Calgary business tax burden among lowest of major cities in Canada and U.S.

Calgary businesses carry a total tax burden on new investment that is among the lowest in the country and even lower than major cities in the United States, where corporate income taxes have been recently slashed according to a new report from the C.D. Howe Institute.

The non-profit research organization, which focuses on economic policy, evaluates tax burdens on businesses each year by combining the various types of taxes that companies pay to all levels of government into a single, comparable number.

"It provides a widely accepted and standardized way of comparing different jurisdictions in terms of their business tax competitiveness," said Adam Found, a co-author of the 2018 report.

The report includes property taxes, land-transfer taxes, retail sales taxes and corporate income taxes.

All those costs on business investment are added up and expressed as a marginal effective tax rate, or METR. (More on that method in a moment.)

Of 10 cities in Canadaevaluated by the institute this year, Calgary had a METR of 38.2 per cent, which was the third-lowest behind Saskatoon's 38.1 per cent and 34.6 per cent in St. John's.

Run your cursor over or tap on the interactive chart below to see how the different types of taxes compare across cities in Canada.

(Can't see the chart? Click here for a version that should work on your device.)

Winnipeg had the highest METR at 47.6 per cent, followed by Halifax at 45.9 per cent and Montreal at 45.4 per cent.

Found said Calgary's position relative to other Canadian cities remains "quite competitive" in terms of attracting new business investment, from a tax point of view.

And, he said, the city is surprisingly competitive with U.S. jurisdictions, as well.

American comparison

The annual report usually looks just at Canadian cities butthis yeartheinstitute decided to expand its comparison south of the border.

"The United States has gone through a quite transformative tax reform and the centrepiece of that reform is a major reduction in the federal corporate income tax rate," Found said.

The reduction in federal corporate taxes in the U.S. indeed makes a big difference, Found said, but when various types of state-level and municipal-level taxes are added in, the picture changes quite dramatically.

"Once all those taxes are included, then what we see is the Canadian cities emerge with a notable competitive advantage," he said.

The five largest Canadian cities in the report all had lower tax burdensthan Boston,New York and Chicago.

And Calgary had the lowest total burden of the 10 cities in the report's North American comparison.

Run your cursor over or tap on the interactive chart below to see how the different types of taxes compare across cities in Canada and the United States.

(Can't see the chart?Click herefor a version that should work on your device.)

This is largely because major U.S. cities levy taxes on business that don't exist in Calgary, Found said, such as municipal-level sales taxes, land-transfer taxes and, in New York's case, an additional corporate income tax.

"And so that competitive edge that Calgary has over the U.S. cities, in fact, grows once we include property taxes and other local taxes,"he said.

Deana Haley with Calgary Economic Development says the report is consistent with internal research done by her organization to see how the city compares with other jurisdictions.

"It's a verification that Calgary is very competitive in North America," she said.

How and why the METR calculation is done

Found said the METR is calculated with respect to business investment which could include things like buying new equipment or hiring more workers.

Expressed as a percentage, the METR represents the proportion of an investment return that a businesswould need to cover its tax obligations.

So, let's say anacceptablerate of returnon an investment, after tax,is sixper cent, but a company needs a pre-tax return of10 per cent in order to pay the necessary taxes (which total four per cent of the return) and leave investors with their six per cent.

In that case, Found said, the METR would be calculated 40 per cent, because "40 per cent of that return is going to pay taxes."

Of course, many factors will come into play when businesses are choosing where to invest their capital, including things like proximity to suppliers, the quality of public services and the local labour pool.

But taxes are often a "large factor" when companies are making these types of decisions, Found said.

"And so, what we're trying to do with this type of work is shed some light on how a hypothetical business or investor might look at different locations for investment and how they might weigh the tax factor that goes into that decision."

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