Hey there, time traveller! This article was published 26/5/2016 (1739 days ago), so information in it may no longer be current.
Manitoba Telecom Services has been enjoying a tax break for decades — a decision that has cost the city millions in potential revenue.
Even with the recent proposed sale of MTS to Bell, government officials remain unmotivated to touch a loophole in the City of Winnipeg Charter that has kept the taxation rate of MTS’s landline distribution system — which includes wire and poles — at a flat rate of $1.2 million for more than four decades.
"These restrictions do make Winnipeg unique and are quite antiquated and do limit the city’s ability to tax distribution systems, lobbying for change – right now at least – is not one of my priorities," Mayor Brian Bowman told the Free Press this week.
Bowman noted mayors before him have tried to lobby for a greater share of utilities taxation revenue under the charter and have failed. Any amendments to the charter must be legislated by the province.
Premier Brian Pallister, a staunch supporter of the proposed $3.9 billion purchase of MTS by Montreal-based BCE Inc., said through a spokeswoman that with Bowman uninterested, he isn't ready to look at the decades-old provision either.
"We have not had any communication with the City of Winnipeg on any requests for changes to the City of Winnipeg Charter. We are not looking to make any changes in this legislation, at this time," said Olivia Billson, a spokeswoman for the premier, in a prepared statement.
It has been a provision on the books for almost 100 years. Telephone companies operating in Winnipeg (MTS is the city's primary provider) would see the value of their distribution system assessed at a fixed rate. It has only been increased once, jumping from $900,000 as established in 1918 to $1.2 million in 1971 after amalgamation. The rate did not change in 1996 when MTS was privatized under the Gary Filmon Progressive Conservatives. Other real property, such MTS's real estate stock in Winnipeg, is subject to property taxes.
Canadian Taxpayers Federation vice-president Scott Henning argues it's unfair that one private company has to pay taxes based on market value, while a company such as MTS gets a special fixed rate.
"They shouldn’t be treating the guy that owns a shoe store any differently than the phone company just because they have a different type of businesses," said Henning. "There is no question the phone company is now larger than it was in 1971, as is the city and inflation alone has increased significantly since 1971."
Henning argues an inflationary increase should be attached to the rate to even out the playing field. According to the Bank of Canada, $1.2 million in 1971 dollars equals about $7.4 million in 2016, factoring in inflation.
Bowman has long lobbied for the city to find alternative sources of revenue, campaigning in the 2014 election to end the city's reliance on property taxes and find a new model of taxation.
"Right now, the municipality doesn't have direct skin in the game in terms of economic growth. So we talk about, 'Are we going to raise property taxes? Are we going to increase or cut services?'" Bowman said in May 2015.
Coun. Russ Wyatt (Transcona) said MTS is not alone in not paying its fair share of taxes in Winnipeg. The assessment rate paid by Manitoba Hydro, a Crown corporation, when it comes to the land under and near transmission lines, also hurts the city's finances, he said. As a Crown, Manitoba Hydro is exempt from paying property taxes. It pays a grant in lieu based on its real property in Winnipeg; last year it paid $9 million.
"Winnipeg is getting a raw deal," Wyatt said. "They (the tax formulas) are all dated. They are all very old formulas.They have never been revisited in a long time."
Wyatt argues any changes to the charter would need to be balanced and fair as to not drive business out of the city. The easiest solution would be to index the assessment rate to inflation, he said.
"But there is no doubt we are losing revenue," Wyatt said. "They (MTS) have definitely not kept their rates at 1970 levels. Their rates have gone up, so why shouldn't our rates go up accordingly?"
MTS declined to disclose how large its distribution network is in Winnipeg, citing security reasons. In a prepared statement, MTS spokesman Jeremy Sawatzky noted MTS does pay "millions" in property taxes for its Winnipeg real estate stock, but said "we do not disclose the total figure."
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"This charter only has a limited application to some of our telephone cabling and wires, and then only a smaller percentage of them — all of which are all MTS's responsibility to maintain," Sawatzky said in a statement.
When asked about why MTS should be given this fixed rate or whether is was fair, Sawatzky said the company wasn't going to "engage in speculation."
Paul Thomas, professor emeritus of political studies at the University of Manitoba, pointed to the failed attempts of former mayor Glen Murray to diversify the city's ability to tax utilities such as Manitoba Hydro or telephone companies. His attempts at a "New Deal" came to a crashing end under then-NDP premier Gary Doer, who wasn't interested in dealing with the issue.
History would likely repeat itself if city officials tried to reopen the charter to look at the deal, Thomas said.
"Pallister has been quite outspoken with this (Bell-MTS) deal. With the additional investment it would bring, they would likely (also) meet a dead end," said Thomas. "You have to ask yourself, who has an incentive to raise this issue? Not the provincial government and I am not even sure Mayor Brian Bowman would be all that keen on picking a fight. He is pretty much pro-business and he may think there are easier way to get additional revenue."
What it says in the City of Winnipeg Charter
For the purpose of assessment and taxation, the property of a corporation providing telephone services fixed or placed in a street is deemed to be real property. The city assessor must not value that property but rather must assess it by entering in each year's real property assessment roll the amount of $1,200,000 for each corporation that provides telephone services.
What about Manitoba Hydro or cable companies such as Shaw?
As a Crown corporation, Manitoba Hydro is exempt from paying property taxes. It pays a grant in lieu based on its real property in Winnipeg; last year it paid $9 million. Prior to being privatized in 1996, MTS also paid a grant in lieu of property taxes. Under the Municipal Assessment Act, cable companies such as Shaw or Rogers pay a business tax for their cable, wire, equipment and facilities. Each year they pay one per cent of their yearly gross revenue.
How did this come to be in the charter?
It has been a provision written in every version of the Winnipeg Charter as far back as 1918, when MTS was a Crown corporation. Along with telephone companies, "linear properties" including railway, telegraph, gas, electric light and electric power companies were also assessed at a fixed rate. Some of these provisions, such as gas and electric power, were later rolled into the Municipal Assessment Act. Railway property is now taxed by the city at a 25 per cent mill rate in its own separate classification.
Has this come up before?
A 1939 Royal Commission Report on the Municipal Finances and Administration of Winnipeg looked at how utilities and telephone companies could be taxed at higher rates to help ease the revenue gap for the city. It stated fixed assessment of distributions rates for telephone companies, as well as electrical utilities, was "arbitrary and bears no relation to costs or present of such distribution systems." Instead, it argued it should be "substantially increased so they should carry a fair share of taxation." It recommended moving to a model where gross revenue is taken into account as an element of fixing the assessment.
Why special provisions for distribution systems?
Unlike commercial or business property that is often bought and sold, the value distribution system of a telephone company or hydro company is difficult to assess, explained Antoine Hacault, a member of Canadian Property Tax Association and a local property tax lawyer.
How do you determine a market value for a right to have a line over a certain property?
"It is hard to determines value for that, so the legislature has two options: it fixes the value in the legislature, which makes it difficult to change after because you have to pass an amendment. A statute has to go through the legislature or alternatively another technique is to say that you can change this in a regulation," Hacault said.