NEWS: Industrial Tax Revolt Wins Panel

By Think City Staff

Do major industries need a break on their property tax? Gordon Campbell's BC Liberals think they do.

That's why they've established a process called the Industrial Property Taxation Review that could dramatically restrict the ability of local government to tax big business.

Over the last two years, the BC Business Council and a group of large industrial taxpayers have mounted a campaign to reduce industrial property tax rates in British Columbia.

This latest move comes on the heels of the $24 million in tax relief for heavy industry in the 2008 Budget and the Industrial Property Tax Credit announced by Premier Campbell on October 22, 2008 that provides a rebate of 50% of school property taxes to light and heavy industry. Business will also benefit from the HST, which will shift approximately $2 billion in provincial sales tax from business to consumers.

The industrial property tax issue really came to a head when Catalyst Paper, the largest pulp and paper company in BC, refused to pay its taxes in the four municipalities where its pulp mills operate: Campbell River, Powell River, North Cowichan, and Port Alberni. Instead of paying the $23 million in taxes assessed, Catalyst Paper CEO Richard Garneau said the company could only afford to pay $1.5 million to each municipality – about one quarter of the amount they were owed.

As the economy worsened, other big companies such as TimberWest, West Fraser, and Zellstoff Celgar also began to withhold their property taxes. Their main complaint is that industrial property taxes in BC are much higher than in other competing jurisdictions.

The municipalities responded by taking Catalyst Paper to Court, and in December of 2009 the BC Supreme Court ruled that municipalities have the right to set tax rates as they see fit. Justice Peter Voith wrote that the courts have traditionally been unwilling to encroach on the authority of local government in this regard, and that essentially this was a political issue, not a legal one.

Catalyst Paper responded to the court decision by continuing to refuse to pay its taxes and launching an appeal, but mostly by stepping up its lobbying and public relations efforts.

At the provincial level, the Campbell government had steadfastly refused to become involved arguing that it was a local issue that should be resolved at the local level.

However, pressure on the government steadily increased as big business, local politicians, labour leaders, and other heavy hitters stepped up to demand tax relief for the industrial sector. In the Throne Speech in early February the government gave in and promised a review of the industrial property tax issue.

On March 10, the government announced that the review would look into the issue and report back by the fall of 2010. The steering committee for the review is composed of senior bureaucrats, industry representatives, and municipal politicians. There was no mention of any public process or opportunities for public involvement.

In British Columbia, municipalities mostly have free reign to set their own property tax policies. Provincial regulation has crept into certain areas such as railways and ports but it now appears the province is contemplating much more significant restrictions on the authority of local governments. Since property taxes (for both residents and business) account for 70 to 80 per cent of local government revenues in most municipalities, this review could have profound implications for public services and residential taxes at the municipal level.

One area where local governments, big business and progressive economists agree is that municipalities are too dependent on property taxes as a single revenue source, and need alternate sources of financing. But simply shifting the property tax burden from business to homeowners, as Vancouver and several other communities are doing, is not the answer.

"If Gordon Campbell's government intends to regulate property taxes, then they should look at the whole issue of how local government is financed and propose some alternative revenue sources," said Doug McArthur, a professor of public policy at SFU.

Think City recently conducted a survey of local governments, and is in the process of preparing a paper on alternate revenue sources for local governments. We will be publishing highlights from the paper in future editions of the Think City Minute.