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Industrial tax revolt a worry among B.C. communities

September 30th, 2009 · 14 Comments

Mayors and councillors packed a session at the Union of B.C. Municipalities convention yesterday to hear more about the growing problem of local industries telling small resource towns that they’re not going to pay their tax bills or that they need to have their taxes lowered. (My story in the Globe here.)

It’s obviously a problem that people are worried will hit them in the future, even if nothing has happened to date. As the group heard, six towns are already embroiled in court cases with their pulp mill industries while even more are having ongoing negotiations with mills in their jurisdictions as those companies push for lowered taxes.

It’s pretty much the same argument that Vancouver’s been hearing for a while now from its business community: we pay taxes at a much higher rate than residential owners, yet we don’t use anywhere near as many services. And then they sometimes produce reports to show their calculations on what services they think they use.

All a worrying trend for municipal politicians, for a couple of reasons. One is the straight money problem. If industries get their tax bills reduced, who is going to pay more or how is the hole in the budget going to be filled. Then there’s the larger issue. If everyone starts insisting that they should only pay for the services they actually use, what havoc does that potentially wreak on the collective idea of taxes.

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  • spartikus

    If everyone starts insisting that they should only pay for the services they actually use, what havoc does that potentially wreak on the collective idea of taxes.

    We would live in the great and glorious land of Libertaria – and instead of the Queen we would have Ayn Rand gracing our currency.

    I’m sure, though, that business will pass along these savings to the consumer.

  • Sharon

    I am also sure that the business community would understand and accept the need for taxation for the greater good and therefore accept a tax rate that would be 2-3 times higher than their residential counterparts. 6-10 times higher is a bit much, don’t you think? 6-10 times mean reduced hiring and reduced community support.

    Just because the business community cannot vote does not mean it is eligible be abused. At the same time, should public projects and spending decisions be looked at through the lens of true cost of delivery? Do residents REALLY want that program if they are on the hook for their true share of the expense? Lots of questions, no easy answers.

  • spartikus

    First of all, let’s kiss this and this good bye in the brave new order we have in store for us.

    Do residents REALLY want that program if they are on the hook for their true share of the expense?

    Like what sort of program, precisely? Like the after-school care program run by our local community centre that’s just told us they are halving the ratio of staff to children?

    Like that sort of program?

    I suppose local business does not directly utilize these sorts of things (any indirect benefits being illusory), so all things being fair my family should probably absorb the full cost.

    I won’t be shopping in stores any time soon though for anything but the necessities. Then again, the pulp mills listed above don’t sell to the domestic marketplace anyway.

    If I were the mayors of those towns, I would blockade all civic-operated roads to tax-delinquent commercial traffic until the bill was paid. And cut off the sewer lines too.

  • “If everyone starts insisting that they should only pay for the services they actually use, what havoc does that potentially wreak on the collective idea of taxes.”

    It would cause great havoc, especially in the beginning. However, this should not justify not trying to better correlate taxes paid with services delivered. As I noted yesterday on another posting, single family housing and multi-family housing place different demands on municipal services…not all services, but some services. We should therefore start thinking about differing residential ‘classifications’ and mill rates and tax structures for single family homes and multi-family properties. If nothing else, this will reward those living in denser, more sustainable forms of housing, that require fewer roads and pipes.

    While a more equitable distribution of taxes between businesses and residents would likely create greater hardships for residential tax payers (in the short term), it might also encourage more non-residential development (and non-residential taxpayers) to locate in the city.

    This past year, Council approved a change in the zoning in the areas surrounding the CBD to ensure adequate space for major new office developments.

    Well, unfortunately, when property taxes are significantly lower in other municipalities, and given the Metro Growth Management Strategy encouraging businesses to locate in new Town Centres and Surrey City Centre, and major changes in transportation, an increasing number of businesses is going to locate away from the downtown. Just ask HSBC who shunned a number of Downtown Vancouver sites to locate new offices in Burnaby.

    I realize that this is not an easy situation. I applaud any initiatives to improve the economic development opportunities in Vancouver and the region as a whole. But the fact is, for the past few years, Vancouver and other municipalities started to depend too much on commercial taxpayers, and contributions by developers…including supplemental rezoning fees, DCC’s, CAC’s along with private sector construction of roads, sewers, parks and childcare facilities. It was good while it lasted, but I don’t think cities can expect new developments to continue to pay more than their fair share.

    So a greater focus on ‘user-pay’ makes sense to me. I can’t understand why West End residents can park on public streets for pennies, to avoid paying dollars to park in underground structures. And yes, it is OK to extend the hours when parking meters are in effect.

    Changes will have to be gradual, to avoid ‘havoc’, but changes should come. We can’t keep doing things the way we did them in the past. The world has changed.

  • Sharon writes, “Just because the business community cannot vote does not mean it is eligible be abused.”

    Businesses are not people. They are not comparable to people. You cannot say the treatment of businesses is not “fair” compared to the treatment of people, any more than you can say the treatment of cars is unfair compared to that of people. You can compare drivers of cars with pedestrians, but that’s a different matter. Businesses are machines for creating wealth: tools we create because we find them useful. They have no ethical standing. You cannot “abuse” a business, you can only abuse people. True, treating a business in certain ways affects the people associated with it, but it is the people we care about, not the machine.

    There is no ethical reason that businesses should be taxed levels similar to people. We enable businesses (through services, through corporate and contract law, etc.) because they create wealth for society. We try to structure the environment for business so as to create the greatest benefit. If that means taxing businesses at 10 times the rate we tax individuals, then good. There is nothing unfair about it.

    A person going into business knows the risks and responsibilities: they know they need to pay a certain level of tax. Knowing that, they can choose whether or not to go into business. They may later decide that they don’t like the rules that their business operates under. If they can show that different rules would benefit society more then we should take that into account. But they have no business complaining that their tools suffer abuse or unfairness compared to actual human beings.

  • MB

    It goes well beyond the simplistic approach of paying for only what you use, whether residential or commercial or industrial.

    Yes, there are specific, identifiable costs and benefits to police and fire services, and sewers and water, but there is also a less tangible benefit to the aggregate pool of public services, amenities and assets blended with a melange of private amenities and assets. We call them cities, and it’s important to balance the public good with the private economy.

    From my standpoint residential property taxpayers cannot write off taxes, mortgage payments or financial losses on their private homes and are therein at a disdavantage to businesses which can. Business can also pass the costs of taxes to their customers directly, or indirectly to the leasees of their commercial property who raise prices to cover it.

    The city has been shifting the tax load balance from business to residential for a few years now. But I believe the ceiling is approaching where residents will not tolerate much more than tweaking. The proportion should always apply a heavier load to the business side until the day when every residence is allowed to have similar advantages of running a business.

    Moreover, the tax burden is unequally shared from the centre of metro Vancouver to the edges. I see this as a more pressing public financing imbalance than the business-residential tax ratio. The bedroom communities do not have the influx of people draining public services during their workday — or to see the fireworks, enjoy the beaches and see the museums and parks — at no cost to their tax bills as Vancouver and a few other denser cities.

  • MB

    Let’s get something straight. Development companies are not charities.

    A development has measureable impacts to society and the natural world, as well as benefits. A development for 10,000 people will have a certain percentage of residents who have children and who will therein require daycare. Likewise, resident car owners need roads, and all residents need water, power, sewers and police and fire services.

    The cost of everything they build is passed along to purchasers and incorporates a profit. There is nothing wrong with that, but it is incorrect to state that developers pay for roads and daycare centres when it is in fact the people who buy the units within development projects, and who are the direct users of the services, pick up the tab.

    Further, cities do not usually impose operating costs on developers.

    To reiterate, developers pass the capital cost of their developments on to the taxpayers that buy their products, including public roads, sewers, daycare centres, etc, and taxpayers in general pick up the tab of maintenance and replacement in perpetuity.

  • spartikus

    What MB said. In fact this Business can also pass the costs of taxes to their customers directly, or indirectly to the leasees of their commercial property who raise prices to cover it …is the coup de grace.

  • MB, of course you are correct…developers expect to pass on the costs of development to their purchasers or tenants.

    However, when the costs become too high, or the market changes, they stop building, which means they stop paying rezoning fees, Permit Fees, DCC’s etc. etc. and suddenly the city or municipality finds itself with a financial shortfall.

    My point is that I think Vancouver and many lower mainland municipalities started to see new development as a ‘cash cow’ to be milked forever. The revenues from development became an increasing percentage of the overall revenues, and insufficient consideration was given to what might happen when development slowed down.

    Vancouver is not alone in this. Burnaby and Richmond are suffering as well. But other municipalities did not allow themselves to become quite so dependent on revenues from development.

  • Sharon

    if you read my post carefully, you will not that I suggested commercial rate payers (those are actual people with a pulse) are aware of the role business plays in a community. That is why the accepted average is not 1:1 – it is more like 1:3 times to account for tax deductibility and the concept of greater good.

    Vancouver must remain competative with its direct neighbours so its residents have a place to work. Vancouver wants to be a green city – so keep the well paying jobs in the city while you’re at it.

  • spartikus

    I did read your post carefully.

    that is why the accepted average is not 1:1 – it is more like 1:3 times to account for tax deductibility and the concept of greater good.

    Speaking of reading carefully, you understand you wrote this on a thread called “Industrial Tax Revolt”. This being the case, your message sounds a bit tone-deaf.

    Vancouver must remain competative with its direct neighbours

    And here I thought Vancouver businesses competed with each other. Given that local taxes are built in to the price are you prepared to guarantee you will lower your prices to the exact cent of the tax shift? If you are not, then this is nothing more than asking Vancouverites to inflate your profits.

    it is more like 1:3 times

    According to who? This is just a ratio pulled out of the air. Are we supposed to think that because that’s the ratio in Langley it’s some sort of sacred economic principle? Are we supposed to abandon the methods used to achieve the #1 ranking on the Economist’s (that bastion of socialist thought) livability rankings and become more like Langley and Delta?

    I would ask like an answer to which services you feel the public wouldn’t support if “they are on the hook for their true share of the expense”. I’ve given a real-life example. Maybe something like this, perhaps?

  • T W

    Over the past decade, our federal and particularly our provincial politicians have downloaded costs and responsibilities to the municipalities. They in turn find it almost irresistible but politically disastrous to download to the poor property tax payers. At least the corporations have an accounting avenue of escape but the poor individual has none – and will, especially in the Lower Mainland, be saddled with the downloaded results of the grandiose political ambitions of our provincial liberals. A sad day and a painful day if the property development industry does not recover in the next 5 years.

  • Isn’t taking something without paying for it shoplifting?

    Those municipalities need a mall cop to lay down the law!

    I think these businesses need to make their case at City Hall or in the courts (if applicable). Arbitrarily withholding taxes is akin to holding these small towns hostage.

  • Sharon

    spartikus, the problem is that no all costs can simply be tacked on to a good or service to guarantee an equal profit. The Save on on the Vancouver side of Boundary Road has to charge the same price for tomatoes as the Save on in Burnaby, 2 blocks away. The mechanic on the west side of Boundary and Marine needs to compete with the mechanic at Burne Road and Marine. Their property tax costs (and therefore expenses) are significantly higher for the same service. If you wanted to set up a mechanics shop, or a service of some kind you create a business plan. Location is part of that plan. If one location costs more than another you weigh the benefits of each. I am telling you right now, Vancouver is not so special that it will deter a shopper or business owner from walking across Boundary Road or drive over the Oak Street Bridge.

    This is more about jobs than about profit. If you want sustainable jobs in Vancouver the ‘business has unlimited money to sepend’ has to change.

    As for examples of user pay… how about the true cost of garbage pick up. You want a GREEN Vancouver in a hurry? – get people to actually cover the costs of residential garbage service.

    Chris K, Catalyst and similar industries have been pleading their case on deaf ears for almost a decade. Finally someone is listening – so perhaps a little peaceful civil disobedience as a last resort has it’s place.