PROPERTY TAX IN VANCOUVER 8

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