A committee of council voted in favour of a proposed differential tax rate system at its meeting on Monday, recommending that regional council make big box stores pay bigger tax bills.
There are currently two commercial tax rates based on location: urban/suburban and rural. The urban and suburban rate is currently $3 per $100 of assessed value, and the rural rate is $2.658 per $100 of assessed value. No matter the type, commercial properties pay the same rate as others within the same classification.
The problem with that system is that commercial properties in walkable areas of the peninsula or in downtown Dartmouth, where land is worth more, end up paying much more per square foot than big box stores in car-dependent places like Dartmouth Crossing.
As Tristan Cleveland put it in a 2016 Metro Halifax column:
…in just about every way you measure it, business parks like Bayers Lake and Dartmouth Crossing cost us more and do less for our economy.
Walmart sprawls. Its property is the size of every single commercial property on the south side of Quinpool Road combined, plus two thirds of the street’s north side. Walmart pays, however, four times less property tax.
For cities, space is money. Nearly everything the city provides—road maintenance, pipes, plowing, garbage pickup, emergency response, police patrol, local parks, transit, etc—costs more the greater the distance between doors.
When we can fit more than 68 businesses inside the space of one business, it costs the city a heck of a lot less to service them. And yet, we charge them four times more.
It gets worse. Big box stores can only exist because of expensive infrastructure like highway interchanges and wide arterial roads. On Quinpool Road, many people just walk.
In 2015, Halifax began seriously considering changing that system, and in 2016, the provincial government made some legislative changes to allow it to charge differential tax rates.
Last year, finance staff brought council five options for a new system. Now, they’re proposing to combine two of them: tax zones and multiple rates.
Under the proposed new system, five zones would replace the suburban/urban and rural area rates: big box; high density; small, medium enterprise; industrial; and rural.
There would also be four tiers of rates based on the value of the property.
All properties (excluding rural areas) assessed at up to $500,000 would pay $2.90 per $100 of assessed value, no matter their location. Likewise, all properties assessed at between $500,000 and $1 million would pay $2.80 per $100 of assessed value, and all properties valued at between $1 million and $2 million would pay $2.70 per $100 of assessed value.
Properties assessed at more than $2 million would pay different rates based on their location.
Those in the big box zones — “the four business parks that are home to large retail, wholesale and other commercial properties (Dartmouth Crossing, City of Lakes, Bedford Commons, and Bayer’s Lake)” — would pay $3.334 per $100 of assessed value.
Those in high density — downtown Halifax — and industrial — Burnside, Ragged Lake, Beechville and Woodside industrial parks — zones would pay $3.088 per $100.
Properties in the small, medium enterprise zones — basically the business improvement districts like Spring Garden and Quinpool roads or downtown Dartmouth — would pay the current rate, $3.00 per $100.
And all rural properties would get a bit of a break, down to $2.65 per $100 (from $2.658).
“These rates generate the same general tax revenues across the municipality as the current urban, suburban, rural rate structure,” financial consultants Andre MacNeil and Kenzie McNeil wrote in an information report to council earlier this month.
MacNeil and McNeil note that there are pros and cons to the proposal.
Cons include the fact that the zones “inevitably pit parts of the municipality against each-other,” that small businesses typically rent and there’s no guarantee landlords will pass on the tax savings, and a concern that the changes could discourage smaller businesses from growing into larger facilities.
To mitigate those issues, MacNeil and McNeil write that the consistent rates for properties assessed at less than $2 million lessen the inequality and the fact that the rate drops as the value increases “removes any disincentive for small firms that are growing, to relocate into medium size properties.”
Overall, MacNeil and McNeil write that the changes would shift taxes “from small firms, toward areas with large concentrations of big box firms,” and “small commercial properties will benefit the most, assuming landlords transfer benefits to tenants.”
The municipality’s business improvement districts — Downtown Dartmouth, Downtown Halifax, North End Halifax, Quinpool Road, Sackville Drive, Spring Garden Area, Spryfield, and Main Street in Dartmouth — weren’t convinced.
In a joint letter sent to council’s Community Planning and Economic Development Committee on Friday, the business improvement districts wrote that the proposal “does come close to defining the right direction with regards to changes,” but they’re concerned some of the wrong properties would pay more:
The rates for the high density (downtown) zone proposed would result in many large properties in the downtown actually being taxed higher than they currently are. Though some of these increases may be marginal, this goes against the criteria of making business location in the downtown more desirable. It would discourage high density business location, which is not what we would want to see from either an economic or environmental point of view. The top tier (over $2 million) rate for the high density zone should be maintained at $3.00, not raised. This would align with the broad goals of reform.
Councillors on the committee agreed with the letter, asking for a supplementary staff report with a proposal that holds the rate for high density properties assessed at more than $2 million to $3.00 and further increases the big box rate.
As it considers this new tax policy, the municipality is also working on a plan to average out increases in assessments for some properties. The provincial government also changed legislation in 2016 to allow that averaging, meant to soften the blow of spikes in assessment in areas seeing large price increases.
But there are delays. That legislation only allows the averaging in a “Commercial Development District” — an urban area designated in a municipal planning document. The first half of the Centre Plan allows the municipality to designate areas like this within the regional centre, but not downtown Halifax.
“Another factor affecting the implementation of Commercial Assessment Averaging is the current uncertainty as to the economic recovery,” MacNeil and McNeil wrote.
“The medium-term economic outlook currently shows declining property prices. Due to the delays in designating a ‘Commercial Development District’, and the economic uncertainty, staff are reviewing whether it is still appropriate to implement assessment averaging in 2021/22.”
The business improvement districts were concerned about any delay or any geographic limitation:
BIDs, and other business groups support the three-year averaging, as proposed. It is imperative that changes are made to the Regional Plan promptly in order to implement the averaging across the entire municipality.
The Community Planning and Economic Development Committee unanimously passed a motion aimed at making both the new tax system and the averaging happen in time for the next budget, so before April 2021:
That the Community Planning and Economic Development Standing Committee recommend that Budget Committee when preparing the 2021/22 budget consider both the proposed commercial tax structure changes outlined in the report on Commercial Tax and Small Business dated June 24, 2020, and also that staff prepare a supplementary that identifies a timeline for implementation, options for prompt revision of the Regional Plan in order to implement the averaging across the entire region and that would allow consideration of maintaining the top tier (over $2 million) rate for the high density zone at $3.00, and redistributed to high density big box stores.