CLOSING THE GAP BETWEEN BUSINESS AND RESIDENTIAL PROPERTY TAXES (2023)
Issue
Without exception, local municipalities across B.C. set higher mill rates and thus charge greater taxes to business properties than they do residential properties, despite businesses using fewer municipal resources than residents. The gap, or “ratio”, between residential and business property taxes should be narrowed to better reflect a user-pay philosophy for services and to better support the competitiveness of our business community.
Background
Prior to 1984, the Government of B.C. regulated ratios between residential and other property classes to between 2.6 and 3.5, depending on the class. In 1984, the provincial government granted local government full autonomy in the setting of rates between the various classes. Property classes were then expanded to the current nine classes. This change allowed municipalities the maximum flexibility to allocate tax collection to distinct property types. The Community Charter, introduced in 2003, provided local governments extensive control over the taxation levels and methods of tax collection in their jurisdictions.
In B.C. today, municipalities across the province place higher tax burdens on businesses than on residents. In Langley Township, the mill rate is 3.45 times higher for “Business-Other” properties than “Residential,” for example. It is 3.2 times in Nanaimo, 3.1 in Surrey, 3.46 in Vancouver, and 4.0 in Prince Rupert.
But why is this?
In a 2019 study by Josef Filipowicz and Steven Globerman which found tax rates for business and industrial properties many times higher than residential rates across Canadian cities, it was argued that the higher tax rate was not a reflection of businesses using more local services, but rather “that non-residential land uses are taxed at higher rates in order to offset lower rates for residential property-owning voters in effect subsidizing the latter’s use of local government services”[1] (emphasis added).
This reasoning is supported by another report prepared by MMK Consulting for the City of Vancouver, which found that non-residential properties consume fewer municipal services, while paying higher municipal taxes. This report found that “non-residential properties pay approximately $2.42 in property taxes for each dollar of tax-supported services consumed” while residential properties pay approximately $0.56 in property taxes for each dollar of property-tax-supported services consumed.”[2]
Businesses should not be taxed at a significantly higher rate than residential properties.
Based on user-pay fairness, businesses should not be paying two, three and four times the property taxes paid by residents as businesses do not use two, three or four times the municipal services. And as businesses are not entitled to vote in municipal elections and therefore do not have a say in the spending priorities of their local politicians, they should not be expected to pay a higher tax rate than residents who directly elect and give mandates to local governments. In addition, there is an economic argument that over-taxing businesses reduces their competitiveness and profitability putting at risk broader economic activity and job creation.
The Government of B.C. needs to ensure property taxes on businesses are fair, transparent, and sustainable.
THE CHAMBER RECOMMENDS
That the Provincial Government:
- Provide guidelines and where necessary, regulations, on the level of property taxation levied on “Business Other” properties in relation to the taxation on “Residential” properties, with the goal of reducing the gap between the tax rates on both property classes