huge" and they are to be found everywhere in the Country:
"The foregoing property tax comparisons have not separated the residential from
non residential components. This has been dictated by the fact that the data
for interprovincial comparative purposes are almost never separated according to
those two property classifications.
In addition comparisons of effective
property tax rates on residential versus non residential properties always
indicate higher effective tax rates on the non residential sector. This is not
surprizing: it has been a deliberate policy objective of all Provincial
governments, either through their assessment practices or through the imposition
of differential property tax rates, in effect if not by explicit policy, to
impose higher taxes on the non residential sector."
[Property Taxation in Canada. Harry M Kitchen, 1992, P.14]
According to the city manager's office, the distribution of shares has not changed greatly since the 1980s; as of 1984 residential paid 39.7% of the property tax yearly levy, while business paid 54.7%; and at 2004 residential paid 43.3% while business paid 52.8%. Council has long had a policy of maintaining fixed shares for the contribution of each of the residential and business sectors but there have been changes since 1995. The principal reason for year to year differences is that particularly since 1995 business interests have been able to persuade the Council that the existing shares were somehow unfair and over a number of years (at least five times since 1995) the Council has systematically transferred a series of share amounts from business to residential to a total of many millions of dollars making for an increasing burden to be paid by the residential class. The business share of the LEVY has gone from 54.7% in 1984 to 52.8% in 2004; while the residential share has gone from 39.7% in 1984 to 43.3% in 2004.
[Policy Report to Committee on CS&B; April 28, 2005; Appendix D page 2 of 7]
In other words, the homeowners' property tax burden has been increased while the burden for business has been decreased by five transfers over the past ten years, although the statement on shares does not show the absolute sums in terms of tax rates. In that matter we find that the tax rate for business has gone from $13.64 in 1984 to $16.75 in 2004. The tax rate for residential in dollar amounts has gone from $5.20 in 1984 to $3.06 in 2004.
[Policy Report Committee on CS&B; April 28, 2005]
Business usually states the amount of its payments as a ratio or tax rate which is the amount to be collected from the class compared to the total value of all the properties in the class. While business may be required, as at present, to pay a 56% share of the total amount of the property tax, there are other relevant numbers that complicate the picture. There are about 12,341 businesses paying the tax in Vancouver but 156,387 properties that are residential.
[Response to inquiry to City of Vancouver Finance Department, February 28,2006]
Further, the rate of change in property values over time in the city is often not closely matched, so that business properties may increase in value a a rate much quicker than residential, or vice versa. Or groups of taxpayers within a class may find that their property values are increasing much quicker than some others, or than the business, class, or than some other residential areas in the city. The resulting figures may also be clouded by relief measures that are put in place in some years but not others ,such as measures to defer the taxes that are paid, as by a delay, or an averaging method over three years.
In result, the working of this arithmetic produces a situation in which the class share of business may be in the 50% range but the tax payments required will be a rate which is the proportion of the tax to be paid by the class divided by the total value of all the properties in the class, and that rate multiplied against the value of the particular property in units of $1000. Business now claims that what it pays compared to what residential pays in terms of that rate is a difference of over 5:1 and should be 3:1 or even 1:1. The rate now in place has the business class paying at a rate of over $16 for each $1000 of any particular property value; while residential would b e paying at a rate of just over $3 for each $1000 of property value.
If we look at other towns in BC, we can see that the division of property tax into shares and the practice of business being required to pay an amount which may turn out to be a number of times the residential rate (not the class share) can be found throughout the Province. A summary table of municipalities, their shares and payments was attached to a publication by the Board of Trade at February 19, 2002, in a letter sent to a Provincial Government Minister.
[Letter February 19,2002. Vancouver Board of Trade to Ted Nebbeling ,Minister of State for the Community Charter. see Board of Trade web page.]
The list was based on "2001 Business to Residential Tax Rate Comparisons" and contains 153 communities in BC which appears to be all the communities of even modest size. The largest ratio in terms of amount actually payable by businesses was Kimberley at approximately 7:1 with Vancouver third at 4.9:1. The remaining communities go all the way down to 1:1. The communities that are less than 2 to 1 number approximately 30 of the 153. In Tahsis for instance, business as a class was to pay no more than residential, in property tax money at 2001.
One recalls that this is a list based on the tax rate, and so is a comparison of what the business taxpayer is obliged to pay when they multiply the tax rate for business by the value of their property in units of $1000. It is not a comparison of property tax shares. The source of this table is not given, so we are assuming that it is taken from a Government source. We note that in this document the Board of Trade is calling for a shares distribution of 2.5:1 although there is no obvious connection between the tax rate cited for Vancouver and that rate, and no explanation at all for the departure from the figure of 3:1 that business recommended to KPMG accountants in 1995 when a study was done by the accountants for the City on the matter. The figure or ratio of 3:1 is also spoken of today in business broadsides and letters to government. It appears this figure is not based on history, rates in BC or Canada generally, or rates in accord with any accounting convention. It is just picked out of the air.
Part 3 to follow
Review of the shares
Despite the modest majority share contribution of business, the business advocates lose no opportunity to protest that this is unreasonable. In a Vancouver Board of Trade publication dated March 16, 2005 (found on their website) we see the following:
"Businesses pay huge subsidies in property taxes. Property taxes paid by business
to City governments-and particularly the civic property tax on business properties in the City of Vancouver are badly distorted."
The fact is that the proportions as stated above can scarcely be described as "huge" and they are to be found everywhere in the Country:
"The foregoing property tax comparisons have not separated the residential from
non residential components. This has been dictated by the fact that the data
for interprovincial comparative purposes are almost never separated according to
those two property classifications.
In addition comparisons of effective
property tax rates on residential versus non residential properties always
indicate higher effective tax rates on the non residential sector. This is not
surprizing: it has been a deliberate policy objective of all Provincial
governments, either through their assessment practices or through the imposition
of differential property tax rates, in effect if not by explicit policy, to
impose higher taxes on the non residential sector."
[Property Taxation in Canada. Harry M Kitchen, 1992, P.14]
According to the city manager's office, the distribution of shares has not changed greatly since the 1980s; as of 1984 residential paid 39.7% of the property tax yearly levy, while business paid 54.7%; and at 2004 residential paid 43.3% while business paid 52.8%. Council has long had a policy of maintaining fixed shares for the contribution of each of the residential and business sectors but there have been changes since 1995. The principal reason for year to year differences is that particularly since 1995 business interests have been able to persuade the Council that the existing shares were somehow unfair and over a number of years (at least five times since 1995) the Council has systematically transferred a series of share amounts from business to residential to a total of many millions of dollars making for an increasing burden to be paid by the residential class. The business share of the LEVY has gone from 54.7% in 1984 to 52.8% in 2004; while the residential share has gone from 39.7% in 1984 to 43.3% in 2004.
[Policy Report to Committee on CS&B; April 28, 2005; Appendix D page 2 of 7]
In other words, the homeowners' property tax burden has been increased while the burden for business has been decreased by five transfers over the past ten years, although the statement on shares does not show the absolute sums in terms of tax rates. In that matter we find that the tax rate for business has gone from $13.64 in 1984 to $16.75 in 2004. The tax rate for residential in dollar amounts has gone from $5.20 in 1984 to $3.06 in 2004.
[Policy Report Committee on CS&B; April 28, 2005]
Business usually states the amount of its payments as a ratio or tax rate which is the amount to be collected from the class compared to the total value of all the properties in the class. While business may be required, as at present, to pay a 56% share of the total amount of the property tax, there are other relevant numbers that complicate the picture. There are about 12,341 businesses paying the tax in Vancouver but 156,387 properties that are residential.
[Response to inquiry to City of Vancouver Finance Department, February 28,2006]
Further, the rate of change in property values over time in the city is often not closely matched, so that business properties may increase in value a a rate much quicker than residential, or vice versa. Or groups of taxpayers within a class may find that their property values are increasing much quicker than some others, or than the business, class, or than some other residential areas in the city. The resulting figures may also be clouded by relief measures that are put in place in some years but not others ,such as measures to defer the taxes that are paid, as by a delay, or an averaging method over three years.
In result, the working of this arithmetic produces a situation in which the class share of business may be in the 50% range but the tax payments required will be a rate which is the proportion of the tax to be paid by the class divided by the total value of all the properties in the class, and that rate multiplied against the value of the particular property in units of $1000. Business now claims that what it pays compared to what residential pays in terms of that rate is a difference of over 5:1 and should be 3:1 or even 1:1. The rate now in place has the business class paying at a rate of over $16 for each $1000 of any particular property value; while residential would b e paying at a rate of just over $3 for each $1000 of property value.
If we look at other towns in BC, we can see that the division of property tax into shares and the practice of business being required to pay an amount which may turn out to be a number of times the residential rate (not the class share) can be found throughout the Province. A summary table of municipalities, their shares and payments was attached to a publication by the Board of Trade at February 19, 2002, in a letter sent to a Provincial Government Minister.
[Letter February 19,2002. Vancouver Board of Trade to Ted Nebbeling ,Minister of State for the Community Charter. see Board of Trade web page.]
The list was based on "2001 Business to Residential Tax Rate Comparisons" and contains 153 communities in BC which appears to be all the communities of even modest size. The largest ratio in terms of amount actually payable by businesses was Kimberley at approximately 7:1 with Vancouver third at 4.9:1. The remaining communities go all the way down to 1:1. The communities that are less than 2 to 1 number approximately 30 of the 153. In Tahsis for instance, business as a class was to pay no more than residential, in property tax money at 2001.
One recalls that this is a list based on the tax rate, and so is a comparison of what the business taxpayer is obliged to pay when they multiply the tax rate for business by the value of their property in units of $1000. It is not a comparison of property tax shares. The source of this table is not given, so we are assuming that it is taken from a Government source. We note that in this document the Board of Trade is calling for a shares distribution of 2.5:1 although there is no obvious connection between the tax rate cited for Vancouver and that rate, and no explanation at all for the departure from the figure of 3:1 that business recommended to KPMG accountants in 1995 when a study was done by the accountants for the City on the matter. The figure or ratio of 3:1 is also spoken of today in business broadsides and letters to government. It appears this figure is not based on history, rates in BC or Canada generally, or rates in accord with any accounting convention. It is just picked out of the air.
Part 3 to follow
PROPERTY TAX IN VANCOUVER 1
Unfair to Residents
Part 1 of
For years business advocates in Vancouver have been complaining against a particular tax. When the facts are examined it is difficult to understand why. This tax is a small burden even if business had to bear it. In the end it is probably less than 2.5% of the total burden of taxes on business. It is a burden that has been declining for more than forty years. It is a tax for which business has already been provided with many benefits by the City. It is a tax that business will pass on to its customers. It is a tax, in the first instance, that business, unlike the homeowner, is able to deduct from its taxable income. This makes the intensity of the fight waged by business very questionable.
What can explain the extreme statements that are made by business advocates like the Board of Trade. the Canadian Federation of Independent Business, the Canadian Tax Federation, and political figures who read the pronouncements of such groups, and adopt them. Such groups have produced a whole series of unreasonable and distorted claims, about this tax, the property tax. These claims about its importance and weight have long since been dismissed by respectable studies including those produced by right wing groups such as the Canada West Foundation (Calgary), as well as by the leading scholars on the subject of property taxation in Canada.
The General Situation
In general, property is taxed in Vancouver in much the same way as it is in thousands of municipalities across Canada, including all the big cities. The amount of property tax, and the fact that businesses are treated as a separate class, as are homeowners, with almost all of th total city property tax recovered by fixed shares, contributed by each of these classes, business and residential, is much the same across the country, and this position has existed for many decades.
The property to be taxed , is divided into classes. In BC the amount of contribution from each class is fixed and may be varied by the municipality although it is established in the first place by Provincial statute. The municipalities in BC have the freedom to fix the proportion of the total tax or LEVY of funds required each year that will be paid by each of the two main property classes. The city can change some of the other classes that exist, small ones, as well, but these small contributors have special rules and formulas that are often set by other bodies or other legislation of the Province or by historical tradition. They only amount to 2% to 5% of the total yearly operating requirement or LEVY of the City.
We will not deal with them here. There is also a large school tax, but since the Province sets this tax, not the City, we do not deal with that here as the City appears to be a collector by compulsion of law, the Provincial law.
The classes of property in BC are created by a Provincial Act (the Assessment Act) which also establishes an independent Assessment Commission that decides the fair market value of all properties in the Province on an annual basis. With the Commission providing an independent valuation, the municipalities are then permitted to vary the property tax to be obtained from each of the classes of property owners. In the case of Vancouver this is done in a special Act, the Vancouver Charter.
Although there are eight classes, only two account for 98% of the property tax, and these are Residential, Class 01; and Business, Class 06. It is not clear how the smaller classes fit into this picture at 2% to 5% of the total amount of the LEVY since the figures vary a little from one source to another as to what they amount to.
[Task Force on Property
Taxation. City of Vancouver./ Report to Council; April, 22,1994 at pp. 11 to 13]
While these two big classes, business and residential, amount to almost all of the property tax, the shares are not equal, and this seems to be the basis of the continual agitation by business, which has obtained many favors from the City. The share of the property tax that is paid by business is greater than the share that is paid by homeowners. Referring to these classes as residential and business, the shares are 44% and 56% respectively. The policy of the City has been to try to keep the shares constant, but property values have increased within the residential share more rapidly than in the business share, and the ratio of business to residential is about 1:12 in property numbers so that there is a big difference between the shares of each class and the actual payments of the members of each class.
[City of Vancouver Policy Report April 28,2005-Director of Finance to Standing Committee on City Services and Budgets; and- Task Force on Property Taxation, 1994, page 13]
This distribution of property tax in which the property tax has classes of those who pay, that business pays more than residential, and that the two are treated separately from the other classes is also typical across the Province and the country. The actual proportions vary a great deal, as would be expected with each municipality able to set these proportions and change them, year to year, as their Councils may decide.
Part 2 to come
Part 1 of
For years business advocates in Vancouver have been complaining against a particular tax. When the facts are examined it is difficult to understand why. This tax is a small burden even if business had to bear it. In the end it is probably less than 2.5% of the total burden of taxes on business. It is a burden that has been declining for more than forty years. It is a tax for which business has already been provided with many benefits by the City. It is a tax that business will pass on to its customers. It is a tax, in the first instance, that business, unlike the homeowner, is able to deduct from its taxable income. This makes the intensity of the fight waged by business very questionable.
What can explain the extreme statements that are made by business advocates like the Board of Trade. the Canadian Federation of Independent Business, the Canadian Tax Federation, and political figures who read the pronouncements of such groups, and adopt them. Such groups have produced a whole series of unreasonable and distorted claims, about this tax, the property tax. These claims about its importance and weight have long since been dismissed by respectable studies including those produced by right wing groups such as the Canada West Foundation (Calgary), as well as by the leading scholars on the subject of property taxation in Canada.
The General Situation
In general, property is taxed in Vancouver in much the same way as it is in thousands of municipalities across Canada, including all the big cities. The amount of property tax, and the fact that businesses are treated as a separate class, as are homeowners, with almost all of th total city property tax recovered by fixed shares, contributed by each of these classes, business and residential, is much the same across the country, and this position has existed for many decades.
The property to be taxed , is divided into classes. In BC the amount of contribution from each class is fixed and may be varied by the municipality although it is established in the first place by Provincial statute. The municipalities in BC have the freedom to fix the proportion of the total tax or LEVY of funds required each year that will be paid by each of the two main property classes. The city can change some of the other classes that exist, small ones, as well, but these small contributors have special rules and formulas that are often set by other bodies or other legislation of the Province or by historical tradition. They only amount to 2% to 5% of the total yearly operating requirement or LEVY of the City.
We will not deal with them here. There is also a large school tax, but since the Province sets this tax, not the City, we do not deal with that here as the City appears to be a collector by compulsion of law, the Provincial law.
The classes of property in BC are created by a Provincial Act (the Assessment Act) which also establishes an independent Assessment Commission that decides the fair market value of all properties in the Province on an annual basis. With the Commission providing an independent valuation, the municipalities are then permitted to vary the property tax to be obtained from each of the classes of property owners. In the case of Vancouver this is done in a special Act, the Vancouver Charter.
Although there are eight classes, only two account for 98% of the property tax, and these are Residential, Class 01; and Business, Class 06. It is not clear how the smaller classes fit into this picture at 2% to 5% of the total amount of the LEVY since the figures vary a little from one source to another as to what they amount to.
[Task Force on Property
Taxation. City of Vancouver./ Report to Council; April, 22,1994 at pp. 11 to 13]
While these two big classes, business and residential, amount to almost all of the property tax, the shares are not equal, and this seems to be the basis of the continual agitation by business, which has obtained many favors from the City. The share of the property tax that is paid by business is greater than the share that is paid by homeowners. Referring to these classes as residential and business, the shares are 44% and 56% respectively. The policy of the City has been to try to keep the shares constant, but property values have increased within the residential share more rapidly than in the business share, and the ratio of business to residential is about 1:12 in property numbers so that there is a big difference between the shares of each class and the actual payments of the members of each class.
[City of Vancouver Policy Report April 28,2005-Director of Finance to Standing Committee on City Services and Budgets; and- Task Force on Property Taxation, 1994, page 13]
This distribution of property tax in which the property tax has classes of those who pay, that business pays more than residential, and that the two are treated separately from the other classes is also typical across the Province and the country. The actual proportions vary a great deal, as would be expected with each municipality able to set these proportions and change them, year to year, as their Councils may decide.
Part 2 to come
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