There’s nothing like an economic meltdown to expose a skewed property assessment system in British Columbia’s commercial real estate market.
Many B.C. communities have looming 2020 budget shortfalls that could have been surpluses if large, sophisticated properties were correctly assessed by BC Assessment (BCA).
For example, when a $500 million property has 10% shaved off its assessed value, up to $1 million of rebated taxes must then be absorbed by thousands of smaller taxpayers. When you extrapolate for hundreds of these high-profile properties, it means little taxpayers are absorbing tens of millions of dollars each year.
Small businesses – whether owners or tenants – haven’t the revenue to pay high property taxes. These taxes are a local government’s primary source of revenue; other sources are minuscule in comparison.
How did we get here?
The property assessment system has been rigged by past provincial governments, high profile property owners and their army of agents and lawyers. Assessment appeals have become a large and costly lobby, crushing the assessment system. The strategy is to flood the system with appeals. BCA is grossly under-staffed to properly address thousands of appeals each year, especially with large and complicated properties. When maximum leverage is applied, BCA crumbles, giving away something to simply make appeals go away.
In good times this is simply unfair. In these, the worst of all times, it’s egregious, especially for small businesses.
In 2020, property taxes were already going to be shifted from residential to commercial, hurting small commercial tenants. COVD-19 amplified the problem.
When small businesses can’t pay their property taxes, local governments try to help them. At the same time, and within the same property tax class, big property owners frivolously appeal properties they know to be fair, then withdraw up to 60% of them.
Does BC Assessment get these large valuations wrong in the first place? Are all parties to these appeals just playing a silly game until it’s time for BC Assessment to capitulate, giving the appearance of the system’s efficacy?
It is time for the Union of BC Municipalities to take a harder look at this problem.
As most of us know, small properties are usually accurately assessed: large ones not so much.
If there’s political will, the solution to this problem is very simple but rarely considered.
Many large individual property owners, along with real estate investment trusts, mutual funds, commercial mortgage-backed securities, pension plans, etc., have independent valuations done for federal and provincial statues, regulations and reporting requirements.
These valuations are required by pension commissions, securities commissions, the Office of the Superintendent of Financial Institutions, along with the recent International Financial Reporting Standards and, last but not least, the Canada Revenue Agency (CRA).
Further, there are independent valuations for everything from partnership agreements to divorce settlements. The point is that there’s a wealth of independent property appraisals available to the assessment system. They’re in provincial and federal government files too, but local governments don’t have access to them.
Why does B.C.’s assessment system ignore these independent valuations?
I suggest many large property owners have the ear of most governments – local and provincial – and they donate heavily to politicians. This is an obvious and age-old challenge.
Current BC Assessment legislation and its appeal board rules belie an unconscionable waste of taxpayer resources in duplicating valuations already done for a variety of non-assessment purposes. One value for the CRA, pension commission, or others, and one value for property assessment.
It is the uninformed local governments and smaller taxpayers who suffer.
Let’s be crystal clear: this change would not take away the right to challenge an assessment.
What’s proposed are slight tweaks to B.C.’s already internationally lauded assessment system – changes intended only to make the system more equitable.
Two terrific examples of the B.C. Minister of Municipal Affairs and Housing helping the little guy are housing the homeless and ramping up affordable rental housing. But, if property taxes continue shifting from large to smaller taxpayers, small business owners won’t survive. They’re a huge portion of the economy and are B.C.’s biggest job creators.
My beleaguered BC Assessment ex-colleagues are buried in a system in need of simple, reasonable reforms. They need the proper tools to administer a property assessment process that’s fair for all taxpayers.
This would help the little guy, especially in this time of crisis, but there’s an added bonus: the assessment system’s costs could be dramatically reduced, which is a good idea in a time of ballooning government deficits. •
Derek Holloway (assessmentauditbc.ca) was a senior appraiser at BC Assessment for 28 years.
Editor’s note: In 2018, 3,384 assessment appeals were filed with the BC Assessment Appeal Board, of which more than 1,200 were withdrawn and 69 were dismissed. By the end of the year, there were still 1,309 outstanding appeals. The appeal board reports a spike in appeals in 2019 and 2020 to more than 5,000 annually. That’s twice the annual average between 2008 and 2018.