TAX NEWS - June 2010

B.C. Tax: How tight should property tax cap be?

Business vs. residential taxes, and 'capping the gap'

Should the province limit the property tax rate that municipalities can impose on business owners, who don't vote, compared to residents, who do?

Most of the B.C. businesses surveyed recently by the Canadian Federation of Independent Business think it should. So do I. But we differ on how tight the cap should be.

A new CFIB report shows huge variation in the ratio of business and residential taxes. It ranges from well over six-to-one in places such as North Saanich and Revelstoke, to just one-to-one in Anmore, Bowen Island and Warfield.

In the past year, 24 per cent of municipalities increased this gap, 38 per cent reduced it and 39 per cent stayed the same. Overall, the average ratio has been narrowed from 2.97 to 2.94.

But over the past six years the picture is not rosy. Seventy-four per cent of municipalities have widened the gap, and just 14 per cent have narrowed it. The average has shot up from 2.42 to 2.94.

To put this into historical perspective, back in 1990, the average was just 1.8 per cent.

The report provides data on 160 communities, and a handful of them stand out.

Vancouver manages to look both good and bad. On one hand, council has stuck with a plan to reduce the ratio, and it's down by well over a point from a peak of six-to-one a couple of years back. Yet this leaves the city's ratio as the sixth-highest in the province at 4.84-to-one.

At the other end of the scale, two places — Revelstoke and Tumbler Ridge — went from small tax gaps to huge ones in a relative blink of the eye.

Revelstoke's business tax rate was 2.95 times the residential rate in 2003, but has soared to 6.65 times — the second-highest in B.C., which is, as a whole, above the national average.

In the same period, Tumbler Ridge went from a low 1.8-to-one ratio to 5.41-to-one, the third-highest in B.C.

The way Vancouver's gap got so out of proportion to the costs of providing services was, in my view, a convincing argument for a provincial cap. But these two gigantic swings in smaller centres drive the point home even more forcefully.

Many businesses can adjust to high tax rates, although this doesn't mean that high rates won't stunt and skew business development. This is happening in Vancouver as businesses from repair shops to retailers, from contractors to computer whizzes flee to the suburbs, leaving a dwindling number of businesses in the city core.

And uncertainty can be worse than high costs. Businesses need to plan, and they can't if their costs are subject to the whim of sometimes greedy and business-unfriendly councils.

So what's an appropriate cap?

CFIB members are split between two numbers that are — not surprisingly — at the low end of what B.C. municipalities charge now. Nearly half say it should be two-to-one, and about a third say one-to-one.

That's too low.

I do buy the argument advanced by the Vancouver Fair Tax Coalition and others that intelligent analysis of consumption patterns and costs should be at the heart of tax-rate decisions.

The coalition's data suggests a ratio of just 1.6-to-one in Vancouver, based on the actual cost of municipal services that businesses and residents consume.

But this isn't the only factor to consider. Business tax rates are rightly a bit higher than residential rates for two reasons: For one, businesses can deduct property tax costs from their taxable income, and residents cannot. The other involves the value to businesses of amenities they don't directly consume. For example, Stanley Park and the seawalls are major assets to merchants in my area, the West End, by drawing in visitors and attracting residents.

It's unreasonable to pin all such amenity costs on business, but we need an honest effort to find an equitable share.

Given this complexity, I'd peg a proper ratio at 2.5- or three-to-one. Others may argue for a different number and, if the request for a cap is to be met, the province will have to decide.

But decide it should. Wide variations and sudden swings aren't fair to anyone, and they undermine business growth.



Tax burdens

Businesses in British Columbia pay an average of three times more property tax than owners of equally valued residential property.

Here are the lists of best and worst B.C. communities in terms of business tax burdens:


Worst offenders

1. North Saanich *6.80x
2. Revelstoke 6.65x
3. Tumbler Ridge 5.41x
4. Castlegar 5.40x
5. Coquitlam 4.98x
6. Vancouver 4.84x
7. Metchosin 4.42x
8. Logan Lake 4.41x
9. Comox 4.16x
10. North Van City 4.09x


Best for business

1. Bowen Island *1.00x
2. Anmore 1.00x
3. Warfield 1.00x
4. Slocan 1.38x
5. Port McNeill 1.50x
6. Taylor 1.53x
7. Osoyoos 1.60x
8. Trail 1.67x
9. Rossland 1.71x
10. Stewart 1.74x

* Rankings are based on average business property taxes compared to average residential tax rates. For instance, businesses in North Saanich pay 6.8 times the property taxes of residential owners; Bowen Island businesses pay the same rate as residential.