Changes to Worcester’s Tax Classification Will Bury Small Businesses

Thursday, November 29, 2012

Ashley Klann, GoLocalWorcester Contributor

Worcester's dual tax classification system may be working against local small businesses, something one expert says is "completely unfair" and "inequitable." The City Council will meet next week to discuss changes in the figures for fiscal year 2013, but Bill Vernon, Massachusetts State Director of the National Federation of Independent Business (NFIB), said this unequal treatment will continue.

Small Businesses Getting Shafted

Vernon believes that the state’s tax classification is only making it harder for small businesses to succeed.

“Classification is really an attempt to change property tax into something more like an income tax,” he said.

“You’re discouraging business and job creation and expansion, and many cities in the area can’t afford to do that right now.”

He said that this way of making properties pay differently depending on their use “fails on the fairness argument.”

“First of all, I think there’s some misconception about tax classification. It doesn’t affect the revenue coming into a city or town. They get the same thing,” Vernon said. “The effects really fall on the homeowners or small business owners. For a city or town it remains the same.”

Vernon added that the classification system is “inherently unfair,” and with talk of an upcoming fiscal cliff, the City is bracing for another increase.

What the New Fiscal Year Will Bring

According to documents presented to the Worcester City Council for this week’s meeting, the new total assessed value for all taxable property has decreased from $11.7 billion in fiscal year 2012 to $10.9 billion for fiscal year 2013. The decrease in valuation is due to changes in the real estate market as of the valuation date. The combined single tax rate for FY13 is $22.03

December 4th is when the council will discuss its options. The minimum residential rate would be $17.72, while the maximum commercial rate would be $33.05 – both at a maximum allowable shift of 150 percent.

Compared to Other Cities

Currently, Worcester’s gap between residential and commercial, industrial, and personal (CIP) is 12.09 percent, with the city’s residential rate at $16.98 per $1,000 of appraised value and the CIP rate at $29.07 per $1,000 of appraised value.

Why Businesses Shouldn’t Be Treated the Same

Another part of Vernon’s argument again tax classification has to do with what tax-funded services residential and commercial property owners use.

“Businesses do not use the full panoply of services,” he said. “It’s like telling business owner in a commercial tax classification that there’s a buffet, and home owners are allowed to choose from all the items on the buffet, and pay less for it. Business owners pay full price for the buffet, but are only able to partake of a third of it.”

Because businesses don’t use the school system and pay for their own trash pickup, Vernon said they should not be subjected to higher property tax.

“They obviously use police and fire services, but there’s a long list of services they do not use that the homeowner does use,” Vernon added.

This structure as he sees it is, “completely unfair” and begins to look more like income tax.

“This changes it into something else that doesn’t work and is inequitable, especially for the small business,” he said.

Vernon also said that there is a misconception that business owners are more able to pay higher taxes than residential property owners.

“I would say that it’s not necessarily true that the person or individual that owns the commercial property is more able to pay than the person who owns the single family home,” he said.

“In fact, a lot of owners of single-family homes – that person is more able to pay than someone who owns $500,000 commercial property. There is an assumption that homeowners are less able to pay than small business owners. It’s demonstratively untrue.”

A Different Makeup in Mass

According to Vernon, the business makeup in the area has also changed since the implementation of the dual tax classification system, making it more unfit for businesses.

“The business community has changed since this was put in place in the '70s. The commercial mix in Massachusetts and in Worcester is many more small businesses that get hit with this and fewer large businesses,” he said.

“The small business sector has grown, and I think it will continue. The commercial property class affects more small businesses than it used to.”

Despite this difficult burden on area business, Vernon said that various Chambers of Commerce do a good job on this issue that all cities and towns must wrestle with.

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