PROPERTY TAX IN VANCOUVER 11

Part 11 How the structure of the tax works

BASIC RULE: The TAX RATE for the class is the amount of the tax to be collected from the class (the class share or part of the LEVY) Divided by th total taxable value of all the properties in the class.


There are a variety of effects produced by this critical determinant of the property tax. Each class is confined to collecting all the tax that class will pay from among its members. The city set the class shares of the LEVY. the operating funds it will need for the current year. The market values that that start the procedure are not set or influenced by the City or the class members (although there is an appeal from the assessments of the the Assessment Authority). The city does not set the LEVY but does decide what is the total amount of money that will be needed for the current year's operating costs, and the shares each class will pay as a class. The LEVY is not tied to any individual or class member. But since the tax is to be collected from a class there is a large difference between the share a class must pay and the absolute amounts the different members of the class must pay, based, in turn, on the property tax values. It is at this point that a number very different from the class shares enters and then dominates the picture. Since there are about 12,341 business properties and 156,387 residential properties that must affect the amount that will be paid by each member.If we know the City has set the class shares at, say, 60% for business and 40% for residential, how will we decide what each owner is to pay? This
is why, as was recited in the KPMG report, the share of the classes in the LEVY and the amount based on the tax re derived from the formula above is quite different.

In 2004 the shares were 43% residential and 54% business; while the tax rate, derived from the formula, was $3.06 per $1000 of taxable value for residential and $16.75 for business. It is the tax rate figures that the business advocates cite when presenting their standard complaints. When they say the rate should be 2:1 or 3:1 and it is ion fact 5:1, it is the working of the size of the population of the class and the total amount of money to be paid by that class, leadilng to a simple division for the sum to be paid by each member, that they are complaining about. The main reason for this is quite simply that there are about 12,000 businesses and 157,000 residences and we have very, very big numbers at one end of the range of values for business properties.

On the other side residents can complain about regressive features of this approach that treats the very poor and marginal in the same way in business while the very rich in either business or residential are receiveing tax favors. It is as the classical French author Rabelais, wrote, that "...the law in its Majesty prohibits the Rich and the Poor from Sleeping under Bridges." It is even handed alright, but it is not fair by any reasonable description of the rules from making a non regressive tax.


But this disproportion does not make valid any claim of business that some business may be struggling to earn an income, and therefore should be assisted. What might appear unfair in the proportions of that tax rate contrasted to the tax share is immediately affected by the overt riding importance of tax deductibility to the great benefit of business with not such benefit to residential.Yet the benefit to both could exist and does so kn the United States with no apparent damage to business interests in that country where it is said that the business of the United States is business.



This can be see most clearly by looking at the contrasting case of residential owners who devotes some part of their household to a business use. Very substantial benefit is obtained from tax deductibility. Such a residential owner can deduct, proportionate to the use of the property, property tax, maintenance, mortgage interest, running expenses, and even depreciation from the income so earned as, say rent from University students in Point Grey.The residential owner however, who does not conduct a business from his house is required to pay his full tax just as the business is, but he cannot deduct it when doing his Federal Provincial Taxes. There is no basis whatever for either one of them to make an argument that he should not have to pay on the basis of market value because he is having difficulty making an income. This is because the property tax is a tax on wealth not on income. The fact is that in the case of the residential property, as in the case of business property, there is the difficulty, in the set up of property taxation, of a small quantity of very large numbers at one end of the distribution and a very large quantity of small numbers for most of the rest. There cannot be any possible justification for increasing what is already a severely regressive taxation system by further subsidies for big business or for small business where the tax is avoided. So the argument that some businesses are not doing well is not valid any more than any subsidy claim would be, which is really what the claim is about.


All the theoretical and economic arguments for reducing the business share of the tax based upon economic jargon such as foregoing opportunities for expansion, loss of job creation, and so forth, all have no application at all where no case is made that the existing distribution in Vancouver is very much different from the distribution of other large cities in Western Canada, or where there is no evidence whatsoever that the existing Vancouver tax has had any substantial effect upon location.


It is also true that there is nothing in the Assessment Act, the Vancouver Charter, or the history of the Property Tax that suggests in any way that the ratio or share of the tax to be paid by any class is supposed to bear any particular relation to the costs of operating a Municipality. There is no objective reason why the class shares should be in any particular shares. The legislative procedure is described in a 1989 Vancouver City Tax Review:


"The Charter authorizes the general purpose taxation of all non exempt real property in the City. As soon as the estimates for the year (budget) have been adopted by Council, the City is obliged to pass a rating bylaw. This bylaw imposes a rate levy on each parcel of property shown as taxable on the assessment roll prepared pursuant to the assessment act. Each class of property has a separate rate. The rate of levy multiplied by the total of the net taxable value shown on the assessment roll must raise by way of taxes a sum sufficient to meet the City's budget requirements. Te Variable tax rate system which came in to effect in 1983 obliges the City to impose a rate for each property class. The Order in Council presently specifies nine classes and the City imposes rate on seven of those nine classes."


[City of Vancouver, Report of Municipal Taxation Review Commission, March 1989, Page 22]




We note that there is nothing in this procedure that suggests any particular distribution and nothing in the practice of the different Municipalities in BC that suggests any rule for each class, and we see tax rates all the way from 1:1 up to more than 7:1 and in some of the minor classes (other than business and residential) the spread may be even greater. All the claims, or sneaky hints, of the businesspropagandists that it is somehow undfair that business pay more than a ratio of 1:1, or even that much, are claims supported only by thin air.


The point so often made that is is unfairness which is done or indulged in because businesses do not vote fails to recognize that even if it did that would be about 12,000 businesses against about 157,000 residential voters (where it is not one vote per dollar of property value but one vote per ratepayer. Business fears such votes and seeks by any means to avoid them. There was a time when money did directly vote, or when one but money could effectively vote, a couple of centuries ago (English "rotten boroughs"). Though business, big business, does control a lot indirectly, that former scenario is not likely to reappear any time soon. But more importantly , since businesses, as such , does not vote though their owners must pay the property
tax, it is clear that a basic feature of the Constitutional set up of the property tax , is that the views of those who operate business, are not relevant except that there is a right to contest the reasonableness of an assessment of the property value. That matches perfectly with the history of taxation. Indeed, to the extent business does dominate the affairs of the City and City Council we are viewing the development of a trend that is found again and again in history, right back to ancient times: the ability of the wealthy to gradually escape all taxation. In early times this trend would reach a point, over usually 30 to 40 years, that it was necessary to simply wipe out debts, or interest claims on them, and start again, so to speak. Otherwise the wealthy would evade any public obligations and the whole system would collapse.

[Hudson, Mesopotamia and Classical Antiquity Tax History, Page10]


In Canada, even the so called progressive income tax has stalled while the steady widening of the distribution of income and wealth continues to an even greater concen tration with very big numbers at one end. In Canada the average family income (before transfers) in the period 1989-95 as a share of 100% rose for the top fifth or quintile of the population from 42 to 43.9 (inflation adjusted) which was a sum greater than the total of all three of the first three quintiles added together.Only the level of government transfers softens that trend, though it cannot stop it. Them as has, gets.

[Research Project: Canada Watch: Income Distribution in Canada in the 1990al; October 98 Vol 6 No.32; page 2-p3]

It is the individual owners of property who are to decide the policies of the city and the rule is, one resident, one vote, whether with property or not, and regardless of the number of properties owned. And, effectively, that vote is to be used to decide on how much of the LEVY will be sought from business, since the residential share is merely consequential to that decision. That has been established for a very long time and current businesses are not in a position to try and get around it by complaining about high taxes and they are able to fully avoid this one anyhow.



Nor are they priced out of any price level in Vancouver or elsewhere since since the same clustering of ratios are found right across Canada. The most common remedy for municipalities is to take a much larger share from business than from residents , that is, the residents in Council are pricing business access to their City on the basis of what the traffic will bear. There is nothing wrong with that. If a City can be considered as a price discriminating monopoly as Vancouver has been, then that is the economic behavior that would be expected. On has only to look at the magazins and other media to see how business advertises its Vancouver connection.

The limit to the policy adopted by the City in this matter is simply the fact that if the tax is too high (despite the ability to shift it to the shoulders or others, in fact, to avoid it altogether) then business will leave town. If the City voters do not like that result, should it ever occur, it is they, again, and not business, that will change the policy of th City. The City is the people, and that is how it should be in history, economics and the law of the Municipality.


There is therefore no basis at all for any claim that the buiness "share" of the property tax should be any particular figure. In fact, it is in the interest of the rate payers that the business share of the tax should be as high as possible, shifting the payment to the large proportion goods and people that are transient to Vancouver, and these are in fact the basic reasons that Vancouver is the west coast semi monopoly city. If some argue that this is to shift the payment of the tax to those who are passing through or live elsewhere, there will be a perfectly similar tax weherever it is that these other locations are in Canada. And who will argue the reverse tat people who use the facilities of Vancouver to pass through should not have to pay for them? There will be similar features graded to the offerings of other cities and anyone from Vancouver who passes through such places, or visits for a time will be paying the Municipal tax regime there. And it will not be very different in in nature from Vancouver though we may look without result at quite a few to find a big modern container port, a big international airport, a rail, and a
road center and so on.



We may note in passing that another regressive feature of the City tax situation is the decision of the Çity to move into recovering more and more of its needs by user fees. If all must pay a similar charge for garbage removal, then this is a "tax" that falls most heavily on those who have the smallest disposable income ,and that would be,to start with, the 62% of the residential ratepayers whose properties are valued at less that $500,000. The organization of garbage removal and disposal in a large city is not just a question of a certain number of trucks and personnel or even a quota per household. It requires a large organization, complex systems and future planning. This is most suitable to public planning of public resource, not user pay, with the largest users escaping to their own arrangements and then complaining against development of public arrangements which need to be developed, such as re thinking the entire sewage and garbage removal functions in the light of environmental compulsion. Switching various services to a sort of imitation ":user pay" is not a bona fide accountng for cummunity services. It is just a way around the property tax, assisting business to escape payment and assisting the well off to deepened the regressive features of the tax. If the city goes to user pay not in order to recover the costs of discrete services not all persons use, like licenses for specific activity but in order to raise a revenue then that is not really user pay at all, and this just confuses planning.