THE FARM TAX RECLASSIFICATION MESS - The producers say, 'It's just not fair'Tart cherry growers, the hatchery and equestrian industry, maple syrup producers - all are suffering from an arbitrary reclassifications of their businesses as industrial or commercial. The result? Tax bills that have risen by as much as 10 times, stiff legal bills as they try to appeal their cases and a struggle to get new definitions of their operations from the authoritiesby DON STONEMANTax reclassification in 1998 has left a sour taste in the mouths of tart cherry growers Marshall Schuyler and Ken Porteous -- and for a very long time.With another grower, these farmers own and operate Norfolk Cherry Company Ltd. near Simcoe, one of five cherry pitting operations in the province. When the property tax was reformed in 1998, "our taxes doubled, well over doubled," Schuyler says, because the facility was reclassified as industrial. Norfolk Cherry is still appealing that 1998 assessment, and every other year's assessment since. Pitting cherries is clearly part of a farming operation, says Porteous, who founded Norfolk Cherry in the mid-1970s with Schuyler's father when the local pitter failed. Reclassification is an all too familiar story to some of the province's farmers and rural residents. "Industrial is double commercial and commercial is double residential, and farming is usually 25 per cent of residential. These are the rules of thumb," says Tom Fleming, general manager of the hatchery division of Maple Lodge Farms. The hatchery industry has been fighting what it deems to be inconsistent classification, which makes some operations uncompetitive because of substantially increased property tax bills. Late last winter, the maple industry was hit by reclassification that would have labelled sugar shacks as "industrial." This year, the operators of riding stables and equestrian training schools received a similarly unwelcome hike in their property tax classification. In both the maple and the equestrian instances, the tax classifications have been largely reversed. The maple situation wasn't settled until August, when the provincial finance ministry announced new regulations that let operators off the industrial classification hook as long because they mostly boiled their own sap. Last winter, the equestrian industry got its situation settled within a month of the beginning of the crisis. Riding arenas are now classified as rural residential, while riding trails are treated the same as ski hills. The credit for this goes at least partly to a vigorous and aggressive public relations campaign. Farmers are bracing to see which group will next be targeted for reclassification. Len Troup, chairman of the Ontario Fruit and Vegetable Growers Association, grows fresh market peaches and cherries on a family farm in the Niagara Peninsula. His operation doesn't have anything ready for sale until it is packaged and prepared for market, he says. "On-farm packing facilities have never been taxed anything but farm. We live in fear of this coming up in some kind of ruling." Definitions need to be developed soon, he says. He sees very little difference between what he is doing and a corn farmer drying his grain to prepare it for storage and eventual sale. If the battle isn't won quickly, it can be a long, tough haul, as Schuyler, Porteous and other horticultural growers have discovered only too well. Toronto-based tax lawyer Yvonne Hamlin, is handling the appeals to the Assessment Review Board for both Norfolk Cherry and Blue Water Storage Limited, a for-profit co-op on Georgian Bay that stores apples. In both cases, Hamlin says, owners got caught up in the changes made to property assessments in 1998. Prior to the so-called tax reform, these facilities were classified as residential, one step up from farmland. By throwing them into the commercial class, taxes rose as much as 10 times. But because the properties were previously in the residential class, the owners weren't able to take advantage of the tax-capping provisions that Ernie Eves, the then finance minister, brought into place to quell widespread protests by small business owners. Hamlin hopes that the recommendations made by former Conservative MPP Marcel Beaubien would be carried through and the issue settled that way. "Now," he says, "the Assessment Review Board is saying 'let's get on with it.'"
'Value-retention' versus 'value-added'The apple storage hearing is scheduled for Aug. 22 and the cherry case will be heard after that. Hamlin will be arguing that the province encouraged farmers to join together to achieve economies of scale in controlled-atmosphere apple storages and that the ministry of agriculture and food made money available to farmers to do this."You can get into debates about value-added," Hamlin says. "That's not my issue. "We've coined, for our purposes, the term 'value retention.'" Actually, this term comes from the Beaubien report on property tax reform, which was published in 2002. Beaubien, then MPP for Lambton-Middlesex and also parliamentary assistant to Janet Ecker, finance minister in Ernie Eves' Conservative government, spelled out the differences that he saw between "primary agricultural production," "value retention activities" and "value-added activities," and how they should be classified for property tax assessment. Beaubien defined value retention as "some processing of the farm product without changing the nature of the product and which are necessary to preserve farm products for market." Schuyler feels that the Norfolk Cherry pitting operation fits into this category. 'Value added' refers to activities that use farm produce to create a new product such as turning apples into apple pies, and also to retail sales of farm products. If the activities are conducted off farm property, they should be included in the commercial property class, Beaubien said. Grain elevators off farm property should be included in the commercial class, not industrial. Storage facilities located off farm property, owned and operated by farmers and used exclusively for the storage of produce grown on the farmers' own lands should be included in the residential property class. Storage facilities located off farm property, which are owned and operated by persons others than farmers storing their own produce, should be included in the commercial property class. Beaubien's report got some attention when it was released, but implementation was pre-empted by the election of 2003. The current Liberal government has ignored it altogether. When the maple syrup issue blew up last year, the Ontario Federation of Agriculture (OFA) formed a working group on farm taxation. Its chair is Aylmer garlic and tobacco grower Mark Wales. The Municipal Property Assessment Corporation (MPAC) has no guiding statement for agriculture, says Wales. "They take their best guess." The working group is charged with defining what is an agricultural activity. The group initially consisted of representatives from the OFA, MPAC, the Ontario Ministry of Agriculture and Food, the Rural Ontario Municipalities Association (ROMA), and the Ontario Fruit and Vegetable Growers Association. There were also representatives from the association of roadside market operators. Later, the equestrian association joined. In the last meetings before the maple issue was settled, representatives from the ministry of finance attended, but made it clear that they were there only to deal with maple issues. As Wales relates: "We had a discussion about the number of taps that would be involved." MPAC wanted to separate "hobby" syrup operators from mainstream agriculture with a minimum number of taps and to assess those operations as rural-residential rather than as farmland. Farm representatives felt that wasn't practical because some small operations are sidelines other ongoing operations, Wales says. In the end, no minimum number of taps was set. It seemed like everyone agreed that boiling maple syrup is the only way to market the crop. It doesn't change the essence of the product. When the new regulations were released, however, there was a clause stating that the operation must boil at least 51 per cent of its own sap. "That was something no one (in the working group) agreed to," Wales says. However, maple syrup producers aren't complaining. They got pretty much what they wanted out of the new tax assessment program, says Nelson McLachlan of Parkhill, president of the Ontario Maple Syrup Producers' Association. While producers who run gift shops along with their maple operations are going to be assessed as commercial operations, farmers who buy sap from other landowners can make adjustments to their operations to avoid being taxed as industrial. "We just recommended that everybody have lease agreements if they are purchasing sap. There are ways to work around everything," he says.
McLachlan says that the maple syrup association "got the ball rolling" on changing the classification for its members. "The maple syrup industry would not have gotten this solved on their own," Wales asserts, on behalf of the work group and the OFA. "We are continuing to work on a definition of agriculture." One of the basic principles is that agriculture is anything that you have to do on the farm to get that crop to a normal market. "That covers sour cherries. It covers hatcheries. It covers all of the outstanding issues," Wales says. "The trouble is that finance ministry officials can't be bothered to come to the table." Since the maple issue was settled, they haven't attended working group meetings. And that makes other stakeholders unhappy. They want to see a resolution. From ROMA's point of view, it is annoying that the ministry of finance doesn't want to deal with this, says beef farmer Ellen Renaud, OFA director for Leeds Grenville and a councillor in the municipality of Elizabethtown-Kitley, north of Brockville. MPAC needs direction, she says. The more times that MPAC has to go back and reassess a farm, the greater are the costs that it charges to the municipality. "If they get it right the first time, it is cheaper for us and we don't have to deal with an irate ratepayer. "It's in our best interest for the government to get the right definition and to get it right the first time," Renaud says, adding that MPAC is looking for a definition, too. "It would make their life so much easier." Wales says that the ministry of finance seems to want to handle these issues one crisis at a time. "A common definition would give people some clarity and some comfort that they aren't next." While some tax reclassification proponents cite the Beaubien report as a solution, Wales says it has pros and cons. The question of value retention is relatively easy to figure out, he says. But the term "value added" needs to be clarified. Ontario agriculture will not be sustainable if it focuses on growing raw bulk products. Both the federal and provincial agriculture ministers talked about 'value added' in their financial assistance announcements in late March. "Value-added needs to be revisited," says Wales. If you try to increase a farm's classification from agriculture to industrial, "it will probably break the operation," he believes. Moreover, if a farm-based business is competing with a town business, there must be taxation equity, he argues. Marshall Schuyler agrees that equity is key. "Some (cherry pitters) are being taxed at a farm rate. Some are being taxed at an industrial commercial rate. That's just not fair." In the meantime, fighting the battle on classification has cost a small fortune, Schuyler says. One of the pieces of grief that Norfolk Cherry deals with is that it pits cherries for some growers who aren't owners. MPAC views that as proof that the operation should not be assessed as "farm." It only makes sense for growers to share expensive infrastructure, Schuyler says, and unlike the maple syrup industry, he isn't interested in business arrangements with other growers that are concluded solely to get around tax assessment difficulties. "We need to get (a farm definition) resolved. There is no question that it is long overdue," Troup says. But he notes that it won't be easy. "I'm not going to tell you what the definition is," he says. "It needs to be dealt with and it needs to be dealt with as a package." Better Farming asked Diane Flanagan, director of communications in the office of finance minister Greg Sorbara, to explain why the ministry of finance isn't sending officials to meetings of the working group which is trying to develop a definition of agriculture. Her only comment was "I don't want to speculate without knowing the reasons.... It's an incredibly busy time." No one from the finance ministry's communications department returned
Better Farming's request by the deadline for this article. BF
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