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UPDATE: Terrace chamber makes pitch to cut business taxes
BUSINESS TAXES will drop but residential taxes will increase if city council approves a Terrace and District Chamber of Commerce request to change the way taxes are calculated for 2012.
That's because the chamber wants this year's tax rate, which is how many dollars are charged per $1,000 of a property's value, frozen at the 2011 level for all property classes.
And since business property values slipped an average 3.3 per cent this year while residential property values went up an average 5 per cent, the former would pay less while the latter would pay more should rates freeze.
A city council decision to meet the chamber's request would depart from the city's current tax policy practice of adjusting tax rates each year based on rising or falling property values.
The policy results in all classes paying the same as the previous year plus whatever increases the city may need to cover increased costs.
This year, for example, the city says it needs to raise property taxes by 2.5 per cent to generate $250,000 to cover increased costs.
The current policy would involve reducing the tax rate for residential properties and increasing it for business properties to reflect the rise and drop in property values.
So, when calculating the budget the way the city has currently proposed it, tax rates for residential properties fell in order to generate a marginal increase from owners, and business rates had to rise in order to generate a marginal increase from businesses.
If tax rates freeze, as proposed by the chamber, then the city no longer has the ability to set its budget and instead property values determine the amount of tax collected, said the city's finance director Ron Bowles.
What this means is, the city can no longer determine how much it needs to increase its budget from last year. But, based on property values, it would still collect $30,000 more in taxes overall from last year — resulting in a $220,000 decrease from what the city proposed to collect in 2012 and therefore a $220,000 cut from the draft budget as it is written now, said Bowles.
If rates freeze, what the residential sector pays will rise five per cent from last year, and what the business sector pays will decrease by four per cent.
Chamber vice president Gordon Stamp-Vincent, who is the chamber's lead person on property tax issues, said the chamber's rational for its request stems from business property values being partly determined by how much money a property generates.
If business property values have dropped, revenues have decreased, and it doesn't make sense then to bring in the same tax revenue from business as the year before, he said.
“Businesses are based on the ability to generate income, so the business side is more volatile,” said Stamp-Vincent. “You've got to be able to accommodate that sometimes when businesses are on the ropes.”
And if businesses properties are generating less money, while having to pay proportionally higher taxes, it means profit margins get smaller, Stamp-Vincent added.
And that's if profits are being generated in the first place.
Stamp-Vincent pointed to empty stores, which generate no income from commercial renters. Owners of those stores are still paying taxes, he said.
“There is a reason that we have storefronts that are empty, part of it is taxes.”
And due to price-point sensitivity, which is the dollar amount customers are willing to pay for a product, or prices governed by the head office of a franchised company, it's not feasible for many businesses to re-coup losses by raising prices, he said.
But just freezing tax rates over the long term isn't necessarily feasible either, said Stamp-Vincent.
City finance director Ron Bowles agreed.
“Nobody does that, we don't even look at tax rates first,” he said. “If property value rates go down, then all of a sudden you have to cut services.”
Bowles explained how the city looks at tax distribution now.
“We look at how much we need to run a prudent business, then we turn and look at the tax rates and we say how are we going to distribute this?
“And then we say is this reasonable?”
For business, the chamber is saying it's not, and wants council to create an advisory committee to examine tax rates with business representation on the committee.
Stamp-Vincent acknowledged that matters of taxation fairness are complicated.
“This is why the task force is so critical in terms of people being able to have some input and find some fair equilibrium,” he said. “It's the strategy... how are we going to put this together so that residents don't get buried and that businesses don't get buried?”
The chamber made its request to city council March 12, and Terrace's mayor said city council and staff will be looking at different options.
“We certainly realize we've been relying on residential and business since we lost our industry,” said mayor Dave Pernarowski.
“We're going to have a another budget meeting on the 26th of March to go over it one more time (and) have staff present some different options that we could consider ... just to give us an idea about whether or not there is any room to maneuver here.”
Editors Note: Prior to this story being updated, it stated business taxes would decrease by 8.8 per cent and residential would increase 7.5 per cent.
However, if all tax rates freeze at 2011 levels, then here is a look at what will happen for all:
1. Budget would go down $220K (From what's proposed this year.)
2. Residential taxes up 5%
3. Utility taxes up 5%
4. Major industry taxes 0%
5. Light industry taxes down -2%
6. Business taxes down -4%
7. Recreation taxes down -9%
8. Farm taxes up 15%