For Municipalities

Relationship Between Assessed Value & Municipal Taxes

The Assessor's job is to determine the actual value of the properties in a municipality. The Council's job is to set the rate, calculate and send out the tax bills and collect the taxes.

The Municipalities Act says that all municipal councils may impose a real property tax.

The Council of a municipality must impose a business tax on anyone conducting business in the community. The tax is also based on the assessed value of the business property and land. The tax is payable by the owner and/or the tenant of a business.

After all the real property has been assessed, the Council uses the information to set the mil rate. The mil rate is then used to establish individual tax bills.

 

Mil Rate Calculation

Each year, Council, during its budgetary process, approves the amount of revenue required to operate the municipality. From this amount they subtract the known revenues, such as grants, licences, permits and so on. The remainder represents the amount of money to be raised by property taxes. The amount to be raised is divided by the total value of all the property in the municipality and multiplied by 1000 to decide the tax rate also known as the "mil rate". The calculation expressed as an equation is as follows:

amount to be raised
total taxable assessment
X 1,000 = Mil Rate

The word "mil" is derived from the Latin word for one thousand (1,000). In tax terms, one mil is equal to 1/1000 of a dollar or one dollar ($1.00) in tax for every one thousand dollars ($1,000) of assessment. For example, consider a town that needs $30,000 to balance its budget in which the total taxable assessment for all properties is $5,000,000:

$30,000 (amount to be raised)
$5,000,000 (total taxable assessment)
X 1,000 = 6 = Mil Rate

The mil rate must be applied uniformly throughout the community, although certain properties, such as churches and schools are exempt from real property tax while in active use. Council, itself, may exempt certain property owners from paying property tax. That is why the mil rate is calculated on the total taxable assessment.

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Property Tax Calculation

The amount of municipal tax payable by a property owner is calculated by multiplying the mil rate by the assessed value of a property and dividing by 1000.

Mil Rate x Assessed Value
1,000
= Property Tax Bill

Using 6 as the Mil Rate, a taxpayer with a property valued at $55,000 would be sent a tax bill for $330.

6 x $55,000
1,000
= $330

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Business Tax Calculation

All owners of commercial property, like residential property owners, must pay property tax based on the total value of any buildings and land. In addition, businesses operating in a municipality must also pay a business tax.

Some facts about business tax:

  • It is payable by individuals and companies who are using real property for business purposes. Businesses with no fixed address also are required to pay business taxes. The amount is based on a percentage of their gross revenue. Insurance sales persons are possible examples.
  • It is based on the assessed value of that portion of the property used for commercial purposes. For business tax purposes, the Municipal Assessment Agency will assign market value to the area used for business purposes. This value is called the "Tenant's Portion". The Tenant's Portion is calculated by the Assessment Agency and appears in the last column of the Assessment Roll.
  • Vacant space in a commercial building is not subject to the business tax.
  • The business tax rate is set by the municipal council and may vary from one class of business to another. The rate is expressed in "mils". All businesses in a class, such as drug stores, must be taxed at the same rate.

The basic formula for calculating the business tax is:

Tenant's Portion x Business Tax Rate
1,000
= Business Tax

The following samples will help to illustrate how business and property taxes work for commercial enterprises: In all the sample situations the following information is the same:

Building Value = $75,000
Land Value = $25,000
Total Value = $100,000

Business Tax Rate = 5 Mils Property Tax Rate = 8 Mils

Situation 1

Bob Smith owns and operates a business using 100% of the building.

Property Tax Payable
Bob Smith
Business Tax Payable
Bob Smith
$100,000 x 8
1,000
= $800
$100,000 x 5
1,000
= $500

Situation 2

Martha Jones owns a building but only uses 50% of it to operate her business. The remaining portion is vacant.

Her business tax is calculated on the "Tenant's Portion" or the assessed value of the portion of the property used for business.

Property Tax Payable
Martha Jones
Business Tax Payable
Martha Jones
$100,000 x 8
1,000
= $800
$50,000 x 5
1,000
= $250

Situation 3

John Marsh owns a building and operates a business out of one half of it. He leases the remaining 50% to Alice Malone.

John is still liable for all the Property Tax and business tax on the assessed value of his half of the property. Alice must pay business tax on the assessed value of her area used for business.

Property Tax Payable
John Marsh
Business Tax Payable
John Marsh
Business Tax Payable
Alice Malone
$100,000 x 8
1,000
= $800
$50,000 x 5
1,000
= $250
$50,000 x 5
1,000
= $250

Situation 4

Janice Platt owns a commercial building and the whole building is leased for business purposes by Frank Smart.

Frank pays the business tax and Janice is responsible for the property tax.

Property Tax Payable
Janice Platt
Business Tax Payable
Frank Smart
$100,000 x 8
1,000
= $800
$100,000 x 5
1,000
= $500

Situation 5

Martin Tessier owns a commercial building and leases one half of it to Gerald French. The remainder of the building is vacant.

Gerald pays business tax on the assessed value of his area used for business. Martin pays property tax on the total value. There is no business tax levied on the vacant portion of the building.

Property Tax Payable
Martin Tessier
Business Tax Payable
Gerald French
$100,000 x 8
1,000
= $800
$50,000 x 5
1,000
= $250

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Utility Tax

The province has legislated a standard rate of municipal business tax applicable to utility companies and cable TV companies. Affected by the changes are: Twin Falls Power Corporation, cable companies, and telecommunication companies.

The telecommunication, power and cable companies are to pay 2.5% of gross revenues earned in a municipality in the year immediately preceding the tax year. All companies are still required to pay property tax based on the valuation of their land and buildings only.

Newfoundland Hydro will be required to pay a grant in lieu of business tax of 2.5% of gross revenue only in municipalities where the company is the direct supplier of electrical service.

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Exemptions

There are several types of properties in a municipality that are exempt from property taxation. Section 118 of the Municipalities Act outlines the various exemptions. The municipal council, has the power to exempt property owners or tenants from paying municipal taxes. This power is defined in Section 135 of the Municipalities Act. The following is a summary of this legislation:

Automatic Exemptions

The Following property is exempt from real property tax:

  • property that belongs to the Governments of Canada and Newfoundland
  • property that belongs to a municipality or its agents
  • churches and other places of worship, buildings and land, in active use (this includes the rectory or other principal place of residence of the clergy if that house is owned by the church. Privately owned homes of the clergy are NOT exempt.).
  • cemeteries operated by the church or not-for-profit organizations
  • hospitals, buildings and land, including student residences.
  • public schools, colleges and universities, buildings and land, including student residences and recreational facilities
  • any property exempted by an Act of the Legislature

Other Exemptions

  • Council, on a vote of two thirds of the councillors in office, may grant an exemption, remission or deferment of taxes and interest on taxes, either in whole or in part, to anyone who applies for it. Council may set the period of time that the exemption is in effect and the conditions that the applicant must meet to be eligible. An applicant must be able to prove their need for special consideration.
  • People applying for the exemption or deferment must do so once a year. Council must be satisfied that there is continuing need for this special consideration.
  • Productive farm and woodland including any buildings used in farm or wood production. People wishing to be exempted must apply, in writing, each year to the appropriate Minister responsible for those special areas.

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