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Fair Assessment and Property Tax for Aggregate Industry

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Jun 11th, 2021
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Presentation by: Ken DeHart, County Treasurer County of Wellington

See the full Power Point Presentation here.

 

Wellington County Context

Wellington County is in southwestern Ontario – we border Halton and Peel Regions to the east, Hamilton to the south, Waterloo Region to the west. We have transportation corridors (401 and Hwy 6) that extend through the GTHA and Waterloo Region.

We have limitations on growth with competing demands for land. Land is particularly valuable for industry and employment. Wellington is the second largest County/Region in southwestern Ontario for aggregate production.

Background: This issue affects municipalities in all parts of Ontario

Approximately 70% of Ontario municipalities have at least one aggregate site. We recognize that aggregate production serves an important economic role – they help fuel growth and are a critical element of public works. However, aggregate properties generate significantly less revenue for municipalities than other possible uses for this land.

Background: Assessment of Aggregate Properties

In 2008, the aggregate industry successfully lobbied the provincial government to exempt the value of the aggregate from property taxation. It was during the financial crisis and it was intended to align taxation of gravel pits and quarries with other mineral extraction properties (mines) to formalize an existing process. However, industry interpreted this as a tax break and appealed the values on that basis.

Aggregate properties were previously assessed using industrial land values for active areas of the sites. Sites were classified in accordance to a questionnaire where aggregate operators break down the acreage of their property into different categories that determine tax classification. Other lands were valued as farm or bulk lands depending on use.

After 8 years of assessment, appeals driven by the industry (from 2009 to 2016), land values were reduced by certain percentages from industrial values. This generated significant tax write-offs and losses for Ontario municipalities.

After the appeals were resolved, a new methodology was agreed to for the 2017 taxation year and forward, but negotiated between the OSSGA and MPAC only. This caused a significant financial impact on Ontario municipalities and was essentially imposed without consultation or municipal input. Values licensed aggregate sites at Class 5 farmland rate, plus “site preparation costs” for licensing the property. At the same time, it was agreed that the assessed values of these properties would not exceed $15,000/acre anywhere in the province (including value of the land and cost to license).

Effect of Assessment Methodology Penalizes Other Taxpayers

Property taxes are zero-sum – lower rates for one class of properties means higher rates for other classes of properties. In aggregate producing municipalities, this means higher property taxes on residents and small businesses. For example, in Puslinch –other property owners saw their rates increase by over 3.5% in 2017 (3% township portion, 0.5% county portion) as a result of the new assessment methodology.

In Wellington County, there a corporate welfare bill of approximately $800,000 annually from how these properties were previously assessed. Across Ontario, this is tens of millions annually.

Aggregate Assessment Formula Violates Basic Taxation Principles

One of the key principles to taxation in Canada is fairness. Key components of a fair taxation system include vertical equity and horizontal equity. Vertical equity: higher wealth and incomes should be taxed at higher rates than lower wealth/incomes.

Horizontal equity: those with equal wealth and incomes should be treated equally.

Current assessment regime leads to 100-acre active gravel pits incurring less property tax than single family homes. Approximately 5% of all single-family homes in Puslinch pay more taxes than 100-acre active sites. Current assessment formula leads to adjacent properties incurring different levels of property tax due to different types of industry operating on each property.

Example: Puslinch Gravel Pit and Food Processing Plant

Two almost equivalent sized, adjacent industrial properties within close proximity to the 401. Food processing plant: 99.5 acre site (green shading) Zoning: industrial

Land valued at up to $138,000/acre. Total land assessment: $7.4 million. Gravel pit (Pre-Assessment Appeal): 98 acre site (red shading) Zoning: industrial -extractive

Land valued at $9,200/acre –made up of $4,200/acre (class 5 farmland) + site preparation costs ($5,000/acre). Total land assessment: $902,000. Assessment of land on Food Processing plant is more than 8x higher than adjacent gravel pit and the resulting property taxes are 15x higher. Violates horizontal equity and doesn’t represent current value.

Other Issues with Aggregate Assessment Regime

Administratively burdensome and creates costs for municipalities. Municipalities are dedicating significant staff time as well as legal and consulting costs for litigating the issue. This creates costs and contributes to delays for aggregate industry Aggregate producers are incurring legal and consulting costs. Low valuations and taxation contribute to local and political opposition to new sites.

Aggregate Levy –What is it?

Aggregate industry will claim that they also pay an aggregate levy to municipalities and this justifies paying a lower property tax rate. Aggregate producers do not pay the aggregate levy out of pocket. They charge a separate “aggregate levy” to their customers and remit it to The Ontario Aggregate Resources Corporation (TOARC) annually. Works much the same way as a retailer collects and remits HST.

Operators collect and remit 20.8 cents/tonne of aggregate extracted to TOARC to compensate municipalities, the province and the industry for various costs 12.7 cents to the local municipality; 3.1 cents to the upper-tier municipality; 4.4 cents to the Province; 0.6 cents to the Aggregate Resources Trust.

Aggregate Levy -Purpose

There is a significant difference in the purpose of property taxes and the aggregate levy. Property taxes: are used to pay for all municipal services and includes an education portion. Aggregate levy: is a fee designed to compensate municipalities for the extraordinary damage that is caused to municipal roads along haul routes.

Aggregate levy is meant to be “in addition to” not “in replacement of” property taxes. Other property owners should not be subsidizing the aggregate industry’s obligations to pay their fair share of municipal services. The aggregate levy is a special fee to recover extraordinary costs specific to the industry.

What is Wellington County doing?

Wellington County has been proactive in advancing this cause through:

(1) Initiating assessment appeals through the Assessment Review Board

(2) Various advocacy initiatives

Filed assessment appeals for all gravel pits and quarries in Erin, Guelph/Eramosa and Puslinch for the 2017-2020 taxation years. Hired an international expert for valuing aggregate properties.

Expert Findings: MPAC’s approach to land valuation is flawed

There shouldn’t be a discount on land valuations simply because aggregate is present

Land should be valued the same as comparable properties in the area

System of self-reporting creates incentives for understating aggregate activities. Aerial imagery and software has identified frequent incorrect reporting by the industry.

Update: Wellington’s Assessment Appeals

Appealed assessments of approx. 50 licensed gravel pits.

Assessment Review Board hearing centred on 6 representative properties.

ARB decision largely confirms County’s position that MPAC’s formula for gravel pit assessments doesn’t establish current value of these properties.

Selected findings: Current methodology for assessing gravel pits stems from an agreement between MPAC and the OSSGA (para. 3).

Owners and MPAC’s interpretation of classification of properties is too narrow and checking site activities at specific times necessitates undue effort (para. 60).

MPAC’s assessment of gravel sites provides a per-acre property value that is substantially lower than the appropriate value (paras. 82 –88).

See the full Power Point Presentation here.

2 Responses to “Fair Assessment and Property Tax for Aggregate Industry”

  1. Michael Douglas says:

    On Sunday, May 30th the Wellington County Mayor, Sue Foxton and Treasurer, Ken DeHart were guest speakers at the Ontario Gravel Watch monthly meeting. They provided a very timely presentation addressing the fair assessment of property tax as it applies to the aggregate industry.

    Mayor Foxton and Ken DeHart spoke on the need to increase public awareness of the hugely unfair minimum property tax assessments being applied by MPAC to the aggregate industry. TAPMO, (Top Aggregate Producing Municipalities in Ontario) is organizing to address this unfair taxation, however public awareness of this inequity is needed.

  2. Michael Douglas says:

    Thank you Karli for posting the Fair Assessment & Property Taxation of Aggregate Industry. So very well laid out and the loader picture scooping up what appears to be crushed and washed gravel is a great selection for the posting.

    The aggregate business operators have feathered their nests with these tax advantages, which is negatively distorting municipal revenues. The tax revenue responsibilities of the individual municipalities simply gets passed on to single family residences and small businesses instead of properly and fairly applying property taxes to the aggregate operators.

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