What’s the business tax shift supposed to do, anyways?

In Vancouver, the two main civic parties – the incumbent Vision Vancouver and the Non-Partisan Association – have both committed to shifting the tax on business properties onto the property tax for residential properties. Ex. Business tax rate goes down from 5% to 4% while the residential rate goes from 5% to 6%, etc. It’s not a tax cut, it’s a tax shift.

The question is: For what purpose?

What do I mean? Cuts to Federal and Provincial Corporate Tax Rates are always framed as being somehow beneficial to the economy, whether it’s to stimulate job growth (it doesn’t), or investment in R&D/output (maybe), higher wages (maybe) or such.

Not so the Business Tax Shift. In 2007 the City of Vancouver’s Property Tax Policy Review Commission released its final report, and it makes none of these sorts of arguments. Here is the rationale for shifting taxes from business onto residents:

Tax Share: Recommend to Vancouver City Council a long term policy that will define and achieve a “fair tax” for commercial property taxpayers, addressing the perceived inequity in the share of the City of Vancouver’s property tax levy that is paid by the non-residential classes

Get that? “Fairness” that’s not based on actual inequity but perceived inequity. All of which sounds extremely…convenient. And by “convenient” I mean “nebulous”. What does it even mean? Back to the report:

The Vancouver Fair Tax Coalition and others have recommended that the City adopt consumption of services as the primary indicator of fairness. This measure compares the municipal property taxes paid to the benefits received from municipal government services for each type of property. Although the Commission agrees that there is merit to this approach, we feel that there are inherent weaknesses in consumption studies generally. In particular, the analysis only considers the direct benefits from municipal services and not the indirect benefits enjoyed by non-residential properties (such as the quality of life factors that influence business location decisions and the ability to attract skilled labour). As a result, the estimates of share tend to be considerably lower than the level of benefit actually received by business.

They then reject consumption of services as too flawed a principle to base the shift on. So let’s cast the line out for another one:

the literature suggests that tax differentials within a region, such as within the GVRD, are important determinants of business location decisions. We have examined various indicators and found convincing evidence that the tax share, tax rate and the tax levels in Vancouver are all relatively high, compared with neighbouring jurisdictions.

Ah okay! So the local tax rate is [apparently] an important component where a business decides to locate. So I might choose, say, Surrey over Vancouver because I would pay less in Surrey. (That Surrey provides less municipal services to it’s populace and Vancouver has a higher, wealthier population density seem not be included is another matter.) So of course there is empirical evidence of this…

While commercial investment has not kept pace with residential investment, building permit data and BC Assessment’s new construction data show a robust level of commercial investment in the City of Vancouver over the last 10 years….

During the public hearings, the Commission did hear that small businesses are being forced out of business and out of their existing locations in part because of high taxes. We accept the fact that there has been turnover in many established small businesses operating in areas of the City where occupancy costs have increased considerably. In general, however, we do not see this as a tax issue, but rather as an issue of competition among commercial tenants for limited space. Much of the turnover is the result of the availability of new tenants who can afford to pay higher rents.

…oh. Er, ok, so how does the Vancouver business tax rate actually compare to the other municipalities?

Property Tax - Business. GVRD


What’s the Business Tax Shift for again?