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Robert Murray Haig.

The exemption of improvements from taxation in Canada and the United States [electronic resource] : a report prepared for the Committee on Taxation of the City of New York online

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Irvine, Magrath and Stony Plain, report that although the measure was
popular at the time of its inauguration, the verdict of public opinion is now
against it.

In many of the towns which report acute distress, peculiar circum-
stances were present which go far to explain their plight. In some towns
much land was exempt from taxation because it was part of the grant to
the Canadian Pacific Railway. Other towns had undertaken ambitious
improvement projects, financed by borrowed capital, which made the tax
load heavier than could readily be borne by the land owners.

In Stettler it was found advisable to permit a return to the old system
of taxing improvements and personal property. A special act was passed
by the legislature allowing this to be done. In other places, even with tax
rates almost unbelievably high, various irregular methods had to be adopted
in order to escape bankruptcy. Leduc levied an illegal special rate. Over-
assessment of land, as has been seen, became a common phenomenon. Ac-
cording to information given in a series of articles by Mr. Harold Moore
for the Edmonton Journal, published during November and December, 1912,
the town of Irvine illegally supplemented the tax on land with one on two-
thirds of the value of improvements. He enumerates eight towns which
sought to escape from their predicament by imposing a business tax under
the authority granted them by the town act to license certain specified busi-
nesses. This recourse was destroyed, however, by a decision of the court
declaring it illegal. (4)

The permission granted by the Government to impose temporarily a
business tax (5) is accepted as in itself an admission of the friction de-
veloped by the attempt to change quickly to the land-tax basis.

One town which had an exceedingly interesting experience was Castor.
Attention was first directed to conditions there by individuals in Cal-
gary, who had been owners of a large amount of land in Castor. When the
tax rate increased from twenty-five to eighty-five mills in 1912, these men
decided that holding land for speculative purposes in Castor was not worth
while. They neglected to pay their taxes on the supposition that the town

(1) Camrose, High River, Innisfail, Irvine, Lacombe, Magrath, Raymond, Stony
Plain and Vermilion.

(2) Brooks, Coleman, Didsbury, Fort Saskatchewan, Olds and Stavely.

(3) Camrose, High River, Innisfail, Raymond, Stavely and Vermilion. Non-
committal or indefinite replies were received from Fort Saskatchewan, Gleichen, Har-
disty, Lacombe and Olds.

(4) Mr. Moore's articles were primarily political in character, being planned as an
attack upon the policy of the Liberal Government. However, in connection with this
investigation, much was found to corroborate and nothing to contradict Mr. Moore's
statements.

(5) Cf. supra, p. 80.



143

officials would attempt to recoup by confiscating their land. Instead they
threatened to sell the furnishings in one man's Calgary office unless he paid
^the taxes on his Castor lots. He therefore paid his taxes, which in this
case amounted to paying a penalty because he had once owned something
of value in the town. Castor furnishes excellent practical proof that specu-
lation in land can be destroyed by taxation. Lands were surrendered for
taxes in large numbers. Mr. Hugh Smith, formerly mayor of the town,
exhibited a map of a subdivision which he had once owned, with the lots
checked which had been taken over by the city for taxes. Checks appeared
on nine out of one block of forty lots, on five out of another block of four-
teen and on seven out of another block of sixteen. Another individual in
Calgary, who was formerly a large land owner in Castor, testified that the
taxes were too high to be borne; he had not paid the taxes on what land
still remained in his name and he did not intend to do so.

The replies received to the letter of inquiry obviously vary in value.
Some are plainly mere personal opinions. In other cases the list of ques-
tions was referred to the town council and the answers represent very
accurately the general sentiment in the towns. From the large proportion
of unfavorable replies it must be concluded that the imposition of the land tax
under conditions such as exist in the small towns of Alberta is apt to be
accompanied by unhappy results. What these conditions are may be best
understood, perhaps, through a detailed analysis of the situation in two
typical towns, Ponoka and Leduc.

(a) LEDUC

Leduc is a town of between 600 and 700 people, lying about twenty
miles south of Edmonton. There is a main street three blocks long, fringed
with squatty frame store buildings, one and two stories in height. There is
a livery stable, two hotels, a lumber yard, a harness shop, a few hardware,
clothing and grocery stores and the inevitable complement of saloons. Plank
sidewalks dart at various angles along the unpaved street from which the
wind occasionally sweeps a blinding cloud of dust. The most striking archi-
tectural feature of the town is a three-story addition to one of the hotels,
constructed of sheet iron. The town has no public water supply, no pave-
ments, no sewers, no light — indeed scarcely any public improvements at all
except the dilapidated plank sidewalks. Arrangements, however, were be-
ing made in the summer of 1914 for the installation of electric light and
better sidewalks. The town is purely a center for a rich farming com-
munity and has not grown perceptibly in a half dozen years.

In 1912 Leduc was put upon a single-tax basis by the amendment to the
Town Act.(l) The town was not heavily in debt. Fifteen thousand dol-
lars had been borrowed in 1906 for providing fire protection and a park.
About two years later $3,500 had been borrowed for school purposes. Part
of these loans had been repaid by 1912. In 1911 a new school building

(1) Cf. supra, p. 79.



144

was needed and $19,000 was borrowed to pay for its construction. The
total outstanding indebtedness of the town and school district in 1912 was
approximately $35,000. ( 1 )

Land, improvements and personal property had been assessed for taxa-
tion and, with only reasonable sums to be raised, high tax rates had been
unnecessary. Fourteen mills was the rate in 1907 and the twenty-mill rate
levied in 1911 was a high- water mark. Land was assessed at its full cash
value and buildings and improvements at approximately two-thirds of
their value. In 1911 the tax base for the school district, which included the
town and some territory lying outside the town limits, was $443,726. Nearly
sixty per cent, of this base was made up of the personal property and im-
provements. The tax base for the town alone was $363,715.

The action of the provincial legislature in 1912 restricting the towns of
Alberta to the land tax, raised a serious problem in Leduc. The assessed
value of land within the corporation limits amounted to only $179,290. If
twenty mills, the maximum rate permitted by law for general purposes,
were levied, the resulting revenue would not be sufficient to meet necessary
expenses. It was decided to evade this limitation by levying, in addition
to a rate for general purposes, a special rate for local improvements. This
special rate of six mills, which was levied over and above the general rate
of seventeen mills, was found to have no legal justification and was aban-
doned in 1913. The total rate levied in 1912 was forty-two mills, as com-
pared with the twenty mills levied in 1911, when other property as well as
land was taxed.

The problem of Leduc's tax rate was complicated in 1913 by a pro-
vincial law which stipulated that lands lying outside the limits of a town
could not be taxed for school purposes at a rate greater than eight mills. (2)
The school district which includes Leduc has committed itself to a policy
which involves the expenditure of more money than can be raised by a tax
of eight mills on all the land in the school district. The result is that land
in the school district outside the town limits is taxed eight mills for school
purposes while the land in the town is taxed at a higher rate — twenty-two
mills in 1913. Because of this the tax rate for the town increased that year
to forty-nine mills. The town officials have no control over the finances
of the school district. The school authorities may ask that any sum they
choose be raised for school purposes and the town officials have no power
to refuse. They must levy the necessary rate to produce the sum asked for.
In 1914 the school board asked for a sum greater by more than a thousand
dollars than that asked for in 1913. That this condition threatens disaster
to the town's finances is apparent.



(1) In 1914 debentures to the amount of approximately $21,000 were_ authorized
for an electric lighting system, for sidewalks and crossings and for public works.

(2) Cf. supra, p. 81.



145

The following table gives the tax rates in Leduc from 1907 to 1913 :

TAX RATES
(Mills)

General. Debenture. School. Total.

1907 8.5 .5 5. 14.

1908 7.5 4. 6. 17.5

1909 7.5 4. 7. 18.5

1910 6. 4. 5.5 15.5

1911 8.5 3.5 8. 20.

/ ^ ,

Local Im-

General. provement.
1912 17. 6. 7. 12. 42.

V , '

1913 20.00 7. 22. (a) 49.

(a) This rate applied to the land within the corporate limits. A rate of eight
mills was levied on other lands in the school district.

The council has decided to resort to frontage taxes to pay for some
improvements which are greatly needed, "as the only possible way," the
mayor explains, " of keeping the rate within bounds."

The assessed value of the land within the town limits in 1911 is not
available. ( 1 ) The corresponding figure for the entire school district was
$193,476. Town lands were valued at $179,290 in 1912. How much of
an increase is represented by these figures it is impossible to state. Each
year since 1912 the assessment has been increased: in 1913, approximately
$27,000 was added; in 1914, the assessor estimates, $10,000 was added.
These additions were made in spite of the fact that the town has had no
perceptible growth, which would seem to indicate a degree of over-valuation.
The tables which follow show the assessed values from 1907 to date :

ASSESSED VALUES (Tax Base)

The The School District

Town. Including the Town.

1907 $344,042 $399,823

1908 344,042 394,050

1909 346,557 407,950

1910 346,105 422,281

1911 363,715 443.726

1912 179,290 357,020

1913 206,455 348,551

1914 216,455(a)

(a) Estimated by the assessor.

The evidence of the relationship of assessed values to market values
in Leduc is conflicting and from some of the data it is difficult to determine
whether the discrepancies which apparently exist are due to the fact that
the assessments have been raised unjustifiably or the land values have
shrunk away from the assessments. Mayor Norris believes that the assess-
ment is not very high and cites the example of the price paid for the lot
opposite the Leland Hotel, which seems to be the only real estate trans-

(1) The assessment rolls for 1911 had disappeared and a thorough search of the
assessor's office failed to reveal them.



146

action in the town in several years, where fifty-two dollars per foot front
was paid for the land which was assessed at forty dollars per foot front,.

Mr. C. W. Gaetz and Mr. D. M. Colquhoun, both members of the coun-
cil and owners of property facing on the main street, testify that they do
not consider their property overassessed.

The assessor himself states, however, that in his opinion " not many
lots would bring what they are assessed for." He points out, moreover,
that there is a distinct limit below which it is scarcely worth while to value
a lot. " If a lot is not worth $150," he declares, " it is not worth anything."

Mr. R. T. Telford, one of the heaviest land-owners in the town and
the man who originally homesteaded the quarter section which now con-
tains the business street, expressed great willingness to sell the lots which he
owns at a price of one-half the valuation of the assessor.

The proprietor of the lumber yard, Alderman J. F. Stiles, has a frontage
of one hundred and fifty feet on the main street which is valued for taxation
at forty dollars per foot, or $6,000. He states that if he were to sell, he
could not get more than $3,000 for his land. " Moreover," he said, " there
would not be many chasing me to give me that for it."

Ex-Mayor Ruddy states that he knows of three lots on the main street,
assessed at $1,000 a piece, whose owner is " breaking his neck to sell them at
$500 apiece." Land all over the town, he says, is assessed for much more
than the amount for which it will sell. Outlying lots, however, are not
so greatly overvalued as are the business lots.

This statement that business lots are relatively overassessed is interest-
ing when taken in conjunction with the testimony of Alderman Stiles.
He states that the business men know that their land is overassessed but
they do not object because they realize that the money must be secured and
that raising it on this basis involves no injustice among individual business
men. Almost every business man along the main street seems to be a
member of the council. From the vantage point of the bench in front of
the livery stable, the various aldermen were pointed out as they emerged
from their shop doors. A shout from the aldermanic proprietor of the
livery stable proved a sufficient summons to secure a fairly full council
meeting upon a moment's notice. The business men seem to feel that they
would normally be benefited by the change in the tax system and they are
willing to adopt any measure which is fair among themselves to help the
town in its financial difficulties. All the lots along the main street are
assessed at a uniform front-foot rate. Most of the business men own the
premises they occupy. If the land is overvalued as Mr. Telford and Mr.
Stiles believe, it is evident that the business men submit, in common with
the other land-ownerS, to a tax of approximately seven and one-half per
cent. (49.5 mills on a valuation of perhaps one and one-half times the selling
value of the land) on the value of the land they own and that in addition
they submit to what is virtually a business tax of two and one-half per
cent, on the same value apportioned on the basis of the real estate used



147

in the carrying on of their business. This spirit of cooperation among
the business men of Leduc doubtless prevents the situation from becoming
much more acute than it is.

The system has had a depressing effect upon land values. " We are
really confiscating the land values in this town." declares Ex-Mayor Ruddy.
" Under present conditions you can hardly give a man a lot." The pressure
is not great enough, however, to cause the owners to surrender their
holdings. No lands have thus far been given up for taxes.

Only one building has been erected in the town since the change in the
tax system. It was stated by Mayor Norris that this building was con-
structed as a result of the heavy tax on the land. When the owner of the
building, Ex-Mayor Ruddy, was asked about the motive which led him to
improve his lots, he declared that it was the merest coincidence that his
building was erected soon after the change in the tax system. " I had made
all my plans for that building before anyone knew that a change was to be
made in the tax system, and the heavier land tax had absolutely no effect
upon my decision," was his statement.

As might be supposed, the land-tax finds no enthusiastic supporters in
Leduc. But on the other hand, there is a surprising lack of violent opposi-
tion. The citizens point out that it was not introduced because they wanted
it, and they do not hesitate to ascribe certain ill effects to it. But general
opinion seems to be that the best should be made of a bad situation. The
difficulties which have been incurred are blamed usually upon the size of the
town. A number of citizens pointed out that there was really little land
value there. The factor of rapid growth which has been present in the cities
and which has not been present in Leduc seems not to have recommended
itself as part of the explanation of the town's difficulties.

It appears then that when Leduc, a typical country town, ill-equipped
with local improvements and not unduly burdened by debts, was placed upon
a land-tax basis in 1912, the following interesting changes resulted. It was
found necessary to levy an illegally high tax rate, the law being evaded by
imposing an unauthorized rate of six mills for local improvements. The
total tax rate was more than doubled. The assessed value of lands has been
increased each year since 1912 in spite of the fact that there has been no
increase in real values. Indeed the weight of the evidence seems to indicate
a positive decrease. This has resulted in an over-assessment of land values.
Land on the business street seems to be more over-assessed than other land.
Evidently the assessment of land values is arbitrary and is used primarily
to gauge the ability and willingness of the various classes in the community
to contribute to the support of the town government. The business men
seem to consider their sites as a type of franchise, a right to do business.
There is not room for many stores in the place. Such stores as are there
are wilHng to pay a special tax. The wilhngness of the business men to
submit to special taxation is the factor which saves the town from a very
serious financial situation.



148



(b) PONOKA

The town of Ponoka lies 64 miles south of Edmonton. It has no
industries and finds its sole economic reason for existence as a distributing
and marketing center. The soil in the surrounding country is, on the whole,
very rich, although some of it is rather sandy. The region is devoted to
mixed farming and the farmers are doing well. In Ponoka is located the
provincial insane asylum which accommodates several hundred patients.
But this is not of much significance to the town economically for most of
the supplies are purchased from outside sources. Of course the asylum is
to some extent a drawback to the growth of the town.

Ponoka has approximately six hundred inhabitants. The population
has been stationary for the past five years and there seems to be nothing to
indicate that it will ever be much larger than it is at present. The citizens
themselves believe that the population will never exceed twelve to fifteen
hundred. To one acquainted with western optimism this evidence will be
accepted as almost conclusive of the lack of future promise. Of course
conditions would be entirely changed if oil or natural gas should be found
nearby and there are some indications that they may be. But from the
evidence of conditions now present, Ponoka will probably remain for years
to come as static as it has been for the past five years.

Embraced within the town's limits is one square mile of land — 640
acres. Of this, 508 acres are unsubdivided, being merely farm land, owned
by the Hudson's Bay Company. The remaining 132 acres are divided into
lots, the ownership of which is divided among the Hudson's Bay Company,
the Edmonton and Calgary Land Company, and various private owners.

The town presents a physical appearance distinctly more impressive
than most places of the same size in this region. Many of its sidewalks
are of concrete instead of the usual plank variety; some of its streets are
well graded and neatly graveled. A pleasant little stream runs within a
hundred yards of the post-office. The streets are lighted with electricity
supplied, through a special arrangement with the provincial government,
from the power house at the insane asylum. There are no sewers, although
these are particularly needed here to care for the rainfall, which at some
seasons, according to one citizen, nearly " drowns the town out." The
municipality owns no system of water supply. A good school building was
erected about eleven years ago. In 1912 an addition was found to be neces-
sary and was constructed. The fire engine and the municipal offices are
housed in a substantial building which was paid for from the proceeds of
a debenture sale in 1906 amounting to $7,200, the beginning of the town's
bonded debt. One thousand dollars was borrowed the same year for fire
apparatus. The construction of a feed wire for bringing electric current
from the insane asylum to the town in 1910 was the occasion for the issu-
ance of $6,000 worth of debentures. The school district, which includes the



149

town and a considerable area surrounding it, had, by the end of 1913, obli-
gated itself through bond sales to the payment of the sum of $3,150.

Disregarding the school debt, $14,200 was the debenture indebtedness
which had been incurred before 1911.(1) The town had at this time a total
assessed valuation of $358,502.50. The debt, therefore, amounted to but
four per cent, of the assessed valuation. Moreover, this assessment was
conservative. Land, buildings and personal property were taxable. Land in
1911 was listed at $139,733. Buildings and improvements, greatly under-
valued, added a sum to the assessment roll almost equal to that of land —
$135,630. Personal property which, the assessor says, " was cut to the
bone»" was listed to the amount of $83,140. That part of the school district
which lay outside of the limits of the municipality, liable for school taxes
only, contained taxable property to the amount of $216,791.

The tax rate in 1911 was only eighteen mills, eleven for general and
seven for school purposes. This rate was too low to yield the necessary
revenue and the fiscal year ended with unpaid claims amounting to approxi-
mately six thousand dollars outstanding against the town. (2) Consequently
Ponoka was in a peculiarly bad situation when, in 1912, the single tax was
introduced.

Early in 1912 the assessment was made in the usual manner, land, build-
ings and personal property being listed for taxation. Assessment notices
were sent to the owners of taxable property. In February, a communication
was received from the provincial authorities conveying the information that
the town act had been so amended as to require that all taxes for 1912 should
be levied on land values only. (3)

The council met to consider the situation. To raise the necessary
revenue from a land tax was found to involve either an overvaluation of
the land or an illegally high rate. The council chose the former course. (4)

The assessed value of land which had been determined for 1912 was
$152,057, an increase of about $22,000 over the 1911 figure. The members
of the council found that the assessment would have to be subjected to a
radical revision upward in order to produce the necessary revenue for
general purposes with a tax rate of twenty mills, the limit under the town
act as it then stood. They proceeded to make such a revision with the result
that the total assessed value of land when they had finished was $313,455,
more than double the figure with which they began.

The assessed values were obviously very much in excess of the real
values and appeals to the court of revision were numerous. The Hudson's

(1) This amount had been increased to $15,735.45 by the end of 1913.

(2) It is claimed by some of the citizens of the town that the Conservative council,
desiring to embarrass the Liberal Provincial Government in its attempt to introduce
the single tax, deliberately struck an insufficient tax rate in 1911 in order that fiscal
difficulties might develop in 1912. It is not easy to understand, however, how the towni
council could have foretold the action of the provincial authorities in establishing the
single tax, for it is claimed that the action when taken came very unexpectedly.

(3) Cf. supra, p. 79.

(4) It was stated by a prominent citizen of Ponoka that this course was adopted
upon the suggestion of a provincial official.



150

Bay Company protested against an increase in its assessment from $75
to $200 per acre on its unsubdivided land. The judge ordered a reduc-
tion to $125. Reductions were granted in large numbers, but action was
taken only in cases where appeals had been filed. No complete new assess-
ment was ordered and no general equalization attempted. This resulted in
gross inequalities. Some property owners who did not appeal were taxed
on valuations two or three times as great as their neighbors. In one case
where three lots lay side by side the council had raised the assessment to
$275 on each lot. The owners of two of the lots appealed and secured a
reduction in their assessment to $100. The owner of the third lot, which



Online LibraryRobert Murray HaigThe exemption of improvements from taxation in Canada and the United States [electronic resource] : a report prepared for the Committee on Taxation of the City of New York → online text (page 15 of 31)