Laura JonesExecutive Vice-President, Canadian Federation of Independent Business
Gasps were heard across the Lower Mainland last week as property assessment notices landed and thoughts of, “My property is worth how much???” gave way to, “Holy mackerel, what does this mean for my taxes?”
It’s even worse for businesses.
On average, B.C. small businesses will pay 2.6 times the municipal property tax of an equivalently valued residence. In many Metro Vancouver municipalities, this gap is far worse. For example, Coquitlam businesses pay 4.2 times more municipal taxes, while companies in Vancouver and Burnaby pay four times more than residents. To put this in dollar terms, in 2015 an average residential property in Vancouver was worth $1,532,937. A resident would pay $2,713 in municipal property taxes on that value, while a small business would pay $11,260 for a property of the same value. A greengrocer has to sell a lot of oranges to pay that bill.
This unfairness is even worse than it seems on the surface because businesses use fewer municipal services than residents. A 2007 report done by MMK Consulting for the City of Vancouver found that, on average, residential properties in the city paid approximately $0.56 in property taxes for each dollar of tax-supported service consumed, while business paid $2.42 in property taxes for every dollar of tax-supported services consumed. While the study is a bit dated, there is no reason to think the numbers would be much different today.
One automotive shop owner comically captures how the inequity feels: “I know now what it must have been like for the peasants in medieval times, as far as having to pay taxes that amounted to a lot of nothing in return.” His property tax bill is now over $60,000. “It’s like paying an employee … but this one never shows up to work!”
What drives the inequity? I have yet to hear of a sound public policy rationale for charging businesses more than residents. But the political temptation is clear — businesses don’t vote, residents do. The reaction to this incentive both municipally and provincially is also clear. At the provincial level, the threshold for property values eligible for the provincial homeowner grant went up shortly after the assessment notices landed to protect many residents from what would effectively feel like a tax increase.
Meanwhile, the province is as guilty of charging businesses more than their fair share on the portion of the property tax bill that is under their control. For example, in Vancouver, businesses pay 4.4 times more than residents in school taxes. In dollar terms, a resident pays $2,020 on an average value property, while a business pays $8,890.
Showing leadership by reducing this inequity is something Finance Minister Mike de Jong should seriously consider for his upcoming budget, as it is considered important by 77 per cent of B.C. small businesses, according to a survey done by the Canadian Federation of Independent Business last September. Ninety per cent of businesses support the province limiting the amount of property taxes that businesses can pay relative to residents (e.g. small businesses pay a maximum of twice the amount residents pay).
It’s not all bad news. For businesses, the gap between what they should pay and what they do pay is still way too high, but it has been getting better in many municipalities, including Vancouver.
Another ray of hope for business is that there is greater understanding of the problem than there was 10 years ago. Residents care about small business because they contribute so much to making our communities livable. Increasingly, people understand that if governments are unfairly taxing small businesses, their favourite restaurants, dress shops, bakeries and dry-cleaners have less capacity to keep prices reasonable, create jobs, or even exist at all.