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Giving thought to business tax

Why do we tax businesses at several times the rate we tax residences?

Let us suppose there is a businessperson in Clearwater who has had quite a good year and finds him/herself with $100,000 to spend (and no doubt there are quite a few businesspeople in Clearwater who would want to know what line of work the first one is in). Anyways, let us imagine we have a local businessperson with a significant amount of money to spend. Would we want that person to put that money into building a new addition on his/her residence, or would we want that person to invest the money to expand his/her business and create new jobs? The answer should be we want that businessperson to invest in his/her business and create jobs. Why then do we tax businesses at several times the rate we tax residences? It doesn’t make sense. District of Clearwater isn’t one of the main culprits, but some one-industry towns tax their biggest mill at 20 to 30 times the residential rate. Until fairly recently, businesses in Vancouver were paying for nearly half the municipal services used by local residents. The rationale for higher tax rates on businesses has been that they benefit more from municipal services than do individuals. The real reason, of course, is that there are a lot more voters paying residential taxes (directly or indirectly) than there are voters paying business taxes. Another argument for higher business tax rates is that for large corporations, local property taxes are a minor item and other factors, such a quality of life or availability of resources, are more important in deciding where to locate. That might be true for large corporations, but it doesn’t answer the question of why we allow property tax ratios to be such a disincentive to local business owners to invest in their own businesses. The provincial government recently announced a review of municipal business tax rates as part of the process of replacing the HST with the PST. There are no simple solutions. Obviously, if all municipalities suddenly went to charging a single tax rate for residences and businesses, they would suffer a catastrophic loss in revenue with little or no immediate increase in business investment. Still, it’s an important question that most of us give little thought to. We should keep an eye on the provincial review, make our input where appropriate, and pay attention to its recommendations.