City of St. John’s Proposal for Tax ReformElimination of Business Occupancy tax

23 April 2010Prepared by Altus Group & Ottenheimer Baker

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History of Progress to DateHistory of Progress to Date

Tax Reform

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City Proposals – Elimination of Business Occupancy TaxCity Proposals – Elimination of Business Occupancy Tax

“Discussion paper on tax reform”, April 7, 1992.

(public document requesting feedback)

Proposal was dropped due to opposition

‘Joint task force on amalgamation and taxation’ (St. John’s BoT and City) March 2001. City submitted draft proposal for tax ‘integration’. Made known to major property owners in June 2002.

Proposal was shelved due to opposition

Paper entitled “Integrating the Business Realty and Business Occupancy Taxes” submitted to BoT in early 2006. Meeting with major property owners on March 21 2006.

Ongoing discussion

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Current 2006 City ProposalCurrent 2006 City Proposal

Calls for the integration of Business Realty and Business Occupancy taxes (in practical terms, elimination of the BO tax)

Recommends that there be a phase-out of BO tax (with phase-in of realty tax increase)

Residential Realty tax is not affected by the proposed tax reform

Agrees that any change should only be carried out with the full co-operation and support of the business community

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City Proposal – Suggested Pros & ConsCity Proposal – Suggested Pros & Cons

The City will derive a number of benefits by combining the taxes. These would include:

– Simplifying administration in the Assessment department

– Simplifying administration in the tax billing and computer departments

– Reduce tax arrears due to the ability of being able to place a lien on the property

– Federal and Provincial government departments which occupy private property will pay a greater share of the tax burden

– Non-profit and fraternal organizations (not charitable) occupying private property will pay a greater share of the tax burden

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Altus Group MandateAltus Group Mandate

In previous years (1992 and 2002) Altus had represented major taxpayers (together representing over $300m assessed values) in opposing the City’s proposed tax reform on specific grounds

Representing the same taxpayers in 2006, the taxpayers requested Altus Group undertake a study to review the latest proposal and look at how problems relating to a possible tax change may be mitigated. On request from the taxpayer group, the City of St. John’s agreed to fund the study.

A contract was concluded between the City and Altus Group in 2006. The contract required there to be an ‘Advisory Committee’ that would assist in the Altus Group research and study

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The Study GroupThe Study Group

Altus Group Ltd

Neil Hardy, BSc., MRICS, AACI

Joanne Hayes, B.Comm., B.A., AACI

Ottenheimer & Baker

Bob Andrews, QC

Beth McGrath, BBA, LLB

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Purpose and Scope of StudyPurpose and Scope of Study

Review legislation across the country where BO has been phased out

Review success of similar tax reform in other jurisdictions in Canada

Research problems / issues that BO elimination will cause

Relate these issues to the City’s proposal

Address concerns raised by taxpayers in the City

Suggest methods and policies that can be built into enabling legislation and City protocol that would eradicate or largely mitigate problems arising from BO elimination

Summarize findings and recommendations in an independent report that would be available to all parties

NOTE: the report will not make recommendations relating to whether or not BO elimination should take place. This is a political decision.

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Advisory CommitteeAdvisory Committee

Major taxpayers represented

– Martek Inc (Charlie Oliver acting as chair of Advisory Committee)

– Empire Group / Crombie REIT

– Fort William Properties

– Perennial Management

– Fortis Properties

City of St. John’s representatives

– Neil Martin / Bob Bishop

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Issues Resulting from BO EliminationIssues Resulting from BO Elimination

Critical issues that need to be addressed to mitigate shift in tax burden:

Change in tax liability for landlords

Change in weighting of tax burden across commercial taxpayers

Vacancy in rented commercial buildings

Vacant commercial land

Gross leases (allow increase in tax to flow through to tenants)

Lease administration

Taxes on charities and other exempt properties / occupiers

Tax payment periods

Fairness ratio introduction

Phase-out decision (phasing or simply overnight change)

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Interaction with Focus GroupsInteraction with Focus Groups

Several Focus Group meetings were held where issues resulting from our research were discussed and feedback received.

Focus Group sessions were held with companies and associations such as:

– Board of Trade municipal affairs committee

– Fortis Properties

– Fort William Properties

– Other leading property owners in the City

– Hotel owners / managers

– Advisory Committee

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Delivery of Consultants ReportDelivery of Consultants Report

Altus Group and Ottenheimer Baker completed their consultant report on 1 May 2009 and delivered the report to:

– Neil Martin and Bob Bishop of the City of St. John’s, and– Charlie Oliver, chair of the Advisory Committee

At the same time, the consultants provided an overview of their findings to City Council and senior bureaucrats, and also to the Advisory Group committee

The consultants also provided the City and Advisory Group with a suggested ‘roll-out’ plan

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Phases Completed as of 30 June 2009Phases Completed as of 30 June 2009

Research into issues relating to tax blending and elimination of business occupancy tax

Review of legislation and issues arising in other jurisdictions where business occupancy tax has been eliminated / phased-out

Focus Group meetings with stakeholder groups

Completion of comprehensive consultant report

Creation of a tax ‘model’ for estimating changes in tax payable and weighting between tax groups

The City Council has determined that they wish to move forward toward implementation of the tax reform and have authorized the City Manager to proceed to the next phase of the project

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Action PlanAction Plan

Tax Reform

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Future Action PlanFuture Action Plan

1. Meetings with taxpayer focus groups to inform them of research and recommendations to date, discuss major issues and obtain feed-back on what will need to be done to achieve buy-in (currently on going)

2. Draft legislation that would allow for the proposed tax changes to be implemented

3. Bring all issues and final plan to the public’s attention through media releases, general meetings, etc

4. Obtain legislative changes that will authorize the City to make tax changes as planned

5. Prepare taxpayers and City administration for implementation for the 2013 tax year

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Taxpayer Focus Groups / MeetingsTaxpayer Focus Groups / Meetings

There are several issues that will give rise to disparities in tax burden from ‘prior’ to ‘after’ the proposed elimination of business occupancy tax, as well as other related operational issues. These have been outlined in the consultant report.

With this in mind, the City, in conjunction with the Advisory Committee, will be meeting with relevant stakeholder groups to discuss and resolve to the best level possible each of the issues identified. In some instances, the meetings may be more information sessions.

Providing the stakeholders with full disclosure, an explanation of the issue, background research and possible solutions for mitigation, will provide for maximum understanding and feedback for negotiating solutions.

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Meetings ProtocolMeetings Protocol

The meetings will be arranged through the Advisory Committee

The date for meetings will give sufficient time for stakeholders to prepare for the discussion. Difficult topics will be arranged well in advance, whereas ‘information’ discussions can have shorter lead-up time

The Advisory Committee will select and invite individuals to represent the particular stakeholder group. Meetings will be of whatever size of group the Advisory Committee feels appropriate to achieve solution to each issue

All relevant information on the issue will be provided to those attending the focus group meeting.

Attendees will include member(s) of the consultant team, the City, Advisory Committee and relevant stakeholders

At each meeting, the consultant team will offer a preview of the issue, result of research and possible solutions. They will also provide independent advice during each session

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Scope and Goals of Taxpayer MeetingsScope and Goals of Taxpayer Meetings

Tax Reform

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Vacancy in Rented Commercial Buildings + Tax Payment PeriodsVacancy in Rented Commercial Buildings + Tax Payment Periods Recommend 1 day be set aside

Although two separate topics, the stakeholder group for each will be the same, hence our recommendation to combine the topics to a single meeting

Goal #1 will be to agree to vacancy formula whereby landlords who have vacancy in buildings will be in a roughly equivalent position after the tax reform to prior whereby uncollected tax from business occupancy would be recognized as an allowance in the new tax payable

Goal #2 will be to determine tax payment periods and decide on details regarding payment in arrears and tying in tax rebates / concessions with the billing / payment schedule

Keep in mind simplicity of calculations so as not to spawn complicated administration

Possible tie in between tax payments in arrears and previous period vacancy

An audit and potential penalty feature will be necessary

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Vacant Commercial LandVacant Commercial Land

Recommend ½ day be set aside

Goal will be to agree to reimbursement to the taxpayer of the previous business occupancy portion of the increased realty tax

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Property Tax Clauses in Leases + Lease Administration (once-only cost)Property Tax Clauses in Leases + Lease Administration (once-only cost)

Recommend ½ day be set aside

Although two separate topics, the stakeholder group for each will be the same, hence our recommendation to combine the topics to a single meeting

Property tax clauses will be an information session lead by Bob Andrews / Beth McGrath, with discussion and Q&A

‘Lease administration’ goal will be to try and determine and offset likely potential costs to landlords for administration of the tax change, likely in the form of a one time cost allowance

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CharitiesCharities

Recommend ½ day be set aside

Goal will be to explain the taxation issues involved to Charities and for the City to demonstrate their desire not to increase the burden on charities through the tax change

Landlord representatives may want to be present as the solution may involve rebate to landlords and not directly to charities

Largely an information session, although details of the rebate system should be forthcoming

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Tax Exempted PartiesTax Exempted Parties

Recommend ½ day be set aside

Attendees should be representatives from tax exempted groups such as the Federal Government, Provincial Government, Edge Status companies, etc

The goal will be to provide information, but also to allow the City to explain their intentions regarding tax changes to each group. If rebates or tax concessions are to be awarded to any of these taxpayer groups, the goal of the sessions will be to conclude how the concessions will operate

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Utility / Communications CompaniesUtility / Communications Companies

Recommend 2 hours be set aside

This is a specialized taxpayer group who presently pay realty tax and are exempt from business occupancy tax as a result of them paying a percentage of gross revenue as a ‘utility’ tax

The goal will be to inform the group of the possible tax changes and how this will affect them. The City will need to decide if they wish to rebate the taxpayer group for increased realty tax, or reduce the utility tax, or neither. If a rebate is considered necessary, the goal will be to reach a formula for rebate.

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Fairness Ratio + Phase-out or Overnight Elimination of Business Occupancy TaxFairness Ratio + Phase-out or Overnight Elimination of Business Occupancy Tax

Recommend ½ day be set aside

Suggest representatives from all taxpayer groups attend, as these topics are both general interest to all

Goal #1 will be to see if the taxpayer group as a whole would like to see the implementation of a ‘fairness ratio’ and goal #2 would be to set the fairness ratio

Goal #3 would be to obtain feedback and recommendation regarding whether the taxpayer stakeholders would want to see a phase-out of business occupancy tax or simply an overnight elimination

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Taxpayer EducationTaxpayer Education

Recommend 2 or 3 ½ day sessions be set aside

Suggest tenant groups and smaller landlords be invited, possibly Board of Trade and Federation of Independent Business, lawyers, accountants, etc

Goal will be for information and Q&A

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Draft LegislationDraft Legislation

Tax Reform

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Draft Legislation RequiredDraft Legislation Required

The City would require amendments be made to legislation as follows:

– City of St. John’s Act

– City of St. John’s Municipal Taxation Act

– Assessment Act

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Readiness for Implementation (if proceeds to this stage)

Readiness for Implementation (if proceeds to this stage)

Tax Reform

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Information ReleasesInformation Releases

The main aim of the media / taxpayer releases will be to educate taxpayers in the purpose and effects of the tax reform. Specific attention will be paid to:

– Describing the assessment and taxation process ‘prior to’ and ‘after’ the change

– Showing the differences that will occur in taxation– Explain the ways the ‘issues’ have been mitigated– Advise landlords and tenants how the tax reform will affect them

(op. cost recoveries, billing periods, vacancy allowance, etc)– Provide specific information on critical dates for implementation,

billing and for payment– Provide ‘hot line’ for Q & A

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City PreparationCity Preparation

The City will make up-front preparation for the tax reform, including:

– Liaising with the Provincial Government in preparation for the tax reform

– Ensure legislative reform takes place on a timely basis

– Educating all relevant internal staff on the tax reform

– Making relevant changes to property-based tax revenue administrative functions and protocol

– Make relevant changes to the Assessment Department to ensure proper protocol in maintaining the assessment roll

– Making sure there is an efficient taxing system to minimize the need for bureaucracy and minimize taxpayer administration

– Prepare a revenue neutral 2013 budget with transparency of differences between tax system in 2012 and after tax reform in 2013

– Have a dedicated interim team available for Q & A

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Implementation Date (1 January 2013)Implementation Date (1 January 2013)

The tax reform is presently planned to become effective on 1st January 2013

To date, the overwhelming vote of the focus group members ‘straw-polled’ is to have an ‘overnight’ implementation as opposed to a phase-in

The 2013 assessment roll will have no business occupancy tax

The 2013 property tax rates will be for property tax only

Legislation to protect the right of added property tax recoveries for landlords will be effective as of the date of tax reform implementation

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Question and Answer PeriodQuestion and Answer Period

The City representatives and consultants will be please to answer any questions you may have

Thank you for attending this information session

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