Roger Liddle, MPAC Working Group Committee Member
In early March, NOTO met with MPAC (Municipal Property Assessment Corporation) to discuss and review the type of tourism businesses which fall under various categories for municipal and property tax assessments. MPAC is charged, provincially, with setting the property assessment values of all businesses based on market values.
It is NOTO’s belief that all businesses need to pay an appropriate amount of tax to either the province or municipality where they exist, and based on the fair market value of that property, i.e. land and buildings. We don’t feel an entrepreneur should be penalized with higher property taxes just because she/he has skills in generating higher revenues and profits, and/or the ability to sell that business for a price including “goodwill”. In other words, “goodwill” should not be part of the market value assessment nor part of the property tax.
There have been heated discussions over the past few years in regards to how MPAC will determine the market value assessments for our tourism businesses. Initially, MPAC contacted lodge businesses and requested, and demanded under threat, that operators submit to them their financial statements, so they could determine market value of that property for tax purposes. The industry feels using income and expense statements is an unfair method of determining property tax assessment, since property tax should be based on the market value of the lands and buildings, not on the goodwill of a business. Technically, any lodge business, on a sale, would have a value made up of the sum of “land”, “buildings”, “equipment” and “goodwill”, however we recognize that often businesses are sold based on a value (capitalization) of the “cash flow”. We need to show MPAC how to determine the “land and buildings” value on any tourism business, at any time, without using the financial statements as a source of evaluation, or old and outdated purchase and sale agreements.
At our recent meeting, we reviewed the categories of facilities used by MPAC, which include: PC 363 - Housekeeping Cottages; PC 460 – Resort Lodge (Muskoka style); and PC 462 – Resort Cottages. We have determined, and I believe MPAC has accepted, that almost all of the NOTO style facilities will be either PC 363s or PC 462s. These types of facilities will not be required to show financial statements, and their property assessments will be based on the sale of land and buildings in that general area.
We have also requested that MPAC stress to all lawyers and accountants involved in selling camps, lodges and resorts across the north to ensure that there are appropriate values shown on all sales documents for the land, buildings, equipment and goodwill. Too often in the past, the professionals have been recommending adjusting these values in order to benefit the buyer and seller for immediate taxation purposes (sales tax, land transfer tax, capital gains tax, recaptured depreciation tax and potential for depreciation), and as a result these values are not appropriate for property value assessment taxation. They should be encouraged to look at the long term needs of the buyer in regards to property value assessment tax as well.
For the category of PC 460 – Resort Lodge, which are generally the larger family style resorts/hotels found in the Muskoka area, and which provide an extensive array of services and activities besides fishing, and have high revenues, MPAC will be requesting financial information. From these financial statements, they will do analysis to determine the values of the lands and buildings, separate from the goodwill values related to operating profits. MPAC has identified less than a dozen such tourism businesses in northern Ontario that will fall into the PC 460 category.
If you receive a request from MPAC to submit financial statements to them, you need to determine if you are indeed of a PC 460 category (larger resort style facility with full service and amenities). We would suggest you also contact NOTO so we might assist you in determining that you truly are within that category, and what information to provide MPAC to accurately determine the market values of your lands and buildings.
It is our understanding at this time that MPAC staff do want to be fair in determining the appropriate market values for your lands and buildings, and they are accepting input and guidance from your NOTO MPAC committee in overcoming some of the challenges they face. At the same time, we recognize that all businesses must pay their fair share of property tax to support the infrastructure needs of our province and communities. Perhaps by working together we’ll come up with a fair property tax assessment formula.
This article was taken from page 35 of NOTO's "The Outfitter" publication, Spring 2004 Issue