IF NOTHING ELSE, the ruling by Superior Court Justice Emile Kruzick confirming that an Orangeville sign firm’s property should be classified as commercial rather than industrial demonstrates the need for a complete overhaul of Ontario’s property tax system.

The ruling derailed a bid by Ontario’s Municipal Property Assessment Corporation (MPAC) to have the courts interpret a provision in the Assessment Act that led assessors to classify the Sign Needs property on Centennial Road as industrial and thus subject to heavier taxation, despite the fact that all owner Ken Filsinger’s competitors were operating in premises deemed commercial.

MPAC had sought to appeal a December decision by the Assessment Review Board (ARB) that the Sign Needs property wasn’t an industrial plant and should therefore qualify for the commercial classification.

But in rejecting MPAC’s application for leave to appeal the ARB decision to a three-judge panel of Divisional Court, Justice Kruzick agreed with counsel for Sign Needs that the ARB ruling was both correct and fact-driven, and that in the absence of a change in the legislation similar challenges to MPAC assessments must be dealt with case-by-case.

At issue in the case was a regulation passed pursuant to the Assessment Act which defines an industrial property as “land used for, or in connection with, manufacturing, producing or processing anything.”

In his written decision, the judge noted the parties had agreed that if the property was not found to be in the industrial class, “by default, it would then fall into the commercial class.”

Citing the relevant portions of the regulation, Justice Kruzick noted that the ARB member had found that the activities at Sign Needs did not constitute “manufacturing”, “producing” or “processing” and therefore did not qualify for inclusion in the industrial property class and therefore, by default, was in the “commercial property class”.

Before the ARB, Peter Gauthier, a valuation review specialist with MPAC, based his conclusion that the Sign Needs property was industrial on two visits to the property and discussions with Mr. Filsinger. However, in his review of the evidence, the ARB member had not accepted the opinion or MPAC’s position that the courts should interpret the regulation.

Noting that Section 45 of the Assessment Act states that the ARB “has all the powers and functions of the assessor in making an assessment, determination or decision under this Act,” Justice Kruzick went on to find that the challenged ruling was both correct in law and based on a careful analysis of the relevant facts.

“I agree with the Respondent that this is a matter which requires a caseby case approach. The result here impacts on this particular property and operation. I, therefore, find that this is not a question of sufficient importance that requires the attention of the Divisional Court.”

Although we have no doubt as to the correctness of Justice Kruzick’s reasoning, we see the case as just more proof of the need to scrap an assessment system that has become inordinately complex and subjective.

We suspect that just about everyone reading this editorial will have either experienced themselves, or heard from a friend, a horror story concerning an assessment that bore little or no relationship to the owner’s valuation or was out of whack with the assessment of a similar property down the street. And placing a value on a residential property is vastly easier than coming up with one on a single-purpose industrial or commercial property.

And in an era of skyrocketing real estate prices, placing an accurate market value on any individual property is surely an exercise in educated guesses.

In the circumstances, serious thought should be given to scrapping the current assessment system and replacing it with one based on simple measurements.

In the case of residential properties, the measurement should be merely of the amount of land and living space, with municipalities left to determine the appropriate tax on both forms of ownership.

The same should hold true for industrial and commercial properties, with the municipalities remaining able to charge separately for services such as water and sewer.

Similarly, in the case of condominiums, the condo owner would pay a tax based on a calculation of the living space in his or her unit plus an appropriate portion of the land and building shared with the other owners.

Although the major benefit derived from such a system would be elimination of the need to do reassessments (except when a building is replaced or expanded) and with it the need for an agency like MPAC, there would be other advantages.

One would be the resultant improvement of properties, with improved appearance, through things like new landscaping and fresh paint, no longer leading to higher taxation.

The reformed system would still allow for differentials based on factors such as the property’s zoning and the absence of some municipal services, and one of its added benefits would be its simplicity and the resultant ease with which journalists could explain any increase in tax rates.