POLICY REPORT
PROPERTY TAXATION

Date: April 17, 2001
Author/Local: G. Merchant/7250

RTS No. 2016

CC File No. 1551

CS&B: April 26, 2001

TO:	Standing Committee on City Services and Budgets
FROM:	General Manager of Corporate Services / Director of Finance
SUBJECT:	2001 Property Tax Options: Shifting the Burden of Taxation

CONSIDERATION

THAT Council approve a shift in the tax burden equal to approximately 1% of the 2001 general purposes tax levy (approximately $3.7 million), proportionately from Class 2 (utilities), Class 4 (major industrial), Class 5 (light industrial) and Class 6 (business/other) to Class 1 (residential) properties

GENERAL MANAGER'S COMMENTS

The Consideration item deals with the issue of shifting the taxation burden from the non-residential classes to the residential class. While there is no policy governing the eventual split in the tax burden, Council has made decisions on this shift on an annual basis based on recommendations from the Citizen's Advisory Group on Property Taxation. It should be noted that, prior to the shift, the relative share of the 2001 tax levy for Class 1 and Class 6 is estimated at 45.5% and 50.9% (including Solid Waste and Sewer user fees) respectively, representing a shift of 6.2% of the tax levy from non-residential properties to residential properties since 1993.

COUNCIL POLICY

There is no standing policy on the issue of shifts to the relative shares of the taxation burden among property classes. Since 1994, Council has decided in each year whether to shift the tax burden among property classes.

PURPOSE

The purpose of this report is to discuss various taxation policy options relevant to the 2001 taxation year.

BACKGROUND

Residential and business properties taxes in 2000 were based on three-year land averaged values. The overall tax levy was increased by 2.75%, evenly applied to all classes. In addition, Council shifted $3.69 million in taxes from the non-residential classes to the residential class in 2000.

In 2001, taxable values in both Class 01, Residential and Class 06, Business & Other have been relatively stable, with the great majority of properties in these classes having changes to taxable value of under six percent. On March 8, 2001 Council approved the use of land averaged values in the calculation of taxable value for the residential and business classes. Council has also approved the second phase of the Sewer Utility user fee implementation and assuming a 2.75% tax increase over 2000.

DISCUSSION

The rationale for shifting the burden of taxation from the non-residential classes to the residential class is found in the 1995 report by the KPMG Consulting Group, Consumption of Tax-Supported City Services. The authors of this report recommend developing a rate-of-adjustment policy which allows for a shift in the tax burden to the residential class. While no specific target for the distribution of the taxation burden has been adopted by Council, the authors noted that measured by consumption, non residential properties should bear approximately 35% of the tax burden.

As there are a number of factors that can be applied to tax distribution, there is no "right" answer to the question of how the tax burden should be distributed among the property classes.

From 1983 to 1994, Council maintained the relative taxation burden between property classes at the levels which existed in 1983, allowing for adjustments to the burden levels resulting from reclassification, new construction or zoning changes. However, by its decisions since 1993, Council has acknowledged that the non-residential classes bear an inappropriate share of property taxation (see table 1 below). As noted in the Comments of the General Manager of Corporate Services, during this period, approximately 6.2% of thetax burden has been shifted from the non-residential classes to the residential class. The relative shares of the tax levy for Class 01 and Class 06 is approximately 45.5% and 50.9%, respectively, prior to consideration of a further shift.

Table 1. Relative Share of Tax Levy, Class 1 & Class 6

Notes to Table 1:

1. Note that the tax rate ratio is affected by interventions such as land averaging and tax capping.

2. 1998 figures are affected by the implementation of the solid waste utility. Part of the new utility fee was for a recycling charge, which represented a $3.8 million increase in total paid by the residential class.
3. 2000 and 2001 figures are affected by the implementation of the sewer utility. Over this two year period, $25 million in sewer costs have been shifted from the tax levy to user fees applicable to both Class 1 ($17.2 million) and Class 6 ($8.2 million).
4. The other property classes account for the remaining 4% to 6% of the tax levy (utilities, light industrial, major industrial, recreational/seasonal and farm).

1. Tax Impacts: Base Case

The analyses presented here looks only at the tax impacts on samples of Class 1 and Class 6 properties that have been screened to eliminate those that are not eligible for land assessment averaging. Impacts on the other non-residential classes have not been modelled, however, it is expected that the impact on these classes would be similar to the impact on Class 06. As they share a common tax rate, the impacts on Classes 08 and 09 would be similar to the impact on Class 01.

The base case represents the impact of the following actions approved by council:

· Three-year land averaging for the residential and business classes
· Removal of $12.4 million in sewer costs from the tax levy
· A 2.75% overall increase to the tax levy.

Appendices B and C show the tax distributions for Class 01 and Class 06. With no shift in tax burden, the average change in taxes for the properties sampled is a reduction of 3.0% for the residential class, and an increase of 1.8% for the business class. The difference in the change in taxes between the classes results largely from the introduction of the second phase of the Sewer Utility user fee and the application of the general purposes tax increase.

2. Tax Impacts: Shift of the Relative Share of the Tax Levy

The charts in Appendices D and E show the impact in 2001 on Class 01 and Class 06 properties under the base case and with a $3.7 million (1%) shift in the tax burden from the non-residential to the residential class.

The impacts of a shift are summarised in Tables 2 and 3, for the business and residential classes.

Table 2. Impacts of One Percent Shift in Levy, Class 1 Residential

As noted, the shift in tax burden to Class 01 will result in the effective tax impact being reduced from a 3.0% reduction to a 0.7% reduction. As Classes 08 and 09 share a common tax rate with Class 01, it is expected that the impact on these classes will be similar to Class 01.

Table 3. Impacts of One Percent Shift in Levy, Class 6 Business

Note for Table 2 and 3:

1. Class 1 and Class 6 based upon three-year land averaged values, and a 2.75% tax increase is incorporated.

As noted, the shift in tax burden to Class 06 will result in the effective tax impact being reduced from a 1.8% increase to a 0.0% change. The other non-residential property classes (light industrial, major industrial and utilities) will also experience a 1.8% decrease in their levy and tax rates as a result of a burden shift.

CONCLUSION

Shifting the burden of taxation from the non-residential to the residential classes will impact on the effective change in taxes borne by these classes in 2001. As a result, the General Manager of Corporate of Services submits a one percent shift of the tax burden (approximately $3.7 million) from the non-residential classes to the residential class to Council for consideration.

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APPENDIX A

SUMMARY OF MAJOR PROPERTY TAXATION POLICY DECISIONS SINCE 1989
CITY OF VANCOUVER

	CLASS 1 RESIDENTIAL	CLASS 6 BUSINESS/OTHER
1989	· Capped land value increases at 61%	· Capped tax increases at 40%
1990	· No adjustment to taxation methodology	· Capped tax increases at 10.1%
1991	· Capped tax increases at 5.5% · No limit on tax credit	· Capped tax increases at 7.5% · $400,000 limit on tax credit
1992	· Capped tax increases at 6.0% · $5,000 limit on tax credit	· Capped tax increases at 10.0% · $100,000 limit on tax credit
1993	· Implemented three-year land value averaging · Tax increases capped at 25% for select properties	· Implemented three-year land value averaging · Tax increases capped at 25% for select properties
1994	· Continued three year land value averaging · Tax increases capped at 10% for select properties · $500 limit on tax credit	· Continued three year land value averaging · Tax increases capped at 10% for select properties · $15,000 limit on tax credit
1995	· Continued three year land value averaging · No tax capping	· Continued three year land value averaging · Tax increases capped at 15% for select properties under a phasing out methodology · $10,000 limit on tax credit
1996	· Continued three year land value averaging · No tax capping	· Continued three year land value averaging · Tax increases capped at 20% for select properties under a phasing out methodology · $7,500 limit on tax credit
1997	· Continued three year land value averaging · No tax capping	· Continued three year land value averaging · Tax increases capped at 25% for select properties under a phasing out methodology · $5,000 limit on tax credit · Last year of tax increase capping
1998	· Continued three year land value averaging · Implementation of solid waste utility	· Continued three year land value averaging
1999	· Continued three year land value averaging	· Continued three year land value averaging
2000	· Continued three year land value averaging	· Continued three year land value averaging
2001	· Continued three year land value averaging	· Continued three year land value averaging

Link to Appendix B
Link to Appendix C
Link to Appendix D
Link to Appendix E