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Terrace chamber renews call for tax cuts
TERRACE AND District Chamber of Commerce members are being urged to attend tonight's city council budget meeting.
In an email set out late March 9, the chamber says chamber members' attendance is needed to support its request for the city to hold the business tax rate to the 2011 level.
Council, in its draft 2012 budget, is proposing an increase to the rate.
The chamber, through vice president Gordon Stamp-Vincent, has already made one presentation to council.
The chamber has also urged the city to trim its budget to make up for keeping the business tax rate to the 2011 level.
“It has been implied many times that silence in fact mean a yes vote at the council table, so please plan to attend to let your council know that you do not agree with the proposed tax increase,” reads the chamber email.
Following Stamp-Vincent's presentation March 8, council decided to keep to its 2012 proposed tax change.
But that decision is not final and council will continue to work on its budget prior to adopting a final version later this spring. Tonight's meeting starts at 7:30 pm.
Here is the text of the presentation made by chamber vice president Gordon Stamp-Vincent to city council March 8.
Thank you your worship on behalf of the Terrace and District Chamber of Commerce for this opportunity to present to Council. I am Gordon Stamp-Vincent, 1st Vice President of the Chamber and Chair of the Policy Committee.
I’d like to start by doing a brief review of the process municipalities follow to set tax rates and generate tax revenue to provide the services their citizens desire. Please forgive me if this is familiar to you but I would like to lay the ground work for our analysis.
Each year the BC Assessment Authority (“the BCAA”) assesses or values every property in BC and the owners of those properties receive a notice at the beginning of each year advising them of the assessed or market value as calculated by BCAA. These are the assessments referred to below.
I have drawn from page 4 of the UBCM policy paper, “Comment on Fiscal Management In British Columbia’s Municipalities dated May 2011” for the process the Municipalities follow…and I quote:
“Each year, municipalities must determine how much property tax revenue is required to help cover their projected expenditures. The total amount required in any one place represents that municipality’s property tax burden. Each municipal council allocates its tax burden among the various property tax classes that make up the local community. The burden is allocated based on a number of factors, such as the relative size of assessment bases for different classes of property, the size of assessment changes in each class, local economic conditions, and the decisions of councils in other centres. Councils are also guided in their allocation decisions by some general taxation principles that are important in all jurisdictions. Key among these principles is fairness, which has two dimensions:
· fairness, as determined by the benefit each type of property receives from municipal services; and,
· fairness, based on the (perceived) ability of each tax class to pay.”
Of particular interest in our discussions tonight is the referenced “perceived ability to pay”
On page 5 of the UBCM policy report, it is described this way:
“The perceived ability of a class of property to pay a tax is another indicator of tax fairness. The Commission established by the City of Vancouver struggled with this issue. It made the following conclusion (p. 25):
“Generally, business enterprises and commercial property owners are thought to have a greater ability to pay than individuals [i.e., Class 1 owners] for three reasons: they use the property to generate income; they can, in general, pass on costs to customers; and, they can deduct expenses from taxable income. These reasons are felt to provide some justification for taxing non-residential property at a higher rate than residential property”.
On the surface, this may seem like a reasonable proposition, but let's look at the facts:
We will tackle the first item last.
Ability to increase prices:
Retail stores are competing with on line discount operations, (ie Amazon ) big box stores with incredible purchasing power, and for the past 15-plus years, a struggling local economy. The ability to increase prices because of a property tax increase is almost nil. Witness the fact that owners have been unable to sell their retail operations and enter retirement shutting the business down and closing the doors. Just because someone is in business doesn’t meant they are rolling in dough or that the dough is rolling in the door.
Deduct taxes from their revenue…absolutely true…hopefully you’re making a profit because only after all the expenses have been paid can you call any income your own…
Now let's turn to the first reason.
Using the property to generate income…
And I’m going to return to BCAA and assessment values. The BCAA uses comparable sales to value residential property while business property is usually purchased based on the income it can generate and yes BCAA uses comparable sales also…which of course have been valued based on income that can be generated…now hold that thought.
Let’s look at the first slide - this graph shows the last 10 years of Assessment Values for Residential and Business properties. The residential values have increased over 78% while business assessments have increased only 38%…but that’s not the whole story…look at the total business assessment values which from 2010 on have been falling, down, 4.44% from 2010 to 2012…since values are dropping and since these properties are essentially valued on income generation, the capacity to pay is reduced
Please turn to the next slide…this graphs the tax rates applied in each tax year to Category 1 Residential and Category 6 Business/Other. These 2 categories account for ~95% of the City of Terraces tax revenue. (not the total budget).
Note that the residential rate is dropping while the business rate is increasing rapidly.
Turning to the next slide, we see the multiple of Business tax rate to Residential tax rate edging higher every year except for two years, through a tough economy, an inability to raise prices and in the face of fierce competition from on line stores who don’t have the bricks and mortar to maintain and pay taxes on in this community. Note that over the 10 years shown there has been 38% increase in the multiple of Business to Residential taxes…meaning a higher and higher portion of taxes relative to a reducing capacity to pay.
To illustrate, let’s look at assessments and rates for 2011 and anticipated for 2012. This slide illustrates that a decreasing capacity to pay earns business a tax hike.
Slide Taxes due 2011 and 2012
The Chamber's ask is this:
1) Freeze the business tax rate at 25.5322 , matching the 2011 business to residential multiple of 3.8791 (a reduction of business tax revenue of $403,729, a 3.69% reduction of the draft budget, assuming no other changes are made)
2) Commission a volunteer taskforce of business and residential rate payers to assist the City in determining an appropriate business to residential multiple and a strategy to maintain it within a reasonable range.