Property Taxes: A Primer

We’ve got to talk about Nova Scotia’s Capped Assessment Program (CAP).

No, wait! Don’t leave! I know taxes pack that special one-two punch of boring AND painful, but I will do my best to keep the discussion interesting and we really, really do need to talk about the CAP because it’s making it difficult for Nova Scotia’s municipalities to provide the services residents  like you and I need.

As District 12 Councilor Jim MacLeod told Council during its regular monthly meeting last week:

I think that we have to recognize that the CAP seems to be good but it’s not really, it’s costing us a lot of money.

Before we get to the issues surrounding the CAP, though, I thought I’d take a moment to go over some property tax basics.

 

Bread & Butter

The first thing to understand is that, when it comes to municipal revenues in Nova Scotia, property taxes are basically it. This does not make us special – this makes us like pretty much every other municipality in the developed world.

Oh, there are some transfer payments from other levels of government, some monies from dog licenses and building permits and parking meters, but roughly 75% of the CBRM’s revenue comes from property taxes.

This isn’t unproblematic, by the way. As Philip Slayton, author of Mayors Gone Bad, told the Spectator earlier this year, it’s a serious problem for Canadian municipalities—their only source of revenue is a regressive (hits the poor harder than the rich) tax.

Slayton thinks that, given the majority of Canadians now live in them, cities need to be given greater powers to raise revenue – perhaps even their own income tax. But for now (and, let’s face it, the foreseeable future) property taxes are the CBRM’s “bread and butter,” as Jennifer Campbell of the finance department told Council last week, so it’s property taxes we’re going to discuss.

 

Rates

In the CBRM, according to the 2017 tax rolls, there are 59,952 residential properties; 3,416 commercial properties; and 410 apartment buildings. The rates at which these properties are taxed are set by the municipality.

When Sydney, Glace Bay, New Waterford, Sydney Mines, North Sydney, Louisbourg, Dominion and the County of Cape Breton amalgamated to form the CBRM in 1995 , they brought with them a grab bag of commercial and residential property tax rates. Twenty-two years later, the CBRM has…a grab bag of commercial and residential property tax rates, based on the services residents receive, as you can see from the beautiful table below:

 

CBRM Tax Rates 2016/17

Municipal UnitServicesType2016/2017
SydneyFull ServiceResidential2.266
Commercial5.457
BIDC5.557
Sydney SuburbanS,F,T,HCommercial5.457
Glace BayFull ServiceResidential2.094
Commercial5.230
New WaterfordFull ServiceResidential2.080
Commercial5.226
North SydneyFull ServiceResidential2.106
Commercial5.242
BIDC5.417
Sydney MinesFull ServiceResidential1.991
Commercial5.127
DominionFull ServiceResidential2.066
Commercial5.203
LouisbourgFull ServiceResidential2.016
Commercial5.259
County of CB, Gr. Lake,
Alexandra, Reserve, New Vic, Scotchtown
S,F,T,HResidential 1.926
Commercial5.062
Carmichael Dr.S,FResidential1.595
Commercial4.838
Oland Hghts, Tower Rd, Donkin, Florence, Coxhth, WestmtS,H,FResidential1.819
Commercial5.062
Upper North Syd-Seaview DriveF,T,HResidential1.735
Commercial4.871
Alder Pt, Mill Creek, Birch Grove, H,FResidential1.628
Commercial4.871
Unserviced Areas --CountyFResidential1.404
Commercial4.647
Keltic Dr, Gardiner Mines, Kytes Hill SubdivisionT,FResidential1.511
Commercial4.647
TanglewoodS,F,TResidential1.703
Commercial4.835

Services: T = Transit; H = Hydrant; S = Sewer; F = Fire protection. Source: CBRM

 

Assessments

Taxes are levied “per $100 of assessment,” and in Nova Scotia, assessments are done by the Property Valuation Services Corporation (PVSC), an “arm’s length,” not-for-profit entity funded (to the tune of roughly $17 million per year) by the province’s 50 municipalities.

PVSC assessments are based on market value and I’ll start by saying this is not without its problems: for all the talk of norms and standards and regulations and rules, there remains a degree of subjectivity in such assessments.

That said, according to municipal tax experts Harry Kitchen and Enid Slack, it’s still the best method we’ve got. Drs Kitchen and Slack prepared a report on the subject of municipal taxation for the PVSC, the Union of Nova Scotia Municipalities (UNSM) and the Association of Municipal Administrators (AMA) in 2014. They began by considering an alternative method to market value assessments: area-based assessments.

Under an area-based assessment system, the assessed value of a property is based on the size of land and buildings.

But as quickly as they raised the idea, they kicked it to the curb:

Experience around the world suggests that market value is the best base for the property tax. Market value captures the amenities of the neighbourhood, amenities that are often created by local government policies (zoning legislation, for example). Area-based assessment results in relatively greater tax burdens on low-income households compared to high-income households because a comparable property in a high-income area pays the same tax as a comparable property in a low-income area.

So, market value it is.

 

Sales Comparison

Once you’ve decided to base assessments on market value, you must determine market value.

Carlos Resendes (PVSC VP of business & innovation services) and Rebecca Vorstermans (PVSC stakeholder relations adviser) walked me through PVSC’s method this week and I will now do my best to explain it to you, so stick with me.

PVSC maintains a database of 600,000 properties in Nova Scotia which it uses to produce the tax rolls for the various municipalities. What its assessors do can be considered “mass appraisal” in that they evaluate 600,000 properties, but Resendes says it’s more correct to say they “apply mass appraisal techniques to value individual properties.” He contends the resulting assessment is actually more accurate than that reached by say, a bank appraiser, who would look at three sales in your neighborhood to reach his conclusion about your property’s value whereas PVSC looks at “as many sales as we have.” (In fact, Resendes said some banks are actually moving toward the use of mass appraisal techniques.)

PVSC uses a combination of two approaches — sales comparison and cost — to determine the market value of your property on a pre-determined “base date.” For your 2017 assessment, the “base date” was 1 January 2016. (That one-year lag between the base date and the assessment actually represents an improvement: until very recently, it was a two-year lag and Resendes said some Canadian jurisdictions have as much as a four-year lag.)

With the sales comparison approach, PVSC looks at all sales in your neighborhood six months before and after the base date. For their 2017 assessments, PVSC analyzed 1,096 residential property sales in the CBRM.

(What constitutes your neighborhood, for assessment purposes, is not necessarily just your street — although it can be. Resendes says they look at the CBRM in terms of “economic” neighborhoods — areas that seem subject to the same market forces. Vorstermans says PVSC is constantly monitoring market activity, so these neighborhoods can change.)

 

Cost Approach

As for the cost approach, the PVSC’s Lloyd MacLeod told CBRM Council last week that it was “based on the assumption that a potential owner would pay no more for a property than what it would cost for them to acquire the land and build themselves.”

If you prefer explanations that involve pictures, I’ve got you covered:

 

Resende says they cost out construction, determine the value of the land based solely on sales (if there haven’t been enough sales in an area, they can look at sales in similar areas) and calculate depreciation based on “the age and condition of the property as we know it.”

Using all this information, PVSC comes up with your preliminary assessment, which you receive in October. Vorstermans says the preliminary assessment gives property owners a chance to verify details or contact PVSC with any additional information.

 

State Date

The final element in the mix is the physical condition of the property as of the “state date” which, for the 2017 assessments, was 1 December 2016.

The “state date” recognizes that the property may have undergone changes since the “base date” 11 months earlier and ensures any such changes are reflected in the assessment. To determine the physical condition of properties, the PVSC reviews any permits (construction, renovation, demolition) issued by the CBRM in the year prior to the “state date.” (In the CBRM last year, that meant 822 permits.)

Vorstermans told me in an email that they have a number of other tools for determining the state of a property, including an open data portal that displays each property’s physical attributes. (Ever wondered how many bathrooms the neighbors have? Well, wonder no more!)

Also, when a property is sold, Vorstermans said the PVSC will “attempt to contact the seller, the buyer and the real-estate agent (if applicable) to verify property information.” (Add in real estate web sites and “aerial imagery” and it starts to seem like PVSC knows your house better than you do.)

An actual, physical inspection of a property can happen in the case of an appeal, a sales transaction or a personal request.

Your final 2017 assessment reflects the physical state of your property as of 1 December 2016 — meaning, if you added a garage at some point in 2016, PVSC will calculate what your house with that garage would have been worth on 1 January 2016, the “base date.”

Final assessments are mailed out in January and property owners have 31 days from the date on their assessment to appeal (which 642 CBRM residents did last year).

And…that’s the end of this property tax primer.

Feel free to do a victory lap around your “economic” neighborhood.

 

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