Property Assessment and Classification Review - Race Tracks and Golf Courses

ISSUES AND RECOMMENDATIONS

RACE TRACKS AND GOLF COURSES

Race tracks and golf courses are being discussed together in this report because the essence of the issues raised by both stakeholder groups is the same.

Race Tracks:

Concerns were expressed during the consultations about changes that MPAC is proposing to make to the method of assessing race track facilities.

Historically, race tracks have been assessed using the cost approach to value. It was indicated that this approach resulted in relatively stable assessments.

For the 2003 reassessment, MPAC is giving consideration to adopting an income approach to the valuation of race tracks. The proposed income methodology would take into consideration the revenue stream of race tracks, including the revenue from on-site slot machines.

The property owners do not believe that slot machine revenues should be treated as rent or as assessable income. Race track owners believe that the value of their land and buildings should be assessed, but not their gaming revenue.

It was also noted by the industry that a percentage of slot revenues is paid to municipalities, and it would be seen as a form of double taxation if these revenues were used to augment property assessments and increase taxes.

Golf Courses:

For the 2001 reassessment, MPAC applied a new income methodology for valuing the land component of golf courses. Previously, golf course lands were valued using bulk land rates.

The new income approach to golf course assessments has three components: a prime time greens fee, an estimated number of rounds played during the year, and a "greens fee multiplier" which is based on golf course property sales.

This new income methodology resulted in significantly higher assessments for many golf courses. Course owners have voiced dissatisfaction with the new methodology because they do not feel it fairly or accurately reflects the value of their respective courses. In particular, there was a widely held view that the figures which were used in the valuation of individual courses were not appropriate because they were not based on the greens fees or the number of rounds at the actual courses - instead, they were based on model courses. As well, the owners questioned the property sales that were used to develop the greens fee multipliers - it is believed that the sale prices were atypically high.


Recommendation:

  • Provincial intervention in the methodology of assessing race tracks and golf courses is not recommended at this time.

  • It is recommended that the owners of race tracks and golf courses continue to engage in a dialogue and exchange of information with MPAC, with a view to reaching a consensus on the assessment methodology issues.

  • It is recommended that the Ministry of Finance monitor the progress and the outcome of these discussions through the Joint Committee to ensure that any proposed changes to the assessment methodology are fair and manageable.


RAILWAYS

Railway Corridors (Rights-of-Way)

Context:

Prior to 1998, railway corridors were assessed based on the market value of abutting lands and they were taxed at local mill rates.

In 1998, a new fixed rate tax system was introduced. Railway corridors are no longer assessed; instead, they are taxed at a fixed rate per acre based on prescribed municipal and education tax rates. For this purpose, the province has been divided into nine regions and different tax rates have been prescribed for each region based on the average tax levels that existed on rail corridor properties prior to 1998. The new tax rates are being phased in gradually, with the fully mature rates scheduled to be implemented in 2005.

Although the regional tax rates were based on pre-existing tax levels, they were based on regional averages with the result that some properties are now experiencing tax adjustments as they move from their pre-1998 tax level up or down to the average regional tax level.

The municipal tax rates prescribed for rail corridors in the nine prescribed regions range from a high of $611.33 per acre in the region comprised of Toronto, York, Durham, Halton and Peel, to a low of $35.26 per acre in the region comprised of Kenora, Rainy River and Thunder Bay. In these same regions, the education tax rates range from a high of $822.69 to a low of $15.43.

Short-lines:

A number of short-line rail operators have expressed concern about the tax increases they are facing under the new rate-per-acre approach. Some short-lines are experiencing tax increases because they have been included in the regulation within the boundaries of a higher-taxed region, and others may be experiencing increases because they were previously taxed below the average rate for their area.

Short-line railways operate on slim margins and they are much less profitable than the main-line railways. As a result, short-line operators have less ability to absorb increased overhead costs.

The Minister of Finance froze the tax rates of the railways whose taxes were increasing for 2001 and 2002 under the new regional tax rate system in recognition of the unforeseen tax consequences and to allow for a review that would address this issue.


Recommendation:

  • It is recommended that the current system of prescribed tax rates with nine regions be maintained for main-line rail corridors, but it is recommended that modifications be made to the tax rates of short-line railways.

    • It is proposed that "short-line" railways be defined as those operating exclusively within the boundaries of the Province of Ontario.

  • It is recommended that short-line railway corridors be taxed at the lower of:
    • the prescribed tax rate for the region in which the rail corridor is located; or
    • the average of the tax rates prescribed for all nine regions.

Discussion:

The proposed change to the tax treatment of short-line railways is intended to help maintain the economic viability of short-lines and to help them remain competitive with one another.

The proposed approach of applying the lower of the current rate or the provincial average rate to short-lines is consistent with the approach that the Province has applied to the education tax rates of commercial and industrial properties. As announced in the 1998 Budget, the Province is reducing education tax rates in municipalities with above-average commercial and industrial rates down to the provincial average by 2005. Commercial and industrial education tax rates that are below the average are being maintained.


Industry-Wide Tax Levels:

The railway industry as a whole, led by the main-line operators, expressed the belief that the aggregate tax level on railways is too high.

They feel that railways in Ontario are overtaxed relative to those in other provinces and states, and they believe that the railway sector is at a competitive disadvantage to the trucking industry.
The railway operators are seeking property tax reductions with a view to improving their competitive position in the marketplace.


Recommendation:

  • No changes to the tax burden of railways are recommended at this time.

Discussion:

Current tax levels on main-line rail corridors appear to be competitive with other jurisdictions and with other modes of transportation.

The issues that the railway industry is raising about aggregate tax levels would be more appropriately addressed through a broad-based review of the tax competitiveness of Ontario's transportation sector. Such a review should encompass all forms of taxation, not just property taxes.


Railyards

For property tax purposes, railyards are treated in the same manner as vacant land, and as such, they are taxed at 70% of the commercial tax rate. (To be more precise, railyards that occupy an entire parcel of land are included in the commercial vacant land sub-class, and railyards that occupy only a portion of a parcel of land are included in the commercial excess land sub-class. Both of these sub-classes benefit from a 30% tax rate reduction.)

Railyards were included in the vacant land and excess land sub-classes in 1998 to replicate the pre-reform treatment whereby railyards and other property used for railway operations was not subject to business occupancy tax.

The term "railyard" is not defined in O. Reg. 282/98. A disagreement has arisen as to the extent of railway property that should be treated as part of a railyard.

It has been requested that clarity be brought to this issue through the definition of railyard in O. Reg. 282/98.


Recommendation:

  • It is recommended that O. Reg. 282/98 be amended to clarify that a railyard includes not only the tracks, but also the marshalling areas, loading and unloading areas, holding areas, intermodal transfer areas, and associated lands.

  • To provide equity to competing modes of transportation, it is recommended that trucking terminal lands (but not the buildings), which serve a similar function to railyard lands, be included in the excess land sub-class.


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