IPTI | Update on U.S. & EU Property Tax Issues: April 2022

The EACC, in partnership with the International Property Tax Institute (IPTI), wants to keep its members up to date with the latest developments in property taxes in the USA and Europe. IPTI has put together below a selection of articles from IPTI Xtracts; more articles can be found on its website (www.ipti.org).

United States

New York: Empty offices aren’t all coming back, but the space can still be a hub for innovation

Throughout all its eras, New York City has thrived mainly from being pioneering — giving its denizens the ability to act creatively, think outside the box, and be rewarded for it. The millions of square feet of office space lying empty across Manhattan’s central business districts now is a perfect opportunity for that spirit of metamorphosis, if only we’ll allow it to be.

As much as we’ve advocated for office-workers to return to their pre-COVID locations and breathe new life into neighbourhoods battered by dwindled foot traffic, the city must face facts that remote work is here to stay. Commuters say they plan to cut down their time in the city permanently, by as much as half. Companies see the writing on the wall and won’t force the issue out of fear of losing workers accustomed to the flexibility of working from home.

We have several options, the worst of which is to let this space accumulate dust and forfeit tax revenue while wishing that trends would magically reverse. Or policymakers can make it easier for buildings to be repurposed into different types of space that will actually serve our social environment and economy.

The most obvious choice is conversions to residential usage, but it’s by no means the only approach. Retail, gallery, even high-tech manufacturing or vertical farming should all be on the table to help use the COVID crisis as an opportunity to transform Midtown and other office-heavy areas for the better. Let the market decide.

For this to work properly, the city must revisit its onerous and restrictive zoning ordinances, which sometimes make conversion of office space impossible, or at other times merely make it a massive, costly and logistical headache. Paired with this should be long-overdue reforms of the city’s property tax code, which has long piled burdens on renters and other classes of property — including commercial tenants. One day, our kids might marvel that our hubs of innovation were once boring old office space.

Maine: Legislature moving to curb ‘dark store theory’ tax assessments

A bill advancing in the Legislature would limit the ability of big box stores in Maine to use the so-called “dark store theory” to challenge property tax evaluations, a manoeuvre that results in the loss of hundreds of thousands of dollars in municipal tax revenue.

The bill to keep big retailers from claiming that their stores are worth much less than their town and city assessments cleared the House 77-55 last week and is expected to be voted on in the Senate this week.

Retailers use the “dark store theory” in bids to lower their property taxes. It’s a practice that began about a decade ago, primarily in the Midwest, in which large retailers appeal their assessments, arguing that their properties are worth far less than town and city assessments because the value should be based on a comparison with other large, but empty, stores nearby.

“The theory? These facilities are fundamentally useless to any other business and should therefore be assessed as empty or dark stores,” Rep. Ann Matlack, D-St. George, told the Taxation Committee earlier this year. Matlack is the chief sponsor of the legislation that would curb the practice by spelling out what kind of property assessors should use as comparisons when they set valuations.

A similar bill was introduced last year, but with the Legislature operating under a pandemic-shortened schedule, the legislation was never taken up, Matlack said.

Matlack said she saw the theory in practice in her part of Maine, when a retailer operated a big box store in Rockland and then moved to a larger one in Thomaston. The retailer appealed the higher tax appraisal in Thomaston, saying the property’s value should be based on comparisons to the values of vacant stores, some of which had limitations on the size of businesses that could operate in them.

Matlack said the retailers also base their appeals on the belief that the towns will retreat when faced with large legal bills over the contested assessments.

“The towns feel outgunned,” she said, and sometimes back down and roll back the assessments rather than face a long and costly court battle over the valuations. “This dark store theory is (in operation) all over the country, and it happens far too regularly,” she said.

Matlack’s bill would reiterate that towns and cities should base assessments on a property’s highest and best use. It also would say that assessments can’t be based on comparisons to any properties that have restrictions on them.

A report on “dark store theory” by the Maine Center for Economic Policy said that when a big box retailer moves to a new location, it often puts restrictions on the businesses that can move into the space they own but are leaving behind. That’s so that the original retailer doesn’t face competition from another large retailer that buys the space, but it also results in a lower value for the property.

The center’s report said retailers “dark store theory” has been mostly successful in the Midwest, particularly in Michigan, where assessors and courts have upheld the valuation arguments of the retailers. An association of county governments in the state estimated that valuation appeals based on the theory cost local governments $100 million in tax revenue over four years.

The report by the Maine Center for Economic Policy said that large retailers in Maine sought $184 million in lower valuations from 2015 to 2019, and the average reduction sought was 34 percent. Successful valuation appeals resulted in assessment reductions of 2 to 30 percent, the report said, with the average settlement resulting in a reduction of 8 percent.

That means less money for towns’ budgets, and the municipalities either need to reduce services or shift the cost to other taxpayers, the policy center said. The organization has urged lawmakers to make some simple fixes to property tax valuation procedures to eliminate or limit the use of the dark store practice to cut property tax bills.

“Simple legislative language to clarify which properties can be used in the price analysis during assessment will ensure that these large retail corporations can’t game the system at the expense of communities and other property taxpayers,” MECEP’s report concluded.

Matlack said her bill will make sure that retailers are paying their fair share of taxes, based on honest assessments of the value of the properties. That, she said, would restore fairness to property taxes.

“I told a friend who’s a lawyer about it and they said, ‘They can’t do that,’ but I said, ‘They are doing that,’” Matlack said.

New York: Parks Boost NYC Property Values by $15B

New York City’s more than 30,000 acres of parks increase the Big Apple’s residential property values by about $15.2 billion, according to a report by the Trust for Public Land, a pro-park non-profit organization.

Using property tax assessment data from the New York City Department of Finance, the non-profit estimated that a residential home’s proximity to a park boosted its value and increased the amount of property tax paid by about $101 million.

“New Yorkers, they need to get out — partly to make the city liveable” Carter Strickland, New York state director for the trust, said in a statement. “You can’t have a great city without great parks. We put a number to it, but really that feeling is what’s important. People love their parks.”

The non-profit looked at about 400,000 homes that had enough property tax data to evaluate, Strickland said. It estimated that about 5 percent of the value of those homes came from being within 500 feet of a local park — which Strickland said is a conservative figure because its previous research found increases of even 20 percent. The total market value of those properties was about $303 billion, according to the report.

Central Park, in particular, has historically driven up property values as the New York Economic Development Corporation found in 2014 that condominium units with views of Central Park sold for 20 to 70 percent more than units with views of the city. But because not every park is Central Park, Strickland said the trust used a lower estimation of what percentage of a property’s value came from its proximity to a park.

The city’s parks are visited about 527 million times per year and also provide recreational activities, drive up tourism, lower health care costs, and absorb stormwater, limiting repair costs to the city’s drainage system, according to the study.

“Our expansive and varied parks system is one of the most valuable public assets New Yorkers have access to — it’s where they connect with the community, stay fit and explore the wonders of nature,” New York City Department of Parks and Recreation Commissioner Sue Donoghue said in a statement.

Outdoor space has been increasingly valued by residents of New York City during the pandemic, which forced many residents to remain inside their homes out of fear of catching the deadly virus in the early days of the pandemic. Outdoor terraces in office buildings have grown in popularity and has helped buoy leasing at office campuses that have it, like Industry City in Sunset Park, Brooklyn.

But the city’s green space is not equally distributed among its residents. The study found that communities of colour have more than 33 percent less park space within a 10-minute walk per person compared to white neighbourhoods. It also found that the same discrepancy was true for low-income areas, which have more than 21 percent less park space per person within a 10-minute walk.

And new parks — like the High Line — can drive up property values enough to make neighbourhoods unaffordable for current residents, according to the study. That can be avoided if the area creates an affordable housing component before a new park is built, Strickland said.

Indiana: Tax Court reverses assessment because of possible ‘math error’

Finding a math error is objective rather than subjective, the Indiana Tax Court has revived the appeal of a property owner who argued the Bartholomew County assessor calculated his property tax assessment using the wrong base rate.

Bushmann LLC owned a 61,855-square-foot parcel of land that was home to a convenience store and gas station in Columbus. In 2016 and 2017, the property was assigned a total assessed value of $1.27 million. In 2018, the assessment climbed to $1.47 million.

The property owner filed an appeal of the 2018 assessment on Sept. 13, 2019. Additional appeals of the 2016 and 2017 assessments were filed on Jan. 7, 2020. Both times, Bushmann asserted a “clerical, mathematical, or typographical mistake.”

The Bartholomew County Property Tax Assessment Board of Appeals conducted a hearing and denied Bushmann’s appeals.

Turning to the Indiana Board of Tax Review, Bushmann maintained the assessor did not apply the base rate that has been set by the county’s land order. Bartholomew County’s land order established that its land was to be assessed at $10 per square foot for all three years. Instead, the Bushmann appeal asserted, the land was assessed at $13 per square foot in 2016 and 2017 and at $19 per square foot in 2018.

The assessor countered the correct base rate was used to value the land. She asserted that Bushmann’s land order contained a proposed base rate of $10 rather than the actual base rate that was to be applied to the land during 2016 through 2018.

Moreover, the assessor argued Bushmann filed the wrong type of appeals because the complaint raised only subjective errors about the valuation of the land.

The Indiana board agreed and tossed Bushmann’s appeal as untimely. Even though the property owner checked the box indicating a “clerical, mathematical, or typographic error,” the core issue was a challenge to the assessed value of the property. Therefore, Bushmann had 45 days to challenge the property’s assessed value and not the extended three-year deadline for challenging math errors.

Before the Tax Court, Bushmann supported his argument by pointing to Muir Woods Section One Ass’n v. O’Connor, 172 N.E. 3d 1205 (Ind. 2021).  In that ruling, the Indiana Supreme Court found the application of a base rate discount in a county land order was an objective error, not a subjective error regarding the property’s assessed value.

The assessor pushed back, asserting the decision in Muir Woods is misplaced. That case, the assessor claimed, “does not give taxpayers the opportunity to argue about any wrong perceived to have occurred [in a land assessment] simply because a land order is part of the argument.”

Persuaded by Bushmann, the Tax Court reversed and remanded to the Indiana board with instructions to determine whether the assessor applied the proper base rate in the 2016 through 2018 assessments.

“In this case, similar to the appeal in Muir Woods, Bushmann’s three appeals present questions about the objective application of an already-determined base rate prescribed by a land order,” Judge Martha Blood Wentworth wrote in Bushmann, LLC v. Bartholomew County Assessor, 21T-TA-00027.

“Specifically, during the administrative process, Bushmann claimed each of its land assessments contained a ‘math error’ because the Assessor did not use the established base rates in Bartholomew County’s land order when calculating the assessed values of its land,” Wentworth continued. “Consequently, the Court finds that the errors raised in Bushmann’s appeals are not inherently subjective, but instead challenge the objective application of a pre-determined base rate: the base rate from (Bartholomew) County’s land order was either applied or it was not.”

Pennsylvania: Will Pa. ever get serious about property tax reform?

School property taxes are the most hated levies in Pennsylvania. Senior citizens who don’t have any children in the schools pay a large part of the taxes whose constant increases makes it hard for them to stay in their houses. On the other end, high property taxes make in increasingly difficult for young people to buy houses.

Their elimination or at least reduction of property taxes has been talked about for decades but nothing significant has been done to solve this ever-growing problem.

Over the years, lawmakers have unable to agree on a viable alternative to the taxes. One legislator, state Rep. Frank Ryan, R-Lebanon, has come up with a serious plan, much better than others which failed to come up with any realistic way of replacing the $16 million raised by school property taxes.

However, his plan, which is now before the House Finance Committee, has almost no chance of ever becoming law. Ryan’s plan calls for increases in the income and sales taxes, which have been talked about endlessly in the past.

But he threw a new wrinkle in, taxing income for retirees. While his plan would exempt Social Security benefits, employee contributions to defined contribution plans, and military pension or survivor benefit payments, it would include all types of other income earned by retirees. Currently retirees pay no income taxes, and any type of change will certainly be controversial.

Ryan maintained that some tax increases are needed, contending that school property tax rates are forecast to double in 17 years and triple in 30 years. Pennsylvania must institute the tax or face long-term consequences, Ryan said.

“Everybody wants to get rid of property taxes as long as the other person is the one who is going to pay the replacement tax,” Ryan said. “It is clear that any solution will require sacrifice on the part of all Pennsylvanians. “Pennsylvania is not a growth state. We are attracting seniors. You know why? We don’t tax retirement income. We’re one of six states in the United States that don’t.”

“I’m going to guarantee you this, the next recession we’ll have to start taxing retirement and you’ll still have property taxes. You can see the handwriting on the wall,” added Ryan. Recognizing the complexity of his plan, Ryan unveiled a calculator that allows homeowners to calculate the impact the plan would have on their tax bill. In a statement, Ryan outlined the benefits of his plan.

“House Bill 13 would end Pennsylvania’s archaic reliance on property taxes that unfairly burden our growing population of seniors and stifle our economy,” said Ryan. “It would enable us to transition to fair and reliable funding sources for our schools, which will provide more effective management at the local level. If we do nothing, Pennsylvania residents will continue to lose their homes and the precarious nature of school funding will continue.”

However, no matter the benefits, it’s very unlikely that Republicans will do anything that remotely resembles passing a tax increase, especially with the governor’s race on the ballot in November and many legislative seats up for grabs.

Consider that Senate President Pro Tempore Jake Corman, R-Centre, is making his opposition to Gov. Tom Wolf’s proposed tax increases one the biggest parts of his campaign to become the state’s next governor.

But Wolf’s biggest proposed tax increase was actually very close to Ryan’s plan to eliminate property taxes. He also wanted to increase sales and income taxes to reduce property taxes. Republicans refused to negotiate with Wolf and the impasse eventually caused the longest budget stalemate in the state’s history. And Wolf’s proposal contained no tax increases for retirees.

A budget wasn’t passed until the following spring and was never signed into law by Gov. Wolf. It became law when Wolf refused to veto the measure. So, it seems very unlikely that Republicans would now go along with taxing the income of senior citizens for the first time. Furthermore, the plan comes up at about the worst time ever with inflation soaring and all the uncertainty surrounding the war in Ukraine.

Also as usual is the Legislature’s light schedule, which makes it hard to do anything never mind something as complex as property tax reform. The House will only be in session for 15 days until budget talks begin in June. It will only be in session for six days in September and three in October. The Senate will only be in session for 12 days until June.  No schedule has been announced for the fall.

Such inaction makes it very likely that school property taxes will continue to be the most hated levies in Pennsylvania for years to come.

California: Property Tax Levies Increase Six Percent Statewide

Earlier this month, the California State Board of Equalization (BOE) released its Fiscal Year (FY) 2020-21 Annual Report, which reported that the total net statewide county-assessed property value was $7.1 trillion, resulting in $79.9 billion of local property tax levies. Those property tax levies contributed $43 billion to schools and $36.9 billion to local government. This is an additional $4.5 billion, or a 6 percent increase, in property tax levies from FY 2019-20 of $75.4 billion.

“The increase in property tax levies to almost $80 billion is a clear reflection of California’s vibrant real estate market,” said Chair Malia M. Cohen. “As we transition away from the disruptions of the COVID-19 pandemic, I am heartened that these additional property tax revenues will provide significant funding for our schools and critical local government services.”

The BOE is constitutionally and statutorily responsible for the oversight of California’s property tax system. The FY 2020-21 Annual Report includes state- and county-assessed property values, aggregate qualifying property tax exemptions, and other statewide property tax data.

New in this Annual Report are the highlights of BOE’s accomplishments in fulfilling its statewide role in the implementation of Proposition 19, The Home Protection for Seniors, Severely Disabled, Families and Victims of Wildfire or Natural Disasters Act. In November 2020, California voters approved Proposition 19, which made significant changes to certain property tax laws.

The California State Board of Equalization (BOE) is the only elected tax board in the country, and it is comprised of four Equalization District Members and the State Controller. Since 1879, the BOE’s constitutional and statutory duties include the oversight of the 58 County Assessors to ensure assessment practices are uniform and consistent statewide.

In addition, the BOE directly assesses the property of regulated railroads and certain public utilities, collects the Private Railroad Car Tax, and is responsible for the Alcoholic Beverage Tax and Tax on Insurers. BOE’s critical role in property tax administration by promoting fair and equitable assessments protects the tax dollars that schools, local communities, and the State of California depend on every day.

Iowa: TIF has its uses, but an indoor-golf project starkly illustrates how we’ve gone astray

Iowa’s Legislature has an opportunity to add common-sense guardrails around TIF. Have you heard of Topgolf? It’s essentially a driving range on steroids. You hit a golf ball from a climate-controlled bay that is serviced by a bar and restaurant. It’s great fun, but Des Moines doesn’t yet have one or a facility like it. But it soon will.

In November, a golf entertainment venue called Suite Shots, which licenses Topgolf technology, announced it is developing a multimillion-dollar facility in West Des Moines. And just two weeks ago, officials in Johnston detailed the plans they were making with another company called Bombers to build something very similar in their city.

So now, the Des Moines metro might have two of these facilities. Sounds great — until you hear what is behind the second one and that some of your tax dollars will pay for it.

While Suite Shots in West Des Moines will be developed without government funding, Johnston is giving Bombers an incentive package that includes $14 million in tax increment financing, or TIF, rebates to build their facility across the street from an Audi dealership. It’s not just the local taxpayers who are on the hook here. All Iowa taxpayers foot the bill because the state general fund has to “backfill” tax revenue that local school districts miss out on because of TIF.

TIF has existed in Iowa for decades. Originally designed to be deployed in blighted communities for projects that otherwise couldn’t obtain financing, TIF works by allowing local governments to borrow money with debt secured by the future growth of taxes within that TIF district. Local governments can then pay for development by using new, or “incremental,” property tax dollars.

TIF can be beneficial when used correctly in blighted communities and where development wouldn’t otherwise occur. But this is precisely where communities in Iowa may have lost their way. Across Iowa, barely 15% of TIF districts were created with slum or blight conditions as a justification to create the district.

Even more concerning, Iowa has never had a “but for” requirement when creating a TIF district. Professors Craig Johnson and Kenneth Kriz write, “The idea behind the ‘but for’ test is that TIF should be used if, but only if, the development would not occur without the TIF subsidy. … TIF should not be used to subsidize development that was already going to occur. That would be a waste of taxpayer funds. It would also provide an unnecessary subsidy to private developers.”

That academic thinking seems to make sense, but how could one ever know if a “development would not occur without the TIF subsidy?” Maybe if a similar project was already planned without subsidy in the same metropolitan area. From that perspective, the competing golf projects present an interesting case study.

Over time, TIF has become much less about developing blighted communities and more about affluent communities competing with each other so they can boast about lavish shopping malls, new hotels, bigger office buildings, and (soon) golf entertainment centers. The fact that a similar facility is being planned within the same metropolitan areas suggests that this type of venue doesn’t need millions of dollars of TIF subsidy to come to Des Moines. It’s hard not to wonder if this is the type of project Johnson and Kriz described as a waste of taxpayer funds and an unnecessary subsidy to private developers?

Iowa’s Legislature has an opportunity to add common-sense guardrails around TIF. The best place to start would be requiring a stringent “but for” test for TIF projects, forcing a local government to prove a proposed development truly wouldn’t occur without the TIF subsidy. This requirement would need to have teeth behind it and not simply allow local governments to merely claim that TIF was necessary. Reforms to Iowa’s TIF system would go a long way to levelling the playing field for private businesses while also protecting the taxpayer’s best interests.

Texas: Gov. Abbott talks property taxes in Tyler roundtable

Abbott met with local business leaders to discuss property taxes and other impacts on small businesses. The roundtable was held at Price International on Highway 271 in Tyler.

During the roundtable, Abbott discussed the state of the Texas economy, as well as measures he is taking within the state government to help provide tax relief to small businesses. He also touted the state’s economic boom, saying that “Texas is the #1 state for doing business in the country.”

“Texas has now risen to having the 9th largest economy in the entire world,” he said. “More Texans have a job today than ever before in our state.” He further added that during his tenure as governor, property taxes have been cut in every single legislative session and made state income tax unconstitutional.

The governor went on to explain that his new “Tax Payer Bill of Rights” legislation will lower the cost of doing business, spur the economy, spur the capability of hiring more people and paying more people so that small businesses can continue to grow. He said that the bill will offer up to $100,000 in property tax exemptions in order to create more tax relief for small businesses.

According to Villa Montez co-owner Mundo Villapudua, “We’re paying more than what we’re bringing in.”

Of the many small business leaders from around East Texas that joined Abbott at the roundtable, Rodney Price from Price International and Annie Spilman from the National Federation of Independent Businesses spoke about the governor’s tax relief efforts.

Price thanked Abbott for his interest in trying to relieve tax burdens for small business owners. “It is significant and we appreciate it and we don’t take it for granted,” he said. Spillman also had this to say about Abbott’s tax relief efforts:

“Dealing with supply chain issues and labor shortages can be a little bit easier to swallow when you know that you don’t have the government breathing down your neck. And in Texas, that’s not the case and we appreciate it.”

Just last week, Abbott participated in a fireside chat at the U.S. Chamber of Commerce Committee of 100 meeting in Austin.

“Businesses and families are moving to Texas because we provide an environment that allows people to succeed on their own terms,” Abbott said. “Texas offers a brand of freedom unlike any other state in America—we have no state income tax, we’ve cut red tape and burdensome regulations, and we continue to invest in our young, diverse and ever-growing workforce. We are committed to cultivating this thriving economic climate in the years to come to ensure that all Texans have the ability to achieve their dreams.”

EUROPE

France: French property taxes set to reach record levels in 2022

For many people in France the tax burden is being reduced, but this is not the case for property owners, who face record bills in 2022 due to changes in the calculation formula.

Property taxes in France come in two forms – the taxe d’habitation which is paid by the householder and taxe foncière which is paid by the property owner. If you own your own home then you pay both.

Taxe d’habitation is gradually being phased out, fewer than 20 percent of the population will pay it in 2022 and it will gradually be scrapped for everyone, with the exception of second-home owners.

However, taxe foncière is not only here to stay, its also been increasing and 2022 will see another hike to a new record thanks to a revaluation of the formula used the calculate tax bills.

The formula used to calculate the annual taxe foncière bills – which come out in the autumn – is complicated, but it’s based in part on the rentable value of the property – so if you build a large extension or add a swimming pool you can expect your bills to go up.

For the 2022 bills, the taxes on the rentable value of a property will be increased by 3.4 percent, the largest hike since 1989.

In addition to the rentable value, the other factor that determines the bills is where you live, since local authorities are allowed to set their own rates. Since the phasing out of the taxe d’habitation, a number of local authorities have sharply increased taxe foncière rates in order to make up for their lost income.

In total, bills in some areas are set to rise by up to 15 percent compared to the previous year.

If you’re a second-home owner, local authorities are also permitted to add an extra charge for second homes in areas where there is a housing shortage.

However, the TV licence – which usually arrives in the same post as the property taxes bill – is set to be phased out by Emmanuel Macron, if he wins the election.

United Kingdom: Huge rates hike for logistics warehouses as Amazon bill to rise more than £1m

Occupiers of logistic warehouses are braced for a dramatic rates hike, data shared exclusively with CityA.M. has revealed. With e-commerce firms desperate to grab space, rents in the industrial and logistics sector have shot up.

Rental growth means will see average increases of 18.7 per cent across the board on business rates payable from April 2023, according to a forecast by Colliers. Rates in the capital city are set to rise on average by 50.2 per cent following the next revaluation, with the South West of England seeing rises of 32.5 per cent and the South East 30.6 per cent.

A unit in London, with a current rateable value (RV) of around £500,000 will find its rates bill rise from £266,000 a year to £399,630 a year, following the revaluation.

Colliers estimated that Amazon’s biggest distribution centre in Tilbury, which currently pays an annual rates bill of around £3.625m will see its annual bill rise to £4.745m. This represents an increase of 30 per cent.

John Webber, head of business rates at Colliers, said “For those occupying a large number of properties in the sector, such as Amazon or even retailers such as Next or John Lewis, these rises will mount up, particularly for operators who have prime sites in London and the South East and those in the South West. This will have a significant impact on their overheads from 2023 onwards.

“We are advising our clients to fully understand the likely impact of the 2023 business rates revaluation and to prepare now to avoid any unexpected cost increases.”

United Kingdom: Retailers demand action to lower Scottish business rates burden

SCOTTISH retailers have called for ministers to permanently lower the burden of business rates north the Border as the property tax is reinstated after being eased to help firms deal with Covid lockdowns.

Firms across Scotland’s retail, hospitality and leisure sectors were fully exempt from non-domestic rates for the financial year that ended yesterday (March 31) as part of ongoing support provided to business by the Scottish Government throughout the pandemic. From today, firms in those sectors will receive 50 per cent relief from rates, worth up to £27,500 per business, for a further three months.

However, the poundage – the figure multiplied by the value of a non-domestic property to calculate its rates bill – will rise in Scotland to 49.8p in the pound, the joint-highest level since devolution began in 1999.

Today also sees the reintroduction of the higher property rate surtax in Scotland. Nearly 3,000 retail premises in Scotland fall into the scope of the surtax, which lifts the level of rates to 52.4p in the pound. This contrasts with England, where effectively the surtax is not as high. Rates are calculated in England using a standard poundage or multiplier of 51.2p in the pound, and a slightly lower one of 49.9p in the pound for small businesses.

With footfall on high streets and shopping centres yet to recover to pre-pandemic levels, one in six retail premises in Scotland lying vacant, and many companies still struggling to pay back debts incurred because of the pandemic, the Scottish Retail Consortium contends that business rates are being re-applied at a challenging time for shops. It has urged the Scottish Government to put the rating system on a “more financially sustainable basis” and to ensure firms north of the Border are not faced with bills that are higher than those levied on their counterparts in England.

David Lonsdale, director of the SRC, said: “The business rates waiver over the past two years of the pandemic has been substantial and much needed. It helped keep retailers afloat at a time when large swathes of the sector were forcibly shuttered for at least 220 days, when trading and capacity restrictions applied when shops were permitted to trade, and helped fund retailers’ outlays on PPE and Covid safety mitigations.

“As the guardrails of taxpayer support are withdrawn, retailers are ready to contribute their fair share. However, shopper footfall and retailers’ revenues are yet to climb back to pre-pandemic levels and firms are beginning to pay down Covid loans and tax deferral schemes.

“Coupled with the multitude of other government and supply-chain costs which are currently rising, the reinstatement of rates at an onerous 23-year high comes at a challenging time for the industry and retail destinations.

“That’s why we want to see a medium-term plan for lowering the rates burden permanently and putting it on a more financially sustainable basis, coupled with early moves to restore the level playing field with England on the higher property rate supplement so that all premises in Scotland benefit from having the most competitive business rates in the UK.”

The SRC said that retailers account for around one-quarter of the estimated 12,000 commercial premises in Scotland that attract the higher property rate surtax. It notes that the Barclay review of business rates, led by Ken Barclay, former chairman of Royal Bank of Scotland in Scotland, published in 2017, had called for parity on the surtax between Scotland and England to be restored by 2020.

According to the SRC, the Scottish Government has said it aims to restore parity on the surtax by the end of the current Scottish Parliament.

While relief in Scotland for firms in the retail, hospitality and leisure is in place for three months, in England there will be 50% relief on bills in those sectors for the full 2022/23 financial year, capped at £110,000 per business.

Authors:

• Paul Sanderson, President | psanderson[at]ipti.org
• Jerry Grad, Chief Executive Officer | jgrad[at]ipti.org
• Carlos Resendes, Director | cresendes[at]ipti.org

Compliments of the International Property Tax Institute (IPTI) – a member of the EACCNY.