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Whistler proposes new tax class for strata-hotels

Tax uncertainty impacts resort business, municipal revenue said Nelson

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A long unresolved tax dispute in Whistler could be fixed if the provincial government creates a new tax class altogether for all short-term commercial accommodation.

That’s one of the solutions put forth by representatives from the Resort Municipality of Whistler to the provincial government.

The new tax class would gather all tourist accommodation properties together and, by doing so, remove the longstanding dispute between which tourist accommodation properties pay Class 1 (residential tax) and Class 6 (commercial tax).

"I think from a municipal perspective we’d like to put all accommodation into it (the new class) that is short term commercial accommodation," explained John Nelson, general manager of corporate services for the RMOW.

"We’ve really been chasing this issue and having extensive discussions with the provincial government since about 1999. Each year they look at it and say ‘yes, that’s a serious problem, we’ve got to do something about it’ but each year there are pressure groups on both sides and in the end nothing gets done."

The tax dispute revolves around strata-titled hotels; those hotels where the units have individual owners.

Some strata hotels are taxed as a business property, others as a residential property. Though seemingly innocuous tax categories, the tax rate on commercial properties is 3.6 times higher than on residential properties. The different classifications can mean hundreds of dollars – thousands of dollars over a few years – difference to the property owners.

As so, even though two hotels sitting side by side in Whistler can operate and act in exactly the same way, they can be taxed at substantially different tax rates.

The proposal on the table would change all that.

"It really seems to be, in our simple minds here in Whistler, an effective solution to the problem," said Mayor Hugh O’Reilly.

"…We would probably move to a middle ground… so there would be some people who would probably appropriately pay more, who have paid just residential class, and those who have paid commercial will reduce down and see some savings…"

It’s a solution that may be met by resistance from some, according to Pat Kelly, president of the Whistler Real Estate Company.

"A lot of people that have put their faith in Whistler are pretty upset about this continual, what they perceive to be, an unfair tax grab," said Kelly.

"At the end of the day, who’s the guy that’s ending up paying it? …It’s the taxpayers and they don’t like having what they consider to be unnecessarily high levels of taxation on a unit that they own. It isn’t being run as a commercial hotel (but)… they may do some rental out of it."

Despite these concerns, the one class proposal could put an end to the costly and time consuming appeals which go through the system every year as property owners attempt to get reclassified in the lower, Class 1, tax bracket.

Nelson said the discrepancy essentially creates an un-level playing field in Whistler, which goes against the two basic principles of tax policy, namely fairness and certainty.

"As far as Whistler goes as a tourism business, certainly the uncertainty for the investor hurts," he added.

"We’ve got the unfairness when one property pays more than another property in taxes."

This uncertainty in the taxation structure sends warning flags to potential investors, according to Kelly, who’s dealing with customers on the front lines.

"For an investor, he doesn’t want to have uncertainty in his purchase decision and certainly if you were looking at a building that the municipality feels should be commercially taxed right now and isn’t, yeah, he’d be a little concerned about it," said Kelly.

"Nobody wants to pay more taxes than they have to."

The tax dispute also has ramifications for the visitor in the resort.

Nelson explained that one way properties may get into the residential (Class 1) tax bracket is by having two or more property management companies in the same building. But only one property management company can operate the front desk of the building.

"We’ve got poor visitor experience because this is what causes the fractional management system where two people can be checking into rooms on opposite sides of a hallway and one is handled by one management company, the other may have to go across town to pick up their towels because they’re managed by another company," he said.

There’s also uncertainty for the municipality.

Every year, with appeals and reclassifications going on, the municipality’s tax revenue can fluctuate by hundreds of thousands of dollars.

"As far as municipal revenue goes and what funds we have to provide our municipal programs, we also can see some big swings in our tax revenues each year," said Nelson.

"And these, over the last five or six years, have ranged from a difference of $200,000 to a difference of $800,000."

But it’s not just a Whistler problem. Other resort towns are facing similar challenges.

Tofino, for example, recently had one property apply to council to stratify. Council rejected the application for a number of reasons, one of which was the tax issue, because as a strata hotel the property could apply for a Class 1 tax rate.

The Class 1 rate is appealing for strata owners because the commercial tax rate in Tofino is roughly twice the residential rate.

"We’d like to see a better resolution than the current one," said Martin Gee, treasurer with the District of Tofino.

He said Tofino has expressed its concerns to the province but they’re not actively lobbying for change, choosing to allow lobbying efforts to go through the Resort Task Force.

Whistler plays an integral part on that Task Force, whose mandate is to identify the barriers faced by resorts and streamline processes and policies so that investors know they are welcome in British Columbia.

O’Reilly said there is no way to tell if the province will change its tax policy and move to a one class system for all short-term tourism accommodations. But with support from other resort communities, he said, the case is stronger.

"We’ll continue to press the issue," he said.

"We’ve got support from those other communities. Politically it could be very positive because it’s part of their Task Force and resort management.…

"It’s really important that we get some stability and get this resolved so that we have some confidence in the future when we’re trying to plan long term budgets and operations and setting rates."

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