As reported in the Summer 2009 issue of Logo Notebook, several major industrial companies launched legal proceedings challenging the extent of local government taxation on major industrial properties.
On October 16, 2009, the British Columbia Supreme Court dismissed the challenge brought by Catalyst Paper Corporation against the District of North Cowichan.
The Court held that it had the jurisdiction to review the reasonableness of a local government taxation bylaw. Such a review, however, is very limited and constrained by both the statutory authorization for such a bylaw and the fact driven, policy laden and discretionary nature of a local government decision such as this. After confirming that Courts are to give municipal decisions considerable deference, the Court stated:
The cautions expressed in each of these cases about judicial interference with municipal decision making resonate even more strongly in a case such as this one where what is at issue is a discretionary decision that is largely unfettered by any statutory restrictions.
Sections 1 and 3 of the Community Charter confirm that municipalities “require … adequate powers and discretion to address existing and future community needs” and the “authority to determine the levels of municipal expenditures and taxation that are appropriate for their purposes”. Furthermore, s. 3 of the Community Charter confirms that Councils are to have “the flexibility to determine the public interest of their communities and to respond to the different needs and changing circumstances of their communities”. These objects, at least in significant measure, are achieved through s. 165 and s. 197 of the Community Charter. In setting its financial plan and adopting its property taxing bylaw Council performs a vital role. It is a role that requires Council to weigh and balance the interests of its constituents. Council must take into account the circumstances, both short term and long term, of the community. It will be making fundamental discretionary decisions about what services to offer, what services to reduce, and what services to expand. It will of necessity consider how the revenue for these services is to be raised. The exercise of the power conferred by s. 197 is “fact driven, policy laden and discretionary. Thus, the range of outcomes” is broad.
Barring something aberrant or “overwhelming”, barring a decision “no reasonable body could come to”, a court will not revisit the outcomes or “outer boundaries” determined by Council to be appropriate. It will not substitute its own view of a more suitable outcome.
After agreeing that local government has the power to discriminate by imposing different rates of taxation on different classes of property, the Court rejected the argument put forward by Catalyst that the taxation bylaw was unreasonable because the property taxes imposed on major industrial properties were disproportionate to the level of services consumed by major industry. The Court stated that:
… a consideration of the actual exercise undertaken by Council in adopting a financial plan and the taxing bylaw that is to give effect to that plan, reveals that the exercise is not, at core, empirical. Instead it reflects the application of judgment based on a knowledge of the community, the community’s needs, the economic challenges it faces, the adequacy of the services it provides, and myriad other considerations. It involves a weighing of multiple competing interests. Though it is an exercise that is not amenable to precise calculations or “concrete assessments”, it remains nevertheless a rational exercise.
In a similar vein, the application of a consumption model contemplates a linear, or roughly linear, relationship with property taxes. The more services the members of a property class use, the higher the taxes of the class. This formulation is, however, at odds with the entitlement of a municipality to discriminate in fixing property tax rates. The very essence of a right to discriminate is that Council can deviate, albeit for relevant purposes, from such a linear relationship or from the need to treat members of different classes in the same way.
The Court stated that in such a challenge there is an obligation on the local government to ensure that there is information in the record before the Court from which the Court can determine the factors Council considered in its deliberations. Satisfied that there was such evidence, the Court stated:
Council had a great deal of relevant information available to it, all of which was rationally connected to the exercise it faced. Finally, and most importantly, the inherent nature of Council’s decision making exercise under s. 197 in relation to the Bylaw is one in which there are multiple competing objectives and policies, where the respective merits of these competing objectives are not easily quantified or measured and in respect of which no precise expression, which would capture the disparate views of Council, can be expected.
Accordingly, the Court concluded that the tax rates bylaw was reasonable and within the range of possible and acceptable outcomes and the challenge by Catalyst was dismissed.
The significance of this case for local government is that, despite dismissing the challenge to the bylaw, the Court has now placed local government under the microscope in these bylaw challenges and raised an expectation for local government to justify the bylaw as being reasonable and lawful.
First, the Court held it had the jurisdiction to review a local government legislative act, such as a budget, for reasonableness even when such decisions are largely political in nature.
Second, the Court held that local government has an obligation to disclose some of the factors and considerations underlying the adoption of the bylaw and fixing the tax rates. In other words, local government has to show the basis for its decision making in order to demonstrate that the bylaw was reasonable.
Third, the Court held that, even though formal reasons are not required, the local government must provide sufficient evidence to show the Court how and on what basis the decision was made and to satisfy the Court that the decision was rational. This amounts to a requirement to give reasons to the Court.
This case represents a transfer and reversal of the onus of proof, which is supposed to be on the party challenging the bylaw, to local government if it hopes to have its bylaw held to be reasonable and lawful. Staff should ensure that staff reports or other documentation include the factors, considerations and reasons for local government decision making so that evidence exists that can be provided to the Court should there be a challenge to a bylaw.