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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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of vacant property in Vancouver decreases or when the number of sky-
scrapers whose value exceeds the value of the land on which they rest in-
creases to any considerable extent. ( 1 )



(1) In the municipal election, January 14, 1915, Ex-Mayor L. D. Taylor was
elected mayor in a four cornered fight in which Mr. Taylor and ex-Mayor Baxter
advocated the continuance of the present tax policy, Mr. Douglass was non-committal,
and Mr. Martin advocated a tax on buildings worth more than $2,000. In Feb-
ruary, Mr. Taylor was deprived of his office on the ground that he did not possess
the necessary property qualifications. A new election was held on March 13th, in
which Mr. Taylor defeated Alderman Hepburn, who also favored the single tax.



223



2. Victoria



THE CITY



Victoria, the capital of British Columbia, is beautifully situated at the
southern extremity of Vancouver Island with an outlook across a broad
expanse of sea to the snow-capped Olympian mountains. The presence of
these mountains and the proximity of the Japan current are factors
of considerable importance in determining the climate of Victoria,
which is remarkably mild and temperate. Largely because of the beauty
of the situation and the attractiveness of the climate, Victoria is extremely
popular as a residence city.

Like Vancouver, Victoria is entirely surrounded by other municipalities
so that it would be impossible to make changes without affecting the limits
of other municipalities. The present population of Victoria is estimated at
55,000, although the Dominion census of 1911 gave the population as only
31,660. Including the population of the municipalities immediately adjoin-
ing, the population of the metropolitan district thus formed would amount
to between 65,000 and 75,000. Victoria is the business centre for the com-
munities of Oak Bay, Saanich and Esquimalt. Moreover, because of its
location, it is the distributing centre for most of Vancouver Island and the
outlet for much of the produce of the island. In addition to the lumber,
minerals and fish, considerable quantities of fruit are being grown on the
island and some attention is being devoted to dairying, poultry raising and
mixed farming.

Already Victoria has developed considerable importance as a port.
During the customs year 1912-1913, 11,407 ships, with a total tonnage of
9,046,113, arrived and departed. An important addition to the harbor
facilities is being provided through the expenditure of nearly $2,500,000
by the Dominion Government for the construction of a breakwater and
large docks in the outer harbor.

There is practically no manufacturing in Victoria for other than the
local market. The most ambitious projects are a few small shipping yards.
The city owes its importance primarily to the fact that it is the seat of
government and is a splendid site for residences.

Little has been done in the way of public bonuses for industries. The
following are the chief instances : The Canadian Pacific Railway was pre-
sented with a piece of land, amounting to approximately seven acres, which,
with additions, is now the site of the Empress Hotel. The hotel, moreover,
was given free water and a tax exemption for fifteen years. The Esqui-
malt and Nanaimo Railway was given exemption from taxation for ten
years but that period has now expired. Moreover, an agreement was
entered into with the Sidney Railway whereby the railway was to be given
$15,000 a year for twenty-five years. Annual payments under this arrange-



224

ment were made for some sixteen years. The agreement was modified
several years ago and the claim of the railway was settled in such manner
that annual payments are no longer made. Furthermore, the city in 1889
made a concesion of $10,000 to a flour mill.

The importance of the finances of the city has increased very rapidly
in recent years. In 1903 the total receipts of the city were approximately a
half million dollars ($505,532.24). In 1913 the receipts were nearly seven
times that amount ($3,472,678.15).

The city debt, particularly the local improvement debt, shows a re-
markable increase also. By referring to the following table it will be seen
that, while the city debt for general purposes has nearly trebled during the
last six years, by 1913 the local improvement debt had increased to some
fourteen times the amount outstanding in 1908.

STATEMENT OF OUTSTANDING DEBENTURES



General Local

City Improvement

Loans. Loans. Total.

1908 $3,449,771 81 $347,985 92 $3,797,757 73

1909 3,728,771 81 505,245 51 4,234,017 32

1910 4,362,771 81 1,035,736 56 5,398,508 37

1911 5,694,953 81 2,046,772 73 7,741,726 54

1912 8,019,953 81 2,421,102 98 10,441,056 79

1913 9,220,310 60 4,925,973 77 14,146,284 37

Considerable difficulty was encountered in 1912 in marketing the city's

bonds upon good terms.(l) At that time six million dollars' worth of

local improvement work had been authorized and the city had overdrawn its

account at the bank by more than $2,600,000. A tight money market made

it apparent that grave difficulty might be experienced in extricating the

city from this position; but, by adopting a policy of retrenchment and by

raising the tax rate, the city in 1913 was in much better financial position.

The debt outstanding in 1913 for general purposes was distributed as

follows :

Water Works $2,919,000 00

Sewers 2,425,000 00

Drains 275,000 00

Fire Protection 140,000 00

Electric Lighting 141,000 00

School Purposes 1,411,182 00

Streets and Bridges 180,128 60

Miscellaneous 1,729,000 00

$9,220,310 60



The interest on this part of the debt varies from four per cent, to five
per cent. Only small amounts fall due before 1940. The local improve-
ment debt, which amounted to $4,925,953.77 in 1913 is made up of ten-year

(1) Annual Reports, 1912, p, 3 et seq.



225

bonds, all of which bear four per cent, interest, except two issues made in
1913, which bear four and one-half per cent.

The sinking fund accumulating to care for the indebtedness incurred
for general purposes had assets at" the end of 1913 of $999,805.85. The
local improvement sinking fund had assets of $523,311.80, making total
sinking fund $1,523,117.65. Except for $264,908.63, which is invested in
local improvement debentures, the entire sinking fund assets are deposited
in a bank at four per cent, interest, compounded annually. The cost of
debt service comprises a large item in the city's expenditures. In 1913 the
interest on debentures amounted to $280,129.86 while contributions to the
sinking fund amounted to $323,045.04, making a total cost of debt service
of $603,174.90.

After a period of rapid expansion the city is now marking time financial-
ly. In 1914 the council did not order a new assessment of real estate but
merely adopted the assessment of the preceding year. Very little new local
improvement work is being undertaken. The city, however, has under
construction of the Sooke Lake water supply system, a public work which is
badly needed. This demands considerable financial support. The officials
and citizens of Victoria feel that the general outlook is satisfactory and be-
lieve that they are in a relatively fortunate financial position compared with
that in which several of the western Canadian cities now find themselves.

THE TAX SYSTEM

The great bulk of the ^rty^ revenue has always come from the tax onN
real estate, which since 1911 has been exclusively a tax on land.(l) The
cash statement for the year ending December 31, 1913, shows that the
amount of the total receipts, minus cash on hand and bills payable, was
$2,627,461.17. The land tax was responsible for $1,466,797.09, or more
than one-half of the cash receipts. Of the remaining $1,160,664.08,
$393,463.59, or more than one-third, consisted of receipts from special
assessments and frontage taxes. The sum of $238,347.11 came from 'qaJt£i;
rents. The government subvention for schools amounted to $63,423.15.
Liquor licenses yielded $49,600 and payments from the Victoria and Sydney
Railway $49,500. Trade licenses brought $33,584.50. The other receipts 7
netted very small sums. t-\, •- ' .

Special assessments and frontage taxes are levied to contribute toward
the cost of cement sidewalks, curbs, gutters, parking and grass plots, paving,
street extensions, water mains, sewers and ornamental street lights. The
pavements, sidewalks, curbs, and gutters are paid for in part from general
funds, the city's share varying from one-third to one-fifth of the cost. More-
over, the city makes special concessions to owners of corner lots. The
annual charge for maintaining parking in front of private property is one

(1) The Dominion and provincial tax systems ap^ly in Victoria as they do in
Vancouver. During the year ending March 31, 1913, the customs collections amounted I 5
to $2,618,025.13. The province collected from the Victoria City District $47,477.06 in ''' '^
income taxes and $24,354.50 in personal property taxes. The succession duties in this
district yielded more than in any other district.



226

cent per square foot. Water mains involve the imposition of a charge of
two cents per front-foot, and sewers three cents plus a fixed sum for each
toilet. The total cost of installing ornamental lights is apportioned on the
frontage basis and a maintenance charge of twelve cents per front-foot is
levied annually.

Nearly one-half of the city is built upon rock. Quicksand and water,
moreover, are often encountered in excavation. These conditions are the
cause of heavy expense in constructing local improvements. Sand, gravel
and crushed rock are not high but the term of years over which local im-
provement payments are spread is unusually short. The annual charge upon
the property owner is not exorbitant. For a fifty-foot lot the charge for
street improvements, sewers and water mains is approximately thirty dollars
and fifty cents a year.

For many years Victoria has discriminated in favor of improvements.
For a time they were not only underassessed as compared with land but they
were also taxed at a lower rate. The history of the movement, however,
is not the story of a uniform progress toward the present condition of total
exemption, for a reaction in 1896 resulted for a time in a higher assessment
of improvements than had been in effect in the years immediately preceding.

Before 1892 both the buildings and the lands were nominally assessed
at their full value and taxed on a basis of one hundred per cent. On February
24, 1892, a by-law was passed by the Victoria council which stated that in
order to comply with Section 121 of the Municipal Act passed by the provin-
cial legislature, it would be necessary to make a distinction in the assess-
ment between lands and improvements. Land was to be assessed for tax
purposes at its actual cash value, " as it would be appraised in payment of
a just debt from a solvent debtor," while the value of improvements was to
be estimated for tax purposes at fifty per cent, of the actual cash value
determined by the same test. This arrangement continued through 1893.
On February 5, 1894, a by-law was passed by the council which directed
the assessor to list improvements at only twenty-five per cent, of their full
value. This plan held for two years, 1894 and 1895. On January 28, 1896,
the council raised the assessment of buildings from twenty-five per cent, to
fifty per cent. As will be seen by reference to the table of assessed values,
the reduction of the assessment of buildings from fifty per cent, to twenty-
five per cent, in 1894 had the effect of reducing the tax base from approxi-
mately $18,500,000 to $15,500,000. In 1895, without any further reduction
of the assessment on buildings, the tax base shrank to $14,888,675. The
increase from twenty-five per cent, to fifty per cent, in the assessment of
buildings in 1896, the assessor states, was directly caused by the financial
necessity of the situation. The aldermen felt that they must have more
money ; they did not care to raise the tax rate ; and they therefore felt com-
pelled to increase the tax base. Of course, these were years of commercial
depression and decreasing values. In 1897, because of changes in the law
which had been made by the provincial legislature, it became necessary to
assess buildings at their full value, but, at the same time, power was given to



227

the council to tax the buildings at any fraction of their true value it chose,
except that it could not tax them at more than fifty per cent, of their true
value. This change in the law had merely a formal effect in Victoria. The
assessment figures from 1897 represent a full valuation of the buildings,
but improvements continued to be taxed as they had been in 1896, at fifty
per cent, of their value. No change was made in this arrangement until
1911. On January 12th of that year an election was held at which the people
were called upon to decide whether buildings should be entirely exempt from
taxation. The council possessed full power to take this step, had it cared
to exercise it, but it preferred to refer the question to the electorate. The
election aroused little interest. Out of 7,282 persons eligible to vote, only
2,868 came to the polls. The proposal carried by an overwhelming major-
ity — ^2,392 in favor, 476 opposed. For the last four years no improvements
have been taxed in Victoria.

Before 1897 not only was the distinction drawn between land and
improvements by assessing improvements at a different rate from land, but
there was a distinction drawn also in the rates of taxation extended against
lands and improvements. Thus, in 1891, when both land and buildings were
assessed at one hundred per cent., the rate on land was fifteen mills and that
on improvements only seven and one-half mills. In 1892, when buildings
were assessed at fifty per cent, of their value, the tax on land was fifteen
mills and the tax on improvements 13.75 mills. In 1893, when the assess-
ment statistics were the same, the tax on land was nineteen mills and the
tax on improvements only twelve mills. In 1894, when improvements were
assessed at only twenty-five per cent., lands and buildings were taxed at
exactly the same rate, but in 1895, with buildings still assessed at twenty-
five per cent., a tax of eighteen mills was levied on the land and only fifteen
on the buildings. These same tax rates, eighteen mills for land and fifteen
mills for buildings, continued in 1896, when the assessment of buildings was
raised to fifty per cent, of their value. Since 1896 the same rate of taxation
has been applied to land and buildings.

The following table summarizes the history of the assessment and taxa-
tion of improvements in Victoria :

THE PERCENTAGE OF IMPROVEMENTS ASSESSED, THE PERCENTAGE

OF THE ASSESSMENTS TAXED AND THE RATES LEVIED

ON LAND AND IMPROVEMENTS



1891 ....

1892 ....

1893 ....

1894 ....

1895 ....

1896 ....
1897-1910
1911-1914





Improve-






Improve-


ments : Per-






ments :


centage of


Rate


Rate Levied


Percentage


Assessment


Levied


on Im-


Assessed.


Taxed.


on Land.


provements.


100


100


15 mills


7 . 5 mills


50


100


15 "


13.75 "


50


100


19 "


12


25


100


15 "


15


25


100


18 "


15


50


100


18 "


15


100


50


Same for both




100





Same for both





228

Victoria operates under the general Municipal Act as amended from
time to time by the provincial legislature. ( 1 ) The tax base against which
the millage rate is at present extended consists solely of the value of the
land lying within the city limits. The exemptions are the usual ones pre-
scribed in the Municipal Act. (2) They are by no means numerous.

The following statement shows the assessed values of lands and im-
provements in Victoria for the past forty years :

ASSESSED VALUES OF LANDS AND IMPROVEMENTS, 1874-1914



Percentage
of Full Assessed
Value of Value

Improvements of
Represented Improve-
by Assess- meats,
ment Figures (a)



Assessed
Value

of Total

Land. Assessment.



Tax Base.



1874.
1875.
1876.
1877.
1878.
1879.
1880.
1881.
1882.
1883.
1884.
1885.
1886.
1887.
1888.
1889.
1890.
1891.
1892.
1893.
1894.
1895.
1896.
1897.
1898.
1899.
1900.



100
100
100
100
100
100
100
100

100

100
100

100

100

100

100

100

50

50

25

25

50

100

100

100

100



$818,630 00
926,900 00



$1,665,195 00
1,652,985 00



$2,433,755 00 $2,433,755 00



2,439,505 00
2,483,825 00
2,485,000 00
2,579,885 00
2,655,820 00



2,439,505 00
2,483,825 00
2,485,000 00
2,579,885 00
2,655,820 00



1,150,625 00 1,659,050 00 2,809,675 00 2,809,675 00



2,692,800 00
3,053,970 00
4,626,830 00
3,021,955 00
3,440,555 00
1,785,005 00
1,825,705 00
3,640,460 00
5,990,840 00
6,009,280 00
6,197,580 00
6,326,770 00



6,256,783 00
6,304,224 00
12,936,318 00
15,727,170 00
15,070,857 00
13,774,365 00
13,062,970 00
10,901,340 00
10,813,495 00
10,819,821 00
10,804,649 00
10,840,600 00



5,178,800 00 5,178,800 00
5,643,560 00 5,643,560 00



5,757,895 00
8,949,583 00
9,358,194 00
17,563,148 00
18,749,125 00
18,511,412 00
15,559,370 00
14,888,675 00
14,541,800 00
16,804,335 00
16,829,101 00
17,002,229 00
17,167,370 00



5,757,895 00
8,949,583 00
9,358,194 00
17,563,148 00
18,749,125 00
18,511,412 00
15,559,370 00
14,888,675 00
14,541,800 00
13,808,915 00
13,824,461 00
13,903,439 00
14,003,985 00



(1) Cf. supra, p. 169 et seq.

(2) 4 George V., 1914, c. 52, s. 197.

A dispute has arisen concerning the taxation of an old Indian reserve which is
now valuable property situated along the water front and suitable for railway and
steamship terminals. The province originally owned this 120-acre tract, but gave
it to the Indians. Later the Government purchased the tract from the Indians,
giving them another reserve. Part of the land is already being used by railways, but
thus far the city has been unsuccessful in its attempt to place the property on the tax
roll.



229



Percentage
of Full Assessed
Value of Value
Improvements of
Represented Improve-
by Assess- ments.
ment Figures (a)



Assessed
Value

of Total

Land. Assessment.



Tax Base.



1901 100

1902 100

1903 100

1904 100

1905 100

1906 100

1907 100

1908 100

1909 100

1910 100

1911 100

1912 100

1913 100

1914 100



6,552,420 00

6,754,905 00

6,962,355 00

7,206,520 00

7,512,840 00

7,877,290 00

8,226,830 00

9,264,490 00

10,365,060 00

11,602,130 00

13,491,780 00

17,071,360 00

23,152,540 00

26,803,940 00



10,814,280 00
10,735,690 00
10,737,220 00
10,675,460 00
10,623,314 00
10,692,845 00
13,718,250 00
15,386,360 00
17,961,060 00
26,288,102 00
46,516,205 00
71,670,770 00
89,130,150 00
89,151,990 00



17,366,700 00
17,490,595 00
17,699,575 00
17,881,980 00
18,136,154 00
18,570,135 00
21,945,080 00
24,650,850 00
28,326,120 00
37,890,232 00
60,007,985 00
88,742,130 00
112,282,690 00
115,955,930 00



14,090,490 00
14,113,142 00
14,218,397 00
14,278,720 00
14,379,734 00
14,631,490 00
17,831,665 00
20,018,605 00
23,143,590 00
32,089,167 00
46,516,205 00
71,670,770 00
89,130,150 00
89,151,990 00



(a) Improvements were taxed at 50% of their true value in 1892 and 1893; at
25% in 1894 and 1895; at 50% from 1896 through 1910, and were entirely exempt
from 1911 to 1914.

Beginning with 1893 the effect of the depression is clearly apparent in
the assessed values of land. After reaching a high point in 1892 the values
decline until they reach a low-water mark in 1899. Substantial advances
do not again appear until 1907. The increases since that time have been
truly phenomenal. Moreover, the rise in values has been general through-
out the city.

The assessor states that until recently lands have been under-assessed
about ten or fifteen per cent. At the present time he considers the assess-
ment very close to actual " cash value," the test specified in the Municipal
Act.(l) It is interesting to note that the best business property in Vic-
toria is assessed at $2,750 per foot of frontage while similar property in
Vancouver is assessed at $2,500 per foot.

The general opinion of the citizens of Victoria seems to bear the
assessor out in his statement that the present assessed value approaches
very closely to full cash value.

The assessed values of buildings are claimed by the assessor to repre-
sent the full value under the rule prescribed in, the statutes, which is that
the value shall be taken as " the cost of placing, at the time of assessment,
such improvements on the land." (2)



(1)4 George V., 1914, c. 52, s. 197.

(2) Revised Statutes, 1911, c. 170, s. 230.



230
The following table gives the tax rates in Victoria from 1891 to 1914;

RATES OF TAXATION
(Mills)









Board




General


School










of




Interest


Interest








General.


Health

and

Hospital.


School.


and

Sinking

Fund.


and

Sinking

Fund.


Total.


1891.


1 Land

' Improvements .


.. 15
.. 7.5










15 1
7.5 (


1892 1


1 Land

[ Improvements .


.. 15
.. 13.75










15 1
13.75 C


1893.


\ Land

1 Improvements .


.. 13
.. 12


6








19 I
12 1


1894..




.. 15










15


1895 1


\ Land

1 Improvements .


.. 15
.. 15




2






18 1
15 f


1896 1


\ Land


.. 15




2






18 1




[ Improvements .


.. 12




2






15 ]


1897.,




.. 15




2






18


1898.,




.. 15




2






18


1899..




.. 6




2


10




19


1900.,




,.. 8.5


.5


2


10




21


1901.,




.. 8.5


.5


2


11




22


1902.




... 9




2


12




24


1903.




,.. 9




2


12




24


1904.




,.. 9




2


12




24


1905.




,.. 9




2


12




24


1906.




... 7




4


12




24


1907.




... 7




4


12




24


1908.




... 11




4


9




25


1909.




... 12.5




4


9




26.5


1910.,




.. 14.569




3.387


6.352


.942


26.25


1911.




... 9.75




5


7.50


.75


24


1912.




... 12




2.75


5.25




21


1913.




... 12.75


.8


2.30


4.15




20


1914.




... 13.02


1.08


2.75


5.50




22.35



It will be noted that when the reduction of the tax on buildings from
one hundred to fifty per cent, was made in 1892 the tax on land increased
from fifteen mills to nineteen mills, while the tax on buildings decreased
from 13.75 mills to twelve mills. No change was made in the tax rate in
1896, when the assessment on improvements was increased from twenty-
five to fifty per cent. In 1911, when the taxation of buildings was entirely
abandoned, the tax rate dropped from 26.25 mills to twenty-four mills, a
decrease which was made possible by the enormous increase in land values
from $26,288,102 in 1910, to $46,516,205 in 1911.

The following table shows the receipts from the rates levied on real
estate for the last six years :



231

RECEIPTS FROM THE RATES LEVIED ON REAL ESTATE (a)

Board of
General Debt. Health and Schools. Total.
Purposes. Hospital.

1908

1909

1910

1911

1912

1913



$178,967 66


$151,886 36


$16,598 78


$66,354 79


$413,807 59


239,937 61


176,307 74


19,459 85


77,839 40


513,544 60


387,282 26


174,096 11


26,829 27


115,598 39


703,806 03


377,170 07


285,230 59


38,109 02


217,147 13


917,656 81


693,212 48


366,786 33


57,979 95


195,270 21


1,313,248 97


874,707 95


344,674 13


55,685 65


191,729 36


1,466,797 09



(a) For an analysis of the receipts of the city, cf. supra, p. 225 et seq.

In Victoria, as in Vancouver, a large discount is allowed for the prompt
payment of taxes ; but, unlike Vancouver, the tax rate which is usually
quoted is the gross and not the net rate. The present discount arrangement
is that 16 2/3 per cent, on the amount levied for general purposes and for
board of health and hospital purposes shall be allowed if the taxes are paid
before October 31st. The taxes are due about the middle of September.
Before 1912 the 16 2/3 per cent, discount was applicable to the total tax
levy. In 1912-1913 the discount was available only until September 30,
but the date for many years preceding 1912 was October 31. From the
end of the discount period until December 31st the full rate applies, with no
reductions of any sort, and after December 31 an eight per cent, penalty is
imposed. Before 1906 this penalty was six per cent., the present rate in



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 24 of 31)