Calgary small businesses are suffering.
With the collapse of commercial real estate values in downtown Calgary, hundreds of millions in non-residential business taxes have been redistributed to the thousands of small businesses that can ill afford a hit to razor-thin margins.
This week, Calgary city council was initially unable to deliver a program that would aid business owners, primarily due to conflicting ideals on how it should be implemented. In a last ditch effort May 30, 14 of 15 councillors signed on to an urgent notice of motion to commit $190.9 million to help non-residential property tax accounts.
The whole issue, however, is complex. It’s more complex than business signs comparing property taxes from 2014 to property taxes in 2019. It’s more complex than a hot take with a Calgary business owner claiming 100, 200 or 300 per cent increases to his or her property tax in five years.
It’s a mixture of non-residential property taxes, a five-year business tax consolidation process, provincial tax, local improvement levies and, apparently, “other.” Throw in market assessment, revenue-neutral taxation methods and mill rate changes and you have today’s all-encompassing business tax bill.
Like we said… complicated.
Bottom line is that comparing a business’s property tax from five years ago to today’s bill is like comparing apples to oranges. There are a lot of moving parts in this equation; few are the same for each business.
This piece won’t solve the Calgary business tax issue, but additional – digestible – context is needed for a proper debate on how to fix it long term.
Starting point: Calgary’s business tax consolidation
This part may be the most misunderstood aspect of the business tax, and one of the culprits in those five-year property tax comparisons being so askew.
In 2014, the city began consolidating two different taxes: The non-residential property tax and what City of Calgary valuations manager, Joe Marasco, called the occupiers tax.
“What would happen is, if you were an occupier, you got, really, two assessment notices – two tax bills – one for the value of the property, if it was to sell at its market value. Then you got an assessment notice that was based on what the net rental value was of the space,” Marasco explained.
Marasco said both the occupier tax (business tax) and the non-residential property tax varied based on how the land was used. A small gas bar on a larger piece of land would have a more valuable land assessment and a smaller occupier tax.
“Whereas, a downtown office building was a little bit simpler to do because a lot of those buildings are, the income approach, really dependent on the value of the space that’s capitalized to come up with a building value,” he said.
Because of these differences, and the impact it would have had the city gone to a consolidated tax for all businesses at the same time, it was staggered over five years.
The city transferred that occupiers tax in increments: 10 per cent in both 2014 and 2015 and then 20 per cent in years 2016 to 2019. It became a single non-residential tax bill.
When asked about Wurst, a Calgary beer hall that’s been in the media for its sign showing 2014 property taxes of $74,000 and a 2019 property tax of $208,000, Marasco said he couldn’t speak to that specific case due to confidentiality. He did say, however, that it was likely that because of the type of establishment, a significant portion of the previous occupiers tax would have been applied to that overall tax bill.
“But in most of those cases, they’re not including that business occupancy (in the comparison),” he said.
LiveWire Calgary attempted email and telephone contact with the owners of Wurst to learn about their calculations, but no one responded to talk about the values on their sign.
The current Calgary business tax breakdown
While the owners of Wurst didn’t provide comment, the owner of Alberta Storage Place Ltd, Joe Milino, did.
Milino was the subject of a Licia Corbella Postmedia article titled, “Shocking 100 per cent business tax increase hurts entrepreneur.” He was gracious enough to open up about his tax bill with LiveWire Calgary, including the different line items for which he was being charged.
Milino broke it down like this:
2015: Property tax – $46,983
Local improvement levy – $19,491
Business tax (occupiers tax) – $680.96
Total tax bill: $66,474.96
2019: Property tax – $74,449 (58.5 per cent increase over 4 years, including the migrated occupiers tax)
Local improvement levy: $15,633 (estimated)
Consolidated business tax (that Milino had never seen before): $3,150
Provincial tax: $19,806
He also has an “other” charge he’s never seen before. He said he’s asked the city what that is, but never received an answer.
Total tax bill: $113,083.50
Overall, since 2015, Milino has indeed seen a sharp increase. Our calculations based on the numbers he provided, show a 70 per cent increase since 2015 in his total tax bill.
Richard Truscott, vice president, BC and Alberta, of the Canadian Federation of Independent Business (CFIB), said a typical increase for a Calgary business is a hard thing to get a handle on.
“We’re dealing with a lot of moving parts, right? There’s the mill rate, which changes. There’s the assessments that change and even the percentage of commercial versus residential,” he said.
Truscott said that while all of this has changed, the economic conditions for Calgary’s small business have worsened.
“It’s harder to pay those property tax bills now than it was in 2014,” he said.
Truscott said he has seen a doubling or tripling of some of his members’ overall tax bills. But, he did agree that it’s made of up a number of components like the market value fluctuations and the redistribution of the tax burden from the downtown core – and the folding in of the old occupiers tax.
“I think that the end, I agree that sometimes when someone puts something up on their external sign and for other businesses showing their tax paid, there’s a lot of variables that go into that,” he said.
“But I can tell you from talking to our members and seeing their property tax bills, that this is a pretty widespread thing.”
The underlying issue for Calgary businesses
Milino laid it out pretty clearly. In his estimation, if his business were taxed like a residential property, he would pay between $20,000 and $30,000 annually. With all the bells and whistles attached, he currently pays nearly $114,000.
But, Milino’s quick to point out, he’s on the hook for a local improvement levy for storm water and sewer that weren’t originally put in. That’s already included for residential homeowners, he said, via the developers.
It’s additional services, too. He said he rarely sees a snow plow and there’s no worries about ticketing during spring street sweeping because he says he hasn’t seen one of those either. There’s one streetlight in his cul-de-sac and the other is on his property – but he pays additional to Enmax for that.
“I’m putting this forward, because what’s it doing to the city? What’s it doing to the erosion of business?” Milino said.
Truscott said this is one of the fundamental pieces missing in the city’s tax equation. The consumption of services relative to the tax burden. He said businesses are paying on average four times more than homeowners – but still have to pay for things like contracting out garbage collection.
“We’ve been telling the City of Calgary for a decade, that their strategy of relying so heavily on the commercial side to pay for the rising cost of city government is very risky, and it’s going to come back to bite them,” he said.
“And sure enough, here we are, the chickens have come home to roost, and it’s manifesting itself during this recession.”
Milino doesn’t expect it get better. He calls it “a race to the bottom.” He said as businesses leave for competitive (read: tax) reasons, it continually shifts the tax burden to others like him. As the businesses tax burden continues to be shouldered by other small businesses and they’re forced out, the cycle continues.
The city’s revenue neutral tax formula dictates how much money they need to operate the city and then mill rates are adjusted (residentially and for businesses) once market values are determined and a median is established. Those on the median have stable tax bills, those whose values have dropped pay less tax. Those with increased values pay more.
That’s where the downtown tax shift comes in.
Marasco said the downtown had accounted for about a third of non-residential tax base in the city.
“If they drop a certain percentage, that percentage is then going to be distributed out to everybody else,” he said.
There’s an exponential effect when there’s a redistribution of the tax burden, coupled with an uptick in the property’s assessed values.
“I know that there’s winners and losers of that, but those businesses that are in areas that have gone down in value, certainly, they’re getting, probably, I can say a helping hand or a bit of a break,” Marasco said.
“And they probably need it the most because their actual property values have dropped.”
No easy solution
While Calgary city councillors have come up with another interim solution, Truscott said, to correct the issue long term balance needs to be brought to the system.
Part of it is control the growth in its operating budget, he said, the other balance the services provided with the amount paid. He’s worried they’re searching for a magic bullet, perhaps waiting for another economic uptick to bring the downtown property values back up to par.
“This issue is going to come around and bite us again, unless we do something over the long term,” he said.
“And I think the citizens of Calgary, I think, would be shocked if they knew how expensive is to run the city and how much they have a good deal.”
He’s frustrated with the political leadership on this at city hall, blaming competing political agendas for the lag.
“It’s really, really disappointing. A lack of a solution for the short-term issue, and also a lack of focus on talking about longer term strategies to make sure this doesn’t ever happen.”