Thursday, March 18, 2004

Business Taxes and Revenue Generation

(Slow blogging of late, as work has picked up a couple notches again.)

So the provincial government has partially repealed a law, introduced under the Tories, that prohibited some municipal governments (including Toronto's) from raising commercial property taxes, meaning that any tax increases had to be borne by residential property taxpayers only. Now, commercial tax hikes can be implemented, up to 50% of the residential tax hike. Toronto has proposed to implement a 3% residential tax hike, so now they are legally permitted to raise commercial taxes by 1.5%. (Andrew Spicer, who participated in the Listening To Toronto budget consultations, has a brief take on what this means for Toronto.)

I had assumed that this would be a good thing, but (if you go by the Toronto Star, at least) it looks like there's no pleasing anyone:

  • Editorially, Finance Minister Greg Sorbara is seen as actually cheating the city out of $27-million, because the city had been banking on the $54-million that would have been the result of a full 3% commercial tax hike. Not only does that sound to me like calling the glass half empty, and counting your chickens before they hatch [insert your own further clichés here], but it shows inconsistency. The Star would have likely argued that Dalton McGuinty's campaign pledge to roll back the tax cuts brought in by the Eves government in their pre-election Magna-"budget" didn't constitute a tax increase, because taxpayers hadn't seen the cuts yet. Now that the shoe's on the other foot, the Star is editorially trying to have their cake and eat it too. (I knew there were a couple more good clichés in there somewhere!)

  • Columnist Royson James complains that Mayor David Miller is breaking a campaign pledge to help out small businesses. (Again, James likely would have argued that the city needs new revenue sources and that the province had hamstrung the city by limiting its ability to increase taxes to residential taxpayers only.) He closes his article with the ominous implication that businesses will be leaving 416 as a result.

  • Finally, guest columnist Satinder Chera writes an opinion piece on behalf of the Canadian Federation of Independent Business, and (perhaps not surprisingly) picks up where James left off. The measure, in solving one problem, creates several more; the corner store, the local dry-cleaner, the restauranteur will be pushed out of business, your neighbourhood will decline, your kids won't be able to work there, etc.

I'd be interested to see what such an increase would actually mean to businesses. Chera notes that "on a $200,000 property in Toronto, the homeowner pays $1,313, the convenience store pays $4,623, and the small manufacturer pays $10,416 in municipal property taxes." By my math, that means a 3% increase means about $40 to the homeowner, and a 1.5% increase means about $70 to the convenience store owner and $156 to the manufacturer. The question is, what does a $200,000 commercial property represent?

An alternative approach might be to charge fees for certain items. I commented earlier on the concept of a coffee tax, which I estimate to be a similar order of magnitude to what a 1.5% commercial tax hike would represent.

An alternate way of taxing commercial properties could be a parking tax. A user fee, but applied to businesses, it would be a method of generating revenue from businesses without technically raising taxes, and it would fit in one of the Liberal government's potential budget approaches of "fostering conservation and sustainability of resources":

"The fourth approach is to ensure conservation of scarce resources. Users would pay more of the full cost for these resources in order to encourage conservation and appropriate use. This approach also calls for action to ensure that basic needs are met for all. It would free up money to be used to achieve priorities."

As an example, there's probably around 400-500 parking spaces at my workplace (a 12-storey office tower in North York); let's say they're taxed at $1 per space per year. That's only $500 generated from that building, which, when further subdivided across the tenants, is diluted even further. Or, let's say a fast-food restaurant has 50 locations in the city, with an average of 30 parking spaces each. The additional hit is only $30 per average location, but nets $1500 in revenue.

A parking tax would hit small- and medium-sized business less than it would bigger businesses that can better afford it. My local ValuMart has a small 30-space parking lot; that's $30. (The IGA down the street has none, for that matter.) Meanwhile, let's say the average big Loblaw's superstore has 300 spaces, and there's about 20 of them in the 416. There's $6000. Apply this across the entire city, and you're likely to get at least a decent figure. Better yet, it's a disincentive to new businesses planning on building monster parking lots — maybe you'll be more likely to think twice about exactly how many spaces you need, if you realize there's an annual fee for each space — and, if the fee is passed on to consumers through parking fees, it's an incentive to choose alternate modes of travel other than driving. More urban-minded (as opposed to suburban-minded) planners have lamented the prevalance of free parking in North American society for decades; here's one small step towards addressing that.

Add to this the observation that $1 per year — two cents per week — seems like a pretty low fee for a parking space. If workers in my building had to pay even a quarter as a daily parking fee, and let's say the parking lot is, on average, about half full (250 per day), that's over $15,000 over a 250-day year (compared to $500 at $1 per space per year).

On the other hand... a 1.5% business tax hike is probably far more politically saleable...


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