According to BC Stats:
Small Business is defined as those businesses with fewer than 50 employees plus businesses operated by self-employed individuals without paid help
98% of all businesses in BC are considered small
82% of all small businesses have less than 5 employees
The entire province of BC has 6,700 employers with more than 50 employees
When speaking of property taxes, many politicians look to the idea of differentiating between large and small businesses because they perceive there to be more public support for higher taxes for large business. Although we understand and appreciate the well intended objectives of this proposal, we see a number of difficulties with the concept of creating two business classes from the current one.
It should be understood that property tax is a tax on land and improvement value and is the responsibility of the landowner to pay. When the landowner leases the use of his or her property it is for a net rent and because the tenant is using the property as if they had ownership for the term of the lease they are responsible for all costs associated with the property. That includes property tax and is regardless of the type of tenant renting.
Although the tenant usually pays the property taxes the liability for the tax lies with the land owner. So having a different property tax for small and large businesses will mean that the land owner’s property taxes will change dramatically according to the type of tenant she has. Therefore there will be an incentive for the land owner to favour the small business tenant with the lower property taxes. When there is a vacancy some authority will have to determine if a small or large business tax rate is to apply to the property and thus the land owner.
The definition of a small business
A major problem with introducing a small business class is how to define a small business and a ‘large business.’ Is it measured in terms of total space occupied, gross sales, net assets, profits, number of employees or other factors? A large property may contain one large business or many small businesses. A small property may be one of many small properties owned by one landowners or a pension fund.
If, for example, there are two coffee shops in your neighbourhood and one belongs to a multi-national chain and one is an independent owner. Would it be fair for one to have substantially higher taxes than the other? They may both enjoy the similar sales, the same number of employees and perhaps the same rent. Is the public’s interest being served when your neighbourhood encourages small businesses to prosper but ignores the convenience and service of large businesses who may be discouraged to locate locally? Banks, large format grocery stores or restaurant chains for example, might be desired in a neighbourhood for their convenience but may be discouraged by high property taxes.
Big buildings do not necessarily mean big businesses. May multi-story buildings in downtown Vancouver are home to many small businesses.
Consider two otherwise identical high-rise office buildings. One building may be occupied by a single company while the other is occupied by numerous small businesses, each renting a share of a large property. Should one property enjoy lower taxes simply because there are many small tenants rather than one large tenant in the building? If a small business class were to be created, would a retailer that had five small stores still be considered a “small business”?
Equity among small businesses and other businesses
Using square footage or assessed value as a criterion for defining a “small business” would by itself create significant unintended consequences and inequities.
The high occupancy levels we see throughout the City of Vancouver suggests that when small businesses leave or cease to be in business, the space they vacate is subsequently occupied either by other small businesses or by large businesses. Assisting all small businesses does not address the specific impacts on individual businesses.
Businesses provide employment regardless of their size or profitability. They also provide services and goods that are essential to a thriving community. Businesses must also pay for services that are provided by the municipality whether it is police or fire protection or sewers and roads. To require that businesses be responsible for more than a fair share of property taxes can be disastrous to the economic health of a community.