Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE: June 07, 2017

FILE NO.: WR 145092

Assessed Person(s): Golden Gate Wyecroft Plaza

Appellant(s): Digital Imaging and Design Inc. and Paul Myers

Respondent(s): Municipal Property Assessment Corporation (“MPAC”) Region 15

Respondent(s): Town of Oakville

Property Location(s): 2344 Wyecroft Road, Unit F1

Municipality(ies): Town of Oakville

Roll Number(s): 2401-020-280-13049-0000

Appeal Number(s): 3134641 and 3153004

Taxation Year(s): 2015 and 2016

Hearing Event No.: 643169

Legislative Authority: Section 40 of the Assessment Act, R.S.O. 1990, c. A.31, as amended

Heard: November 28, 2016 in Oakville, Ontario

APPEARANCES:

Parties	Representative
Digital Imaging and Design Inc.	Jonas Perov
MPAC	Robert Zamozniak
Town of Oakville	No one appeared

DECISION OF THE BOARD DELIVERED BY SUBUOLA AWOLERI

INTRODUCTION

1The subject property is a one storey building with 4,520 square feet (“sq. ft.”), total building area, built in 1989. It is located in an industrial/commercial area of Oakville.

2For the 2015 and 2016 taxation years, the assessment was returned at $690,000 and MPAC classified the subject property as Industrial (“IT”).

3The current value assessment (“CVA”) was determined by the Direct Comparison Approach.

ISSUE

4The parties have identified two issues in this appeal:

• What is the correct CVA for the subject property as of January 1, 2012?
• What is the correct classification for the subject property for the 2015 and 2016 taxation years?

5Raj Rakhra, the assessor from MPAC, submits that the Assessment Review Board (“Board”) should confirm the returned assessment for the subject property at $690,000. He argues that the sales of four comparable industrial condominium properties, on the same street as the subject property, show that the assessment of the subject property is “fair” and very close to the current value as returned.

6Robert Zamozniak, representing MPAC, argues that the subject property has been correctly classified as industrial in accordance to the stipulations in the Ontario Regulation 282/98 (“Regulation”).

7Jonas Perov, representing the Appellant, disputes MPAC’s returned assessment and submits that the correct CVA should be $631,000, based on the recent sale of a similar property on the same street as the subject property. He submits that the correct classification for the subject property is commercial.

8In addition to determining these issues the Board must determine if this assessment is equitable with that of similar properties in the vicinity.

DECISION

9The Board confirms the current value as returned at $690,000 and determines that no further adjustment is required to make this value equitable with that of similar lands in the vicinity.

10The Board changes the classification of the subject property from industrial to commercial for the 2015 and 2016 taxation years.

REASONS FOR DECISION

Legislation

11Section 19.(1) of the Assessment Act (“Act”) states:

19.(1) Assessment based on current value. – The assessment of land shall be based on its current value.

12Section 19.2(1)3 of the Act provides:

Valuation days

19.2 (1) Subject to subsection (5), the day as of which land is valued for a taxation year is determined as follows:

1. For the 2006, 2007 and 2008 taxation years, land is valued as of January 1, 2005.
2. For the period consisting of the four taxation years from 2009 to 2012, land is valued as of January 1, 2008.
3. For each subsequent period consisting of four consecutive taxation years, land is valued as of January 1 of the year preceding the first of those four taxation years.

13Section 44.(3)(a) of the Act requires the Board to “determine the current value of the land.” Current value is defined in s. 1 as “the amount of money the fee simple, if unencumbered, would realize if sold at arm’s length by a willing seller to a willing buyer.” That is, for the 2015 and 2016 taxation years, the Board must determine what the subject property would have sold for in an arm’s length transaction on the January 1, 2012 valuation day set by the Act.

14Section 44.(3)(b) of the Act requires that the Board:

have reference to the value at which similar lands in the vicinity are assessed and adjust the assessment of the land to make it equitable with that of similar lands in the vicinity if such an adjustment would result in a reduction of the assessment of land.

15O. Reg. 282/98 Section 5.(1) states:

5.(1) The Commercial Property class consists of the following:

1. Land and vacant land that is not included in any other property class

16O. Reg. 282/98 Section 6(1) states:

6.(1) The industrial property class consists of the following:

1. Land used for or in connection with,

i. Manufacturing, producing or processing anything,

ii. Research or development in connection with manufacturing, producing or processing anything…

Current Value - Evidence and Analysis

MPAC’s Position

17Mr. Rakhra provided the Board with the sales of four industrial condominium properties. There were all on the same street as the subject property, with building areas ranging from 1,140 to 3,578 sq. ft. Three of the properties were built in the same year as the subject property, and one was built in 2003, making it newer than the subject property. They are all one storey buildings with 18 feet height, the same as the subject property, with sale dates between March 1, 2011 to March 1, 2012. The sale prices range from $190,000 to $495,000 with median Assessment to Sales Ratio (“ASR”) of 0.98 and an average ASR of 1.00.

18Mr. Rakhra testified that the median sale price per sq. ft. of the sales comparables is $151, while the average sale price per sq. ft. is $152. Applying these to the subject property’s square footage, Mr. Rakhra provides a CVA of $682,000 and $687,000 (rounded) respectively. He submits that this demonstrates that MPAC has correctly assessed the CVA for the subject property. He argues that the Board should confirm the assessment as returned because the median and average sale per square foot of the comparable sales is close to the CVA of the subject property.

Appellant’s Position

19Mr. Perov presented a recent sale of a comparable property also on the same street as the subject property with a building size of 5,891 sq. ft., which sold on February 2, 2015, for $822,500. He used the sale price per sq. ft. at $139.62 and applied it against the subject property’s building size and obtained a CVA of $631,000 (rounded). He submits that this should be the subject property’s CVA as of January 1, 2012, since this comparable property is, in his view identical to the subject property.

Analysis - Current Value

20The best evidence of current value is the sale of the subject property on or near the valuation date of January 1, 2012. When no such sale occurs, the Board looks to the recent sale of other similar properties in the vicinity to determine current value. The Board prefers sales of comparable properties within 18 months of January 1, 2012. The caution being that the further the sale is from the valuation date, the less likely it reflects the value on the valuation date of January 1, 2012.

21Mr. Perov presented a sale of a property three years after the valuation date of January 1, 2012. He did not provide the time adjusted amount for this sale. It is also not identical to the subject property because it is over 1,300 sq. ft. larger than the subject property. Further, the effect of economies of scale would suggest that this property should sell for less per sq. ft. than the much smaller subject property. The Board therefore cannot accept this sale as an indicator of the subject property’s value on the valuation date.

22Mr. Perov argues that three of MPAC’s sale comparables are not comparable to the subject property. He states that one of the sales is newer than the subject property and also that MPAC made no adjustment based on economies of scale for differing structure sizes.

23The best evidence for current value is presented by MPAC. The Board agrees with the Appellant that three of the sales presented by MPAC are smaller and no adjustments were made for economies of scale. Applying the average sale price per sq. ft. to the total building size of the subject property provides a CVA of $687,000 (rounded), which is not far removed from the CVA as returned. Furthermore, the ASR of each of the properties as presented by MPAC is almost 1.00 and some a bit above 1.00. In fact, the median ASR is 0.98 and the average ASR is 1.00. This measures how MPAC’s valuation methodology is reflecting sales within this vicinity. It further depicts that the subject property’s assessment similarly reflects the market. The Board therefore confirms the CVA as returned as $690,000.

Analysis- Equity

24Section 44.(3)(b) mandates and directs that after determining current value, the Board shall have reference to the value at which similar lands in the vicinity are assessed. After having reference to those values, the Board finds there is no evidence before the Board that would support a finding that the current value is inequitable compared to the assessed values of similar lands in the vicinity.

Classification of the Subject Property

25MPAC classified the subject property as Industrial for 2015 and 2016 taxation years, based on the business activities carried out on the property. MPAC submits that the Appellant is “manufacturing producing or processing anything” within the meaning of the Regulation. The Appellant argues that no form of manufacturing, producing or processing anything occurs at the subject property. The Appellant is a small printing business that carries out digital printing, which relies on printers using toner cartridges connected to computers. It also carries out graphic designing and mailing services. All these activities are tailored to clients’ needs and any large printing jobs are outsourced.

Classification

26The Board must determine whether the business activities of the Appellant, tailored to the needs of individual customers constitute “manufacturing, producing or processing anything” for the purposes of s. 6(1) of O. Reg. 282/98.

27The Board concludes that the business activities of the Appellant do not constitute manufacturing, producing or processing anything and therefore the subject property is not industrial.

28The Board agrees with the Appellant that the correct classification of the subject property is in the default commercial class.

MPAC’s Evidence

29Mr. Zamozniak submits that there are three criteria that the Board should also consider in determining the correct classification of the subject property: the subject property’s zoning, design and use. He submits that the zoning permits industrial use, the structure is built as industrial, and the Appellant’s activities carried out on the subject property qualifies for an industrial classification. MPAC called two witnesses: Mr. Rakhra, who is MPAC’s assessor, and Gary Leung, who inspected the subject property.

Evidence of Mr. Rakhra

30Mr. Rakhra testified that the pictures of large sized machinery used for printing at the subject property, seen in Exhibit 1 pages 3 – 6 of MPAC’s valuation report, reveals that some sort of processing is being carried out by the Appellant. He also relies on the services advertised by the Appellant on its website, as: “Graphic Design, Web Design, DVD and online Video Presentation, Film Production, Printing Services, Bindery Series and Direct Mailing.” He argues this justifies an industrial classification because these services reveal that the Appellant is producing and there is a final product.

31Mr. Rakhra referred to Exhibit 2, which is a list of five companies the Appellant uses for outsourced jobs for larger printing jobs. He testified that the Appellant designs the product and subsequently outsources it to any of these five companies. He states that most of these companies do the same work as the Appellant, but on a larger scale, and they are mostly classified as a combination of commercial and industrial. Under cross-examination, Mr. Rakhra admitted that he does not know the difference between digital printing and press printing since this is not in line with his expertise.

Evidence of Mr. Leung

32Mr. Leung testified that upon inspecting the subject property, he concluded that the structure is industrial. He drew this conclusion based on the subject property’s similarity to other industrial properties, including the 18 foot ceiling, and that 5%-10% is an office while the remaining is warehouse used for printing. He stated that, during the inspection, he observed that some of the machines were not turned on and does not know if they were working, although the owner advised him that one of the machines was not working. He further described the finishing of the subject property as typical of an industrial property.

33Furthermore, he testified that based on his conversation with the owner, the primary work carried out on the subject property was the use of blank paper to print to clients’ specification. The final product is mailed to the client. He submits that the printing work carried out by the Appellant is changing the raw material (blank paper) to a finished product is manufacturing. Under cross-examination he admitted that he did not know if the printers on the subject property were connected to computers or if they used toner cartridges.

Appellant’s Evidence

34Mr. Perov stated that for 16 years the subject property has always been classified commercial. During this period the Appellant has been carrying out the same business activities and only some of these activities have been removed. He submits that the digital printing business of the owner greatly relies on printers using toner cartridges connected to computers and apart from this, the Appellant has paper trimmers and a machine to sort mails. Furthermore, Mr. Perov advised the Board that the subject property does not use much water, and that water on the subject property was changed from commercial to residential. He stated that the activities carried out on the subject property does not require a lot of water other than for the washrooms, unlike offset printing, which uses water and ink mix, will require a greater demand for the use of water. He also provided the Board with a Workplace Safety and Insurance Board (“WSIB”) document outlining the scope of the Appellant’s business activities and describing them as a commercial printing operation. He concludes that none of the activities carried out by the Appellant on the subject property can be classified as “manufacturing, production or processing of anything” in accordance with the Regulation. To corroborate his argument he called evidence from the owner, Paul Myers.

Evidence of Mr. Myers

35Mr. Myers testified that the business website was last updated five years ago and, contrary to what is stated on its website, the business no longer offers DVD services and video production. He testified that the business carries out digital printing, graphic design and mailing for clients. He referred the Board to Exhibit 3, which is the Appellant’s Record, where he added a list of his business competitors who carry out the same business activities and some on a larger scale, and are all classified as commercial. He testified that the business had always been classified as commercial, until the landlord switched it to Industrial condominiums. He does not understand why MPAC classified the business as Industrial without an investigation of its activities.

36Mr. Myers further clarified the difference between digital printing and offset printing. He stated that offset printing is usually done for mass production, it uses ink from water and takes about one hour to one and half hours, while digital printing is carried out by electronics, it is toner based and connected to a computer. He also indicated that this is also different from press printing. Press printing uses bigger machines, takes two to three men to run each press, and is labour intensive.

37In addition to this, he states that for the mailing services, the product is folded into envelopes and dropped at Canada Post for mailing.

Analysis

38The Regulation provides the criteria for determining the classification of properties in Ontario. The parties presented case law to assist the Board in making a determination on this issue.

Case Law

39In 1695408 Ontario Ltd. v. Municipal Property Assessment Corp., Region No. 22 [2009] O.A.R.B.D. No. 159, 2009 CarswellOnt 8240, (“Orangeville Sign Shop”) Member Birnie conducted a thorough analysis of whether the activities of a sign shop constitutes “Manufacturing, Producing or Processing Anything”. Member Birnie referred to the Federal Court of Canada case Tenneco Canada Inc. v. The Queen 1987 CanLII 9000 (FC), [1988] 2 F.C. 3, [1987] F.C.J. No. 955, (“Tenneco Canada Inc.”) for the definition of manufacturing and processing. He also referred to Econ-O-Pac Ltd. v. Ontario Property Assessment Corp., Region No. 11, [2000] O.A.R.B.D. No. 992, for the meaning of “producing”. From these cases he concluded that:

a. “Manufacturing” means the wholesale production of a vendible product from raw or prepared materials by hand or by machinery;

b. “Producing” means the same as “manufacturing”;

c. “Processing” means subjecting goods to a particular method, system or technique of preparation, handling or other treatment designed to effect a particular result and which makes them more marketable and effects a change in their appearance or nature.

40In changing the classification of the subject property from industrial to commercial, Member Birnie determined that the “activities at the subject property are all custom work tailored to the needs of specific customers, and there is no evidence of any articles being turned out in large numbers.” He further determined that the product became less marketable due to the custom nature of the work tailored to meet individual client’s need and specificity.

41This is similar to the Appellant’s argument. Mr. Perov submits that “once paper is printed on, it loses its value in the marketplace because it becomes used and only the customer would have any use for it.”

42MPAC sought leave to appeal the Orangeville Sign Shop decision to the Divisional Court. In Municipal Property Assessment Corp., v. 1695408 Ontario Ltd. and Orangeville (Town), [2010] O.J. No. 3088; 2010 ONSC 4025, in his reasons for denying leave, Justice Kruzick, stated that he agreed with the Respondent that “this is a matter which requires a case by case approach.” He also determined that “the reasons of the ARB are fulsome and well reasoned.” On this basis, Mr. Zamozniak argues that the Board should approach this appeal on a case by case approach and distinguish its facts from the Orangeville Sign Shop decision. This is essentially the jurisdiction of the Board; to determine questions of law and facts and make a decision based on the evidence presented at the hearing.

43In Alko Holdings (Ont) Inc. v. Municipal Assessment Corp., Region No. 21, [2004] O.A.R.B.D. No. 225, (Board File No. 29232) (“Alko Holdings”), Member Carpeneto, retained the classification of the subject property as commercial. This was an appeal of a subject property which carried on a business that included web design, digital printing and prepress of graphic designs. It had eight printers mostly connected to computers, with toner cartridges. The taxpayer there provided the Board Member with a list of competitors carrying out the same business but classified as commercial. The Board determined that “the nature and scope of the business is not such that would require it to be classified as industrial.” Mr. Perov argues that this case is similar to this appeal as the subject property is also a small digital design and print shop. He submits that in the Alko Holdings decision, the Board referred to “doctor’s offices where patients are assessed and treated; lawyer’s offices where clients have lawsuits instituted or wills made; or pizza parlours where food is prepared and served to customers. All these could be considered as producing or processing and yet none of them would be classified as industrial.”

44Mr. Zamozniak presented the Board with Obcor Ltd. v. Ontario Property Assessment Corp., Region No. 18, [2001] O.A.R.B.D. No. 456, (Board File No. 5873), where Member Castel stated that “the classification of a property involves interpreting the applicable regulation and the consideration of three criteria, which are zoning, design and the use of the property.” The interpretation of the Regulation involves a review of the nature and scope of the Appellant’s business. The interpretation of the Regulation is paramount as this gives the Board jurisdiction and direction in making this determination. In the words of the Member Castel, these three criteria are a consideration. In essence, the Board cannot consider the three criteria without resort to the Regulation. In this appeal, evidence adduced from MPAC’s witnesses reveal that the zoning permits industrial and the structure of the subject property is industrial. However in determining the classification of the property, the use of the property, the nature and scope of the business activities carried out by the Appellant on the subject property are paramount. If the use and activities do not constitute “processing anything”, then it does not matter if the zoning or appearance of the structure is industrial.

45The Board has to determine if the activities of the Appellant fall within “manufacturing, producing or processing anything” or “research or development in connection with manufacturing, producing or processing anything…”

Manufacturing; Research or Development in connection with Manufacturing

46Mr. Zamozniak argued that the Appellant carries out graphic designing and that this in itself is a step in manufacturing, which qualifies the activity to be classified as industrial. He cites the decision of the Board in Taylor v. Municipal Property Assessment Corp., Region No. 09 [2009] O.A.R.B.D. No. 58, where Member Walker determined at the disposition of the review motion that “the complainant’s testimony, the business name, letterhead and website established that Taylor Electronic Designs designed circuits boards at the relevant time, and that a nexus exists between their design and subsequent manufacture by other parties.” Member Walker agreed with MPAC that research taking place on the property is in connection with manufacturing or producing of circuit boards. This decision was fact specific, based on the evidence presented to the Board at hearing, of the development and designing of electronic circuit boards.

47MPAC, the moving party at the review motion, argued that the activities of the Respondent fell within the meaning of research and development and that even if the activity was not manufacturing, it was an activity connected to manufacturing. In this regard, the Board referred to Kumpf Drive Ltd. v. Municipal Property Assessment Corp., Region No. 21, [2006] O.A.R.B.D. No.107 (Board File No. 45780), where it was determined that “the first question it must answer was if the land was used for or in connection with research and development. If yes, is the research or development in connection with manufacturing or producing anything?” In that decision the property was not used for or in connection with research and development.

48The custom design of graphics for individual customers is not research and development as intended by the Regulation. Consequently, the inquiry into research and development as provided in Regulation ends here.

Manufacturing

49In the Orangeville Sign Shop decision, the Board concludes based on case law presented that manufacturing means the “wholesale production of a vendible product from raw or prepared materials by hand or by machinery” (emphasis mine). The Oxford dictionary defines wholesale as “the business of selling goods in large quantities and at a low price typically to be sold on by retailers at a profit.” In the appeal before this Board, Mr. Myers testified that the activity carried out at the subject property does not involve mass production and any job involving large printing is outsourced. Mr. Rakhra and Mr. Leung’s testimony further support this. This does not bring the Appellant’s activities within the definition of “manufacturing”.

Producing

50‘Producing’ means the same as ‘manufacturing’ as stated in the Orangeville Sign Shop decision. The Board has determined that the Appellant’s activity does not come within the definition of ‘manufacturing’; consequently, it is also not ‘producing’.

Processing Anything

51In Tenneco Canada Inc, cited in the Orangeville Sign Shop decision, Dubé J. referred to two criteria that must be met in order for there to be processing. Using this criteria, this Board must determine:

a. If the Appellant’s activities involves a process? If yes;

b. Has there been a change in the appearance or nature of the goods produced by the Appellant? and

c. If this change has made the goods more market able.

Process

52What is a process? This was defined in Tenneco Canada Inc. using Webster’s Third New Dictionary (1964) as: “to subject to a particular method, system or technique of preparation, handling or other treatment designed to effect a particular result; put through a special process as (1) to prepare for market, manufacture or other commercial use by subjecting to some process(-ing cattle by slaughtering them) (-ed milk by pasteurizing it) (-ing grain by milling) (-ing cotton by spinning).”

53Member Birnie, in the Orangeville Sign Shop decision, stated that “almost all human activities, from getting dressed in the morning to getting undressed at night, involve a process...” Accordingly, the Appellant’s activity involves a process. According to Member Birnie “the question however, is not whether there is a process, but whether there is activity which constitutes “processing” as defined by the case law.” In order to answer this, the two criteria stated in Tenneco Canada Inc. must be determined.

Has there been a Change in the Appearance or Nature of the Goods?

54The parties agree that there is a change in the appearance and nature of the goods. Mr. Zamozniak submits that the blank paper used by the Appellant has changed in appearance once it has been printed upon, which subsequently changes its nature. Mr. Perov similarly submits that the nature of the paper has changed by folding it to meet the specific request of the client.

Does this Change make the Goods more Marketable?

55Mr. Zamozniak submits that the change in the nature of the product has made it more valuable and marketable. He further submits that a product is being created, such as a finished pamphlet and the client is the market. According to him, this market is targeted and there is nowhere in the legislature that provides that the product needs to be more marketable in a wide scope. Mr. Rakhra and Mr. Leung both testified that the change in the format of the raw material which is designed, printed and folded makes the product more professional and marketable. That the final product is what the market needs, which is what is provided to the client who uses it for marketing purposes and this confirms that the final product has value to the client purchasing it and if it was not marketable, the client will not pay for it and the Appellant will not carry out the job. They both emphasized that when a blank piece of paper is turned into a pamphlet it is a process and it adds marketability to it, furthermore, for it to be marketable it does not need to be marketable to everyone, it can be targeted just to the client.

56Conversely, Mr. Perov submits that the change in the goods only has value to the client. This does not make it more marketable because once the paper is printed upon it is used and loses its value in the market place. Mr. Myers testified that generally, his clients come in with 90% of the PDF product. That is loaded into the server and the final product goes to the client. If the client needs the product on a large scale it is usually outsourced.

57The Board agrees with the Appellant. This is basically what was determined in the Orangeville Sign Shop decision, where Mr. Birnie determined that the evidence was not sufficient to support the fact that the activities at the subject property made the product more marketable. He specifically determined that:

the custom work nature of the activities tailored to the needs of individual customers would appear to have the opposite effect. For example, applying graphics to an awning with wording such as “Fred’s Fish and Chips” would not make the awning more marketable, but would make it much less marketable, as it would be of interest to a much smaller market, namely men with the name “Fred”, in the Fish and Chip business.

58The Board agrees with Mr. Zamozniak that the legislation does not state that the product needs to be more marketable in a wide scope. In fact the Regulation is silent on the definition of processing, thus the recourse to case law. From the testimony of Mr. Myers, it is obvious that the printed work carried out on the subject property is custom tailored to meet the needs of specific clients. He further testified that all jobs that require mass production are outsourced as the business does not have the capacity to carry out large printing jobs. He stated that for the mailing services, the paper is folded, put in envelopes and delivered to Canada Post in accordance to the specification of a particular client. The change in the appearance and nature of the product does not make it more marketable as it is custom made tailored to meet the specific desires of particular clients and therefore makes the product less marketable once printed upon. Consequently, the activity of the Appellant does not qualify as processing.

Is There Equity in Classification?

59Both parties made submissions and presented evidence regarding equity in classification. The Board will address this issue.

60The Appellant provided the Board with a list of 10 of its business competitors operating within the same vicinity that carry out the same business function and are currently classified as commercial. He submits that this is a huge discrepancy in MPAC’s method of classification and is inequitable. Mr. Zamozniak submits that the Appellant cannot make an equity argument to support a classification change. He argues that s. 44 (3)(b) of the Act does not give the Board jurisdiction to adjust for classification based on equity. He further provided the Board with prior decisions of the Board that determined that an equity argument cannot be sustained for classification.

61The Board agrees with MPAC that equity does not apply in classification. A more consistent application of the Regulation is certainly desired, but the Board can only make a determination based on the facts before it.

CONCLUSION

62The Board confirms the returned assessment for the subject property as $690,000 and finds this to be fair and equitable for 2015 and 2016 taxation years.

63The property class for the subject property is changed from Industrial to commercial for the 2015 and 2016 taxation years.