rabble blogs are the personal pages of some of Canada's most insightful progressive activists and commentators. All opinions belong to the writer; however, writers are expected to adhere to our guidelines. We welcome new bloggers -- contact us for details.

Time for Ontario to allow municipalities to defend their tax base

Please chip in to support more articles like this. Support rabble.ca today for as little as $1 per month!

Photo: Alex Luyckx/flickr

Chip in to keep stories like these coming.

An important article in the Globe and Mail highlights a significant issue facing local governments across Ontario.

As major commercial and industrial property owners win tax assessment appeals, wriggling out of the responsibility of paying municipal taxes, it is reaping devastating impacts on local finances.

The details themselves are telling enough: a pulp mill getting its taxes reduced by 80 per cent because the pulp and paper industry has slumped; a major steel mill getting its property taxed as "vacant" because it had locked out its employees.

But they tell only part of the story.

Many of the examples cited involve either company towns or corporations whose operations have historically accounted for a large share of the local economy.

And that's where the rest of the story comes in. Ontario no longer permits municipalities to levy taxes on business activity. Taxes are based solely on the assessed value of the property and the general tax rates.

Under the Assessment Act, the value of a property for tax purposes is based on the value of the land and the building, not the value of the equipment inside the building or what goes on inside it.

That value is based on what is on the surface of the land, not on what is underground. So, for example, in a mining operation, nothing below the surface counts -- not the minerals, not the structures underground, and of course, not the equipment underground.

Even on the surface, the value for assessment purposes is limited. Unless a piece of equipment is part of the physical structure, it doesn't count. So, for example, in a steel mill the continuous casting machines and the rolling machines don't count.

That means that, in the normal run of things, virtually none of the industrial base of Ontario's single-industry or industry-dominated towns counts as part of the tax base.

When municipalities controlled their own assessments, they were able to create a kind of rough justice framework -- with the agreement of the companies -- in which these major industries paid higher effective rates of tax as a kind of social contract with the towns that they dominated and that might not even exist if they weren't there.

When the province took over assessment, those higher effective tax rates were grandparented. And to ease the pain somewhat further, the provincial assessors recognize the reality that there is no "market" as such for purpose-built structures like pulp mills, mines and smelters, and value these properties based on replacement cost.

So the very fact that these major employers are now appealing the taxes they pay towards the support of the towns they dominate is a big deal. It signals the end of the informal social contract that delivered a rough justice level of financial support to single-industry and industry-dominated towns.

And the fact that these employers are winning their appeals -- massively, and with significant impact on the viability of the affected municipalities -- points to something seriously wrong with the legislation in Ontario that governs how the Municipal Property Assessment Corporation (MPAC) does its work.

Corporate property owners are finding gaps, weaknesses and loopholes to exploit in Ontario's property tax and assessment system, just as they have in the corporate income tax system.

And just as federal and provincial governments have acted to strengthen and plug loopholes in the corporate tax system, so must Ontario strengthen its property tax and assessment system to defend the municipal tax base.

The loophole that allowed a steel plant to be reassessed as vacant land because the corporation had locked out its employees must be closed.

The legislation should be changed to make it clear that a property cannot qualify as vacant land for property tax purposes unless it actually is vacant land.

The choices of different approaches to the measurement of assessed value should be established in legislation. For example, the use of the replacement cost method of valuation for unique industrial properties should be set out in the Assessment Act, rather than being left to the judgment of assessors.

The legislation should make it clear that owners of commercial and industrial property cannot have it both ways. They cannot benefit from an assessment system that does not include the value of the business in the value of the property and then argue that a weakness in the business justifies a reduction in assessment.

The legislation should explicitly exclude the economic circumstances of the business -- which is not part of the tax base -- from consideration in establishing its assessed value.

The legislation should either: (1) explicitly prohibit the use of proxy measures of business activity as the basis for determination of the value of real property; or (2) be changed to provide that all fixed machinery and equipment employed in the business of the property owner or occupant is included in its assessed value.

In other words, property is either assessed as real property or as a business, but not as some combination of the two.

The old days, in which major employers in single or dominant industry towns reached an accommodation with the municipality as to a fair contribution from the employer to the community, are gone. Property taxes are just one more cost to be minimized, regardless of the impact on the community.

Ontario must wake up and modernize its property assessment legislation to protect this critical source of revenue for local government.

Economist Hugh Mackenzie is a CCPA Research Associate. Follow him on Twitter @mackhugh

Photo: Alex Luyckx/flickr

Chip in to keep stories like these coming.

Thank you for reading this story…

More people are reading rabble.ca than ever and unlike many news organizations, we have never put up a paywall – at rabble we’ve always believed in making our reporting and analysis free to all, while striving to make it sustainable as well. Media isn’t free to produce. rabble’s total budget is likely less than what big corporate media spend on photocopying (we kid you not!) and we do not have any major foundation, sponsor or angel investor. Our main supporters are people and organizations -- like you. This is why we need your help. You are what keep us sustainable.

rabble.ca has staked its existence on you. We live or die on community support -- your support! We get hundreds of thousands of visitors and we believe in them. We believe in you. We believe people will put in what they can for the greater good. We call that sustainable.

So what is the easy answer for us? Depend on a community of visitors who care passionately about media that amplifies the voices of people struggling for change and justice. It really is that simple. When the people who visit rabble care enough to contribute a bit then it works for everyone.

And so we’re asking you if you could make a donation, right now, to help us carry forward on our mission. Make a donation today.

Comments

We welcome your comments! rabble.ca embraces a pro-human rights, pro-feminist, anti-racist, queer-positive, anti-imperialist and pro-labour stance, and encourages discussions which develop progressive thought. Our full comment policy can be found here. Learn more about Disqus on rabble.ca and your privacy here. Please keep in mind:

Do

  • Tell the truth and avoid rumours.
  • Add context and background.
  • Report typos and logical fallacies.
  • Be respectful.
  • Respect copyright - link to articles.
  • Stay focused. Bring in-depth commentary to our discussion forum, babble.

Don't

  • Use oppressive/offensive language.
  • Libel or defame.
  • Bully or troll.
  • Post spam.
  • Engage trolls. Flag suspect activity instead.