In a B.C. Supreme Court decision released on January 23, 2015 (2015 BCSC 102), the authority of the City of Campbell River to set different tax rates within the same property class was upheld, and is a decision of importance to local government throughout British Columbia.
Our office represented the City against the challenge to its Tax Rates Bylaw commenced by TimberWest Forest Corporation. The Bylaw under attack established two tax rates for Class 7 Managed Forest Lands, one rate for lands that had been brought within the City by way of a boundary extension in 2004, and a higher rate for other Class 7 lands including those owned by TimberWest.
When the municipal boundary extension request was approved by the Province in 2004, the conditions of approval under section 14 of the Local Government Act included that the tax rate for the Class 7 Managed Forest Lands brought into the City was to remain the same as the rural taxation rate for managed forest lands.
For many years following the boundary extension, all Class 7 Managed Forest Lands within the City were taxed at or very close to the capped rural taxation rates. As part of its five year financial plan for 2014 to 2018, the City determined that it wished to phase in a tax rate increase for Class 7 Managed Forest Lands in order to reach the provincial average for that class. This meant that the Class 7 Managed Forest Lands not subject to the tax rate limitation, including TimberWest’s, would be taxed at a higher rate than the lands brought within the City as a result of the 2004 boundary extension.
The City’s 2014 Tax Rates Bylaw set the two differential rates for Class 7 Managed Forest Lands, and it is this bylaw that was the subject of the challenge brought by TimberWest. TimberWest argued that the City was without authority to charge two different rates for the same property class, and that it was unlawfully discriminatory for it to do so. TimberWest sought an order of the court that the bylaw be set aside and declared invalid to that extent.
Taxing legislation including most particularly section 14 of the Local Government Act was the subject of the court’s interpretation and analysis. Section 14 provides that where a municipality is incorporated or a municipal boundary is extended, the municipality may designate an area within which it may establish a limit on the tax rate for that designated area.
The court agreed with the position of the City that allowing lands brought into the municipality through a boundary extension to remain taxed at the rural rate assisted in facilitating the boundary extension. A landowner would be disinclined to agree to become part of a municipal boundary through extension if that meant it would automatically be subject to a higher tax rate than the rate it was currently paying. This would operate as a disincentive to an extension. The court said:
“In my view, the purpose of section 14 read in the context of Part 2 and the legislative objectives is to enable the Province to ‘grow’ a city’s land base, and therefore its tax base, by removing this disincentive. It follows that the immediate object of section 14 is not equality of taxation within a class, but accommodation or special treatment of newly acquired lands.”
TimberWest argued that where a tax rate limitation is imposed under these circumstances, section 14 should be interpreted such that all property of that same class must be taxed at the capped (in this case, the “rural”) rate. In rejecting that argument, the court commented upon the impact on the City if such an interpretation were accepted, stating:
“But that interpretation would create a disincentive for the municipality to expand its boundaries. For example, if an extension were to incorporate a small residential and business area, letters patent setting a tax rate limit for those classes within the designated area would effectively compel the City to tax 98% of its existing tax base at a significantly lower rate. This would lead to the absurdity that the City, by extending its boundaries and taking on increased responsibility to provide services, would be required to significantly restrict its taxing capacity and accept far lower tax revenues from its pre-existing tax base.”
The court concluded that section 14 provided statutory authority for different tax rates for designated lands on incorporation or boundary extension, and was an express exemption from the requirement to tax all lands of a class at the same rate.
This decision is of importance to local government throughout the Province. Many municipalities have set differential tax rates under these same circumstances, and pursuant to the statutory authority questioned in this case. If the Petition had been successful and the Tax Rates Bylaw set aside, the taxing bylaws of those other municipalities would have been in similar jeopardy. For some municipalities, it may be financially disastrous for tax rates within certain classes to be constrained by a limited lower rate that was intended only to facilitate boundary extensions. The finding of the court that the City is exempt in these circumstances from having to apply the same rate of taxes to all lands within the same class avoids a very burdensome potential loss of taxation revenue.
As a result of this decision, the ability of a municipality to request a fixed taxation rate for a class of lands within a designated area, when brought into the municipality through the expansion of boundaries, and to apply a different tax rate from other lands within that class, remains in place.