Vancouver Sun
Thursday, March 15, 2007
Page: C3
Section: Businessbc
By: Don Cayo
Tax problem demands determination, not tinkering
The just-released interim report of Vancouver's Property Tax Policy Review Commission makes just two recommendations, and I think city council should adopt them both.
One calls on the city to shift between one and two per cent of the total tax burden from the non-residential class (i.e. business, industry and utilities) to residential properties.
The one-per-cent lower limit is tacit acknowledgement that the current tax split is way out of whack and needs to be fixed. Taxes paid on homes, which represent 83.2 per cent of the total property value in the city, add up to just 45 per cent of the city's tax revenue. Thus, businesses, collectively worth less than 20 per cent as much as homes, have to pay a tax rate six times higher than residents in order to make up their 55 per cent of the total.
The recommended two-per-cent upper limit reflects the commission's belief -- and mine -- that there are limits to how fast the city can redistribute the tax load, even if it's grossly unfair. I think homeowners (and I'm one) haven't been carrying our fair share of the load, but I agree that "a shift above two per cent a year would create unacceptable hardships for some properties in the residential class."
The commission's other recommendation is to continue a program to average assessments over three years. This won't eliminate the problem of "hot spots" where taxes soar in areas that are rezoned for higher uses and/or suddenly become trendy, but it will help to moderate the rate of increase. In other words, it's not a very good solution to a serious problem, but it's better than no solution at all.
My endorsement of these two recommendations should not, however, be interpreted as applause for the commission's work. Its final report is not due until June, and I hope and expect that it will go a great deal further than these two interim steps.
To justify its hefty cost of $100,000, the commission will have to address three things:
First, it needs to establish a realistic ratio between business and property taxes, and set out a plan to get there in steps large enough to give businesses some long-overdue relief, but small enough that they don't drive people out of their homes. Then it needs to find a way to monitor and revise that ratio as the city's demographics continue to change. And thirdly, it has to find a fairer basis than the current property assessments to determine the tax bills to be paid by individual businesses.
The commission has hired a consultant to analyze the comparative cost of services consumed by businesses and residents, and that can and should become the basis for establishing a fair ratio.
But consumption patterns change over time. The current imbalance has resulted largely because the tax ratio has not been changed to reflect the fact that the number of residences in Vancouver has been growing briskly while the number of businesses has been stalled and, in recent years, shrinking.
So the commission should urge the city to commit to updating its consumption analysis regularly, say every three years, and adjusting the tax ratio accordingly.
Finally, I think the commission should recommend basing business taxes on rent paid, not on property values, as a way to deal with the "hot spot" problem.
Hot spots are, for the most part, an artificial creation of an anomaly in the tax assessment system. Business buildings are assessed at whatever they are worth -- i.e. the cost of replacing it with a similar kind of building. But the property on which business buildings sit is assessed at "its best and highest use."
This means businesses in upscale residential neighbourhoods pay the business rate -- six times the rate on homes of similar value -- on land that's assessed as if it were the site of high-priced condos. Thus, tax bills shoot up multi-fold, and the runaway costs drive most businesses out neighbourhoods as soon as they become fashionable places to live.
So the very least council should do this year is adopt the commission's two recommendations. Indeed, I think it should go one step further and cap business tax bills at last year's level.
But even then, the job won't be done.
This inequity problem built up over several years, and solving it will take a few years of steely determination and solid policy decisions -- not just tinkering, which is all that is being recommended for now.
dcayo@png.canwest.com |
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