Assessed Value, Tax Rates, and Total Tax Revenue

Too many people, incorrectly, use "Tax Rates" as a measure of comparison from one local government to another. Tax rates are only a tool, albeit an important one, to ensure the required revenue to meet annual budgets is met.

The following explanation from Corporate Services, City of Abbotsford, will hopefully clarify this subject for those still unsure:

 

Comparing Tax Rates

Tax rates are not a direct indicator of comparative tax costs between cities. They must be interpreted in conjunction with average assessed values, which vary significantly between cities. Without that reference point, they are meaningless.

(Having said that, however, if rates are to be used as a comparator, one must include the fact that, since 2005, Abbotsford's tax rate increased from 4.83072 to 4.9075, an increase of 0.33%!)

Comparing Total Taxes and Charges on Representative Properties

The Province of BC publishes a listing of “Taxes and Charges on a Representative House”. This is the closest data comparison available to compare relative tax burdens between cities for residential properties. It shows what a typical house in each city pays annually in total taxes and charges (both municipal and non-municipal).

Assessed Values are a Useful Tool for Allocating Tax Charges

Assessed values are a good tool for allocating the city’s tax requirement across properties. More expensive properties (those with conceivably greater ability to pay) pay higher taxes. Less expensive properties (those with conceivably lesser ability to pay) pay lower taxes.

Assessed values are not a good tool for dictating the city’s total tax requirement. Assessed values have virtually no relationship to municipal expenses, so it follows that they should not drive tax revenues. Why, for example, should the city increase its tax revenues by 10% in a given year, simply because land values have risen? Similarly, does the fact that Abbotsford has lower land values than Vancouver or Surrey automatically mean that it has lower costs of doing business? With very limited exceptions (e.g. land purchase for road right of way), the answer is no.

 

How Abbotsford Calculates Tax Charges on Specific Properties

1. Council approves a total tax revenue requirement, separate from any market movement in assessed value (which has no impact)

2. The tax rate is set such that the total required tax revenues will be collected from properties, given their current assessed values. (Council has the option to choose to allocate tax charges in varying proportions to each class of properties.)

3. The total tax charge per property class is allocated to specific properties in proportion to their relative assessed values.