Turning Tax Exemption on Its Head

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November 5, 2010; Source: Bowen Island Undercurrent | The question of how municipalities handle the issue of taxing tax exempt property hasn’t gone away—not in the U.S. and not in our neighbor to the north. Near Vancouver, B.C., the municipality of Bowen Island faced the question whether or not to grant $36,000 in new tax exemptions but discovered that the city council had no specific policy to rely on.

Council members began brainstorming what rules of thumb they might use. One that seemed popular should be seen as very dangerous. Chief Financial Officer Karen Blow suggested, “Would every community member want to give a grant to this organization?” Councilor David Wrinch agreed, “Instead of giving other people’s money away, we should think of doing [the exemptions] as a grant. We wouldn’t force other people to give up revenues.”

They propose to think of the process of granting exemptions (or perhaps negotiated payments in lieu of taxes) as a discretionary grant rather than as a right pursuant to a property-owner’s tax exempt status, or in Blow’s estimation, one that everyone in a community agrees on. It turns the concept of tax exemption on its head, and to make it subject to some sort of plebiscite is a guaranteed undermining of what it means to be tax exempt.

CFO Blow added that another criterion might be the property owner’s financial need, but how would that be determined? These are dangerous conceptual undercurrents weakening the concept of tax exemption in Canada and the U.S. Nonprofits have to be attentive to “policies” and “criteria” like Bowen Islands’ so that they do not sneak into official policy or local ordinances, and get widely replicated.—Rick Cohen