Committee Votes to Approve Shared Tax Approach
The perceived need to shift the tax load from commercial to residential properties, in order to ease the burden on businesses, has started in Moose Jaw.
Called "Tax Fairness" by business lobby groups (such as the Canadian Federation of Independent Business) and others, it is a measure of how much property tax commercial properties pay in relation to residential properties of the same assessment. The assessment is expressed by a ratio. In 2017, the ratio was 2.19 for Moose Jaw and provincially the average was 1.97.
In Moose Jaw, the high number of successful commercial property assessment appeals has exacerbated the problem for commercial property owners because the shortfall is made up from all commercial properties.
To make up for the successful assessment appeals, the City had a five percent surcharge in 2017 but in actuality only lost 2.28 percent; but losses from previous years used up the allowance. In 2018, losses from successful appeals are expected to be 1.7 percent, Finance Director Brian Acker told Executive Committee.
Since 2013, successful commercial property assessment appeals totalled $74 million, resulting in $1,040,000 which are made up by all commercial properties.
For commercial properties, the loss of assessment appeals in 2017 resulted in $335,000 in lost property taxes paid for by the five percent commercial property tax surcharge, whereas the loss of $60,000 is simply absorbed in the budget.
In a report to Council, a "tax sharing" approach was discussed. Tax sharing is when taxation is distributed between the property classes. By shifting the ratio of taxes needed from commercial to residential it would result in a reduction in the ratio commercial property owners pay.
Acker stated that adjusting the mill rate factors would help lower the ratio. He called it a “slow but steady approach”. Commercial taxes going up four percent while residential taxes going up 7.56 percent would result in a ratio of 2.17.
The municipal mill rate factor is a value that when multiplied by the allowable assessment for each property class gives you your municipal property tax. Similarly, for the education portion of taxes a mill rate is set to derive that portion of taxes. When added together, the two equal the property taxes owing. Under the Cities Act, the City of Moose Jaw collects taxes owing for local schools.
Presently, the City property mill rate factors are 1.4206 for commercial properties and 0.7512 for residential properties. The proposed tax sharing mill rate approach would see commercial properties' mill rates drop to 1.3885 and residential mill rates increase to 0.7594, with the tax burden at 78.8 percent residential, and commercial property at 20 percent. The property tax gap ratio between commercial versus residential properties would drop from 2.19 to 2.17 as a result for properties of with the same assessment.
Councillor Don Mitchell advised any change in property tax policy wasn’t a simple matter of just shifting taxes from one property category to another. He cautioned against rapid changes in tax policies.
“It’s fairly complicated…we need to think carefully,” Coun Mitchell stated. “Commercial properties have the advantage for expense claims for taxation and there is an income factor from the extent of what they can generate,” he said, adding “we have a larger factor of older smaller lot properties than other cities. I’m not keen on a general shift of a formula of commercial to residential.”
Mitchell stated there had already been a shift in taxes through increases in the water utility, sewage and garbage fees which had a more disproportionate impact on lower assessed homes and people’s ability to pay.
In last year’s budget discussions, Councillor Mitchell unsuccessfully attempted to reduce the water, sewage and garbage collection rate increases because of the impact they would have on lower assessed homes as a tax shift on those less able to pay for it. The report presented at Executive stated that a graphing on disposable income by neighbourhood showed it was not true and that people in lower assessed homes had more disposable income than those in higher assessed neighbourhoods.
Disposable income according to Statistics Canada is the income remaining after deducting income taxes, CPP, EI and pension contributions.
In the report, the Canada West Foundation is quoted on the issue of tax fairness and how commercial property owners have an advantage because they can write property taxes off as a business expense. The Foundation found a ratio of 1.43 would make property taxes fair and the ratio would be equal.
Other arguments have also been made; one is that commercial properties enjoy greater services, such as snow clearing, road repairs and beautification to justify the tax gap.
Councillor Scott McMann asked to use other cities' tax assessment losses in comparison to Moose Jaw's, with Acker replying “their losses are not as significant as ours…we have had some significant losses over the last ten years.”
“If you do an analysis of appeal losses to other communities ours are very high,” Acker stated.
McMann spoke about tax fairness within the commercial class and assessment appeal losses.
“It’s not fair that commercial A pays for commercial B,” he stated.
Councillor Dawn Luhning spoke in favour of reducing the tax gap. “Removing the gap; it’s an issue for this city. The commercial rate is way too high,” she said.
Councillor Chris Warren said he would support the motion towards tax fairness and a shared tax approach but Council needed to understand why there was so many successful appeals. Moose Jaw’s assessment is contracted to Saskatchewan Assessment Management Agency (SAMA).
“We need to sit down with SAMA and figure out why we have a high rate of successful appeals and fix that,” Coun Warren stated, adding that there were commercial properties whose owners had deep pockets to successfully challenge assessments.
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He said he supported reducing the property tax gap between commercial and residential properties but not through a total reliance on increased residential property taxes. “I’m definitely in favour in trying to do that but not all at the expense of residential properties,” he said.
In the end, Executive Committee decided to set a mill rate under a tax sharing approach where property tax increases for residential properties will move from the previous formula of a 6.41 percent increase to an increase of 7.56 percent and commercial properties will see an increase of four percent.
Also decided was to tax other agricultural property and non-arable land at the same rate as the RM of Moose Jaw. The City has an agreement with the RM to do this as part of an annexation agreement.
The vote was 5 – 1 with Coun Mitchell opposed. Councillor Brian Swanson was absent. The mill rate must now be approved by Council.