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
Showing posts with label real prop. tax unfair taxation business bs. Show all posts
Showing posts with label real prop. tax unfair taxation business bs. Show all posts
Saturday, September 22, 2007
Saturday, September 1, 2007
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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