Hundreds of Ontario golf courses are cashing in after a test case last year led to a framework for resolving a litany of property tax assessment appeals.
The test case involved ClubLink Corp., the owner of the storied Glen Abbey golf course in Oakville, Ont. It and other golf courses, with the support of the National Golf Course Owners Association Canada (NGCOA) had been challenging their assessments since the Municipal Property Assessment Corp. changed its valuation method in 2001 following the introduction of current value assessment.
They launched roughly 3,000 appeals of those assessments, which resulted in significantly higher property tax bills for them, to the Assessment Review Board during the subsequent years.
As Larry Hummel, MPAC’s vice president of valuation and customer relations for business properties, points out, 491 of the approximately 850 golf courses in Ontario appealed their assessments during those years.
Of those, MPAC and the taxpayer have resolved appeals related to 245 golf courses since the ClubLink deal last year. Resolutions are close to reality at a further 135 golf courses, while the cases at the remaining facilities are still at the stage of providing financial information, Hummel notes.
“We set out a framework or a basis which the NGCOA could endorse as a methodology to get the value of the real estate,” says Hummel.
In the Glen Abbey case, the deal “severely lowered” ClubLink’s assessment, says Erica Roberts, manager of revenue and taxation for the Town of Oakville.
“As you can imagine, we were quite disappointed,” she adds, noting the town had made its case in favour of the previous assessment method as a third party before the board when MPAC and ClubLink suddenly announced the deal.
Still, she notes Oakville council has since approved the agreement. At the same time, she says that while colleagues elsewhere have told her the new assessment method could result in very significant reductions in golf courses’ land value, facilities that have commercial operations like a restaurant would still have to pay a higher rate for that part of the business.
Nevertheless, she calls the saga a “sad story for municipalities because, as I said, it’s going to mean millions of dollars across the province.”
Jeff Cowan, a partner at WeirFoulds LLP whose practice deals in part with municipal assessments, notes current value assessment brought in a significant change to the way the government valued golf courses for property tax purposes. “The historical problem was courses tended to be valued on the value of the land and the cost of the buildings on them,” he says.
But the change in assessment regimes led to what is called an income approach that looks at, for example, the amount of sales per area of land. But that creates a challenge as authorities are supposed to assess land only according to the real property without including what’s called the business enterprise value.
In the case of shopping malls, Cowan notes, assessments consider the value of the rent earned but not the revenue of the stores inside in order to avoid valuing the business.
For a time, then, MPAC moved to what’s called a green-fee multiplier. In general, that involves taking the number of rounds played per year multiplied by the fee charged. Such an income approach would also include other revenue like cart rentals and shop sales minus costs and operating expenses. That gives a net income to be capitalized along with provisions for personal property.
But as Hummel points out, the original green-fee multiplier was a “rough” approach that didn’t necessarily take into account the various income scenarios of golf courses around the province. Some clubs, for example, run on a for-profit basis, while others are non-profit operations.
As well, not all courses charge green fees. “The problem was the initial MPAC model just overvalued golf courses,” says Cowan.
“They tended to be low on their cost of sales,” he adds.
But Cowan notes there was good reason to be concerned about golf course assessments in the first place due to relatively low values, particularly since it was hard to get an accurate number for them as they often weren’t selling in urban areas at current prices.
At the same time, Hummel says the new framework requires assessing the properties on the basis of their highest and best use as a golf course. That means that if the land could be subject to development, the framework wouldn’t apply. But in cases where there’s restrictive zoning or a conservation designation on the land, a golf course would be the highest and best use.
Essentially, Hummel says the new pro forma or income approach to golf courses allows for consideration of more detailed financial information that takes into account, for example, the fact that a facility might charge players a reduced green fee at times of low demand.
The result, however, is that many golf courses will get retroactive tax decreases for the years they appealed and pay less in the future, something that obviously concerns people like Roberts.
Cowan, however, says another way of viewing the issue is that golf courses were paying too much in the first place under the revised assessment regime.
At the same time, he notes municipalities are required to hold reserves as provisions for adverse tax appeals. “Generally speaking, the assessments were reduced because they were overvalued in the first place,” he says.
For more on this story, see "Golf courses seeking millions in tax reductions."