The Tax Man cometh II

I've said this before
One of my earliest newsletters dealt with the mailing out of Property Assessment notices when everyone was somewhat preoccupied with preparations for the 2003 Christmas season. My comments included some points about appealing what seemed to be any unreasonable increases in value. On the whole, though, there was no great fuss made by the local press. All that went wrong was that it was very difficult to get through to the Municipal Property Assessment Corporation people with any questions, complaints, or requests for reconsideration. This situation resulted from a one time massive mailing and not enough recognition of what it might lead to.
This year things have been noticably different.
To begin with, the mailing has been spread out over several weeks. In addition, the phone lines and the number of people to answer them have been significantly increased. Moreover, MPAC has organized several community-held meetings in which residents can learn more about the ongoing assessment of property values in keeping with marketplace changes.
At the same time, though, MPAC has realized that if you seem to be hitting the public's pocketbooks you are going to be faced with an understandable degree of outcry. Thus, its officials have also been at some pains to explain that a widespread increase in assessments for the 2006 taxation year doesn't necessarily mean higher tax bills for everyone.
In this regard, there has certainly been a stir that wasn't all that evident two years ago. Indeed, it's been a front page feature in all our local newspapers.

Assessments vs mill rates
MPAC has pointed out that it's their responsibility to adjust property values in the light of ongoing changes in selling prices. This is in fact its mandate, the idea being to remove the inequities that existed when assessments mainly reflected the age of a property and taxes were charged accordingly. This oftem meant a much lower bill if you owned an old home as opposed to a new one, even though the market value of both houses was much the same. Therefore, MPAC's intent was to smooth out this difference so that the bill for every $100,000 house became similar.
While the Niagara Region market stayed relatively stable -- as it did for several years after MPAC first undertook its task -- the only concern was when new assessments suggested that people could sell their homes for a great deal more than they believed the market would permit. On the whole, until the 2003 assessment figures were released, this tended to be the exception rather than the rule. There was an appeal process that many people chose to follow at that time but, although this became overloaded and backed up for a while, the total assessment base for the 2004 and 2005 tax years met with general acceptance by most of the Region's residential property owners.
This time around, however, there are numerous expressions of concern. Given that selling prices are reported to have risen by a regional average of 16.27%, a great many people foresee a one-sixth or greater increase in their forthcoming tax bills. This, though, doesn't seem to be too likely. Certainly there are pressures on most municipalities to raise enough money to pay for the services they provide to their residents. These pressures are compounded by that fact that the provincial government has progressively(?) downloaded a number of costs that they hitherto covered out of their income and sales tax collections.
Nevertheless, politicians of most stripes are conscious of the public's widespread displeasure with tax levels, let alone hikes in them. Thus, they aren't going to readily raise their tax bills simply because an overall increase in the total assessment base could justifiy it. What they'll be more inclined to do is to reduce the mill rate so that bills don't go up to any great extent.
The mill rate, of course, is arrived at by dividing a year's budget by the total assessment figure and thereby producing a tax per each thousand dollars of property value. Needless to say, it can vary from municipality to municipality -- as it does -- but it also honours the general principle that every $100,000 house in any given community should be charged the same amount.

Are the rich getting poorer?
Within the reaction to MPAC's current reassessment of most residential properties in the Niagara Region, however, there are decided murmers about the need to adjust the tax collection basis still further. Although few people have an argument against the fairness and logic of the Current Market Value approach to assessment, it does result in some disproportinate contributions to the Regional budget. For example, the owner of a $300,000 home in Niagara-on-the-Lake may not mind paying twice as much to the local council than a neighbouring $150,000 property owner does (well, not really, I suppose). But they aren't too pleased to learn -- as a local councilman recently remarked -- that they also pay more per capita to the Region than the residents of Welland do.
The problem here is that the region's budget covers the cost of various services to all householders regardless of their location. In this respect there perhaps ought to be a unit charge to each homeowner instead of a bill that, as in their own municipality, reflects their relative property assessment. In reality, though, the $300,000 owner pays twice as much as someone with a $150,000 house in the same community does, even though each of them gets neither more nor less in the services they receive from their municipality. After all, a plough doesn't take much longer to clear the snow in front of one house than another, regardless of its value, does it? In the same way, a garbage collection is a garbage collection is a garbage collection, and someone with a more expensive home isn't likely to have a whole lot more to be picked up each week, are they?
Thus, all told, the current assessed value basis for collecting taxes is perhaps an imperfect one, just as the world itself isn't a totally fair one. However, given the slowness with which our institutions -- and in particular the government and bureaucracy -- move, there seems to be little chance that we'll see any changes for some long time to come. Meantime, I guess we're faced with the need to pay up and smile as much -- or as little -- as we can!

Some properties are more equal than others
If there are justifiable complaints about the new assessments, they rest on the difficulties MPAC -- or indeed any appraisal authority -- has in coming up with individually correct figures. The basis of calculation is the average selling price increases (i.e. during the years 2003 and 2004) for different types of properties and in particular locations. Most of us acknowledge that we've seen prices rise hereabouts in the past two years, although we've escaped the upward leaps that have occurred in the Toronto area or in other parts of North America where people are worrying about a "real estate bubble that's about to burst."
Nevertheless, with every average, there are sales below the figure as well as those above it. In fact, our price increases have often applied to specific kinds of properties and have seldom appeared in every area of a given municipality. As one example, condo townhouses in many parts of St. Catharines saw something like a 20% increase, but some locations hardly moved upwards at all. Or in my hometown of Niagara-on-the-Lake, what we call the Chatauqua cottages leapt up in prices well beyond those elsewhere in the town.
In view of all this, it may be well worthwhile to question your new assessment notice. Indeed, MPAC itself gives you the clue in its statement "ask yourself if you could have sold your property on January 1 2005 for its assessed value." If your answer is a resounding "No Way, José," you can take advantage of the appeal process that's available to you. Its details are set out clearly enough in the Information page that accompanies your Property Assessment Notice.
The key to success in filing a Request for Reconsideration (see the webpage at http://www.mpac.ca/pdf/newrecon.pdf ) is to support it with sufficient evidence of recent comparable sales. To some degree, MPAC staff are willing to help you locate these details, but you may well find that a better/necessary source is a local real estate agent. In any case, the challenge facing you is to come up with the facts and figures that support an opinion that your assessment is an incorrect one.
Probably your guiding principle is to see if your increase is well in excess of the percentage that your assessment says that quote the average value of residential properties in your municipality changed by unquote. Alternatively, you may be able to win your case if you're convinced that your new value should be -- but isn't -- much lower than this average figure.
As just one illustration, I can mention -- without revealing any names -- that one assessment went up by more than 50% from the 2003 figure in contrast to the municipal average of less than 18%, while half a dozen sales of comparable properties showed no more than a 20% increase.
As I've remarked, it may not be a perfect world, but you can be sure that MCAP is about to hear further from at least one Niagara Region householder!

Duncan Pollock, Real Estate Broker,
427 Gate Street, Niagara-on-the-Lake,
Ontario, Canada L0S 1J0
Tel: 905-468-3154 Fax: 905-468-3812
Cellular: 905-704-9037
email: duncanpollock@sympatico.ca
Note: e-mail address changed as above on November 3 2007
website: http://www.duncanpollock.com

PS. One of my web pages provides a list of the other newsletters I've sent out. If you choose to go to it, you can click on any title to bring up its full text.
PPS. I've recently been invited and encouraged to create a second website, one that deals with my approach to the industrial, commercial, and investment real estate market. You can reach it, if you're so inclined, at http://www.iciniagara.com.