METHODOLOGY GUIDE VALUING AMUSEMENT PARKS IN ONTARIO Valuation Date: January 1, 2016 AUGUST 2016 August 22, 2016 The Municipal Property Assessment Corporation (MPAC) is responsible for accurately assessing and classifying property in Ontario for the purposes of municipal and education taxes. In Ontario’s assessment system, MPAC assesses your property value every four years. This year, MPAC is updating the value of every property in the province to reflect the legislated valuation date of January 1, 2016. MPAC is committed to provide Ontario property owners, municipalities and all its stakeholders with the best possible service through transparency, predictability and accuracy in values. As part of this commitment, MPAC has defined three levels of disclosure of information in support of its delivery of this year’s assessment update. This Methodology Guide is the first level of information disclosure. This guide provides an overview of the valuation methodology undertaken by MPAC when assessing amusement park properties for this year’s update ensuring the methodology for valuing these properties is well documented and in alignment with industry standards. Property owners can access additional information about their own properties through aboutmyproperty.ca. Login information for aboutmyproperty.ca is provided on each Property Assessment Notice mailed this year. Additional information about MPAC can be accessed at mpac.ca. Antoni Wisniowski Rose McLean, M.I.M.A. President and Chief Administrative Officer Chief Operating Officer Table of Contents 1.0 INTRODUCTION ................................................................................................................ 4 1.1 PROPERTIES COVERED BY THIS METHODOLOGY GUIDE ...................................................................... 4 1.2 LEGISLATION ............................................................................................................................. 5 1.3 CLASSIFICATION ......................................................................................................................... 6 1.4 THE USE OF THIS METHODOLOGY GUIDE ....................................................................................... 6 1.5 CONSULTATION AND DISCLOSURE ................................................................................................. 7 2.0 THE VALUATION PROCESS ................................................................................................. 8 2.1 OUTLINE .................................................................................................................................. 8 2.2 APPROACH ............................................................................................................................... 9 2.3 DATA COLLECTION ..................................................................................................................... 9 2.4 DATA ANALYSIS ....................................................................................................................... 11 2.5 VALUATION ............................................................................................................................ 11 2.6 VALIDATING THE RESULTS .......................................................................................................... 11 3.0 THE VALUATION .............................................................................................................. 12 3.1 AMUSEMENT PARK REVENUE ..................................................................................................... 12 3.2 AMUSEMENT PARK EXPENSES .................................................................................................... 12 3.3 AMUSEMENT PARK CAPITALIZATION RATES ................................................................................... 13 3.4 AMUSEMENT PARK EFFECTIVE TAX RATE ...................................................................................... 13 3.5 CHATTELS ............................................................................................................................... 14 3.6 AMUSEMENT PARK NET OPERATING INCOME ................................................................................ 14 3.7 AMUSEMENT PARK CAPITALIZATION RATES ................................................................................... 14 3.8 SAMPLE VALUATION ................................................................................................................. 15 3.9 EXCESS LAND .......................................................................................................................... 15 3.10 EXEMPTION .......................................................................................................................... 16 3.9 CONCLUSION .......................................................................................................................... 16 1.0 Introduction The Municipal Property Assessment Corporation (MPAC) – mpac.ca – is responsible for accurately assessing and classifying property in Ontario for the purposes of municipal and education taxation. In Ontario, property assessments are updated on the basis of a four-year assessment cycle. In 2016, MPAC will update the assessments of Ontario’s nearly five million properties to reflect the legislated valuation date of January 1, 2016. Assessments updated for the 2016 base year are in effect for the 2017–2020 property tax years. The last Assessment Update was based on a January 1, 2012, valuation date. Increases between the 2012 assessed value and the 2016 assessed value are phased in over a four-year period. Any decreases in assessment are applied immediately. It is important to ensure that the valuation methodology applied is capable of providing a realistic estimate of current value at the relevant valuation date, which, in turn, enables all stakeholders to understand the valuation process and have confidence in the fairness and consistency of its outcome. This Methodology Guide has been prepared for the benefit of MPAC assessors, property owners and their representatives, municipalities and their representatives, Assessment Review Board members, provincial officials, and the general public. This guide outlines the valuation process to be followed by an assessor, including steps that require appraisal judgment. It is incumbent upon the assessor to make informed decisions throughout the valuation process when arriving at estimates in current value. 1.1 Properties Covered by This Methodology Guide This Methodology Guide applies to amusement parks in Ontario. There are many types and qualities of amusement parks, including: • amusement/theme • water • family entertainment • natural/cultural © Municipal Property Assessment Corporation 2016 All rights reserved 4 MPAC uses two property codes to categorize the various types of amusement parks in Ontario. The following MPAC property codes are used to categorize the various types of amusement parks in Ontario: • 725 Amusement park • 726 Amusement park – large/regional It should be noted that these are general guidelines that vary depending on the specific circumstances of a particular property. An assessor may also make reference to additional Methodology Guides for properties that do not fall precisely within the description of the property code listed above. 1.2 Legislation The main legislation governing the assessment of properties in Ontario for property tax purposes is contained in the Assessment Act.1 The Act contains important definitions and states that all property in Ontario is liable to assessment and taxation, subject to some exemptions. Section 19(1) of the Act requires that land be assessed at current value, which is defined to mean, in relation to land, “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.” Section 3(1) 23 of the Act provides an exemption from property taxes for amusement rides including, “roller-coasters, monorails, slides, ferris wheels, merry-go-rounds or other similar mechanical amusement devices on which a person rides, including any machinery, equipment, rails, supports and trestles used for their operation and the foundations on which they rest, erected or placed upon, in, over, under or affixed to land occupied by the operator of an amusement park.” In addition, regulations filed under the Assessment Act govern the classification of amusement parks. Ontario Regulation 430/15 in relation to third-party signs (or billboards) was filed on December 18, 2015. To comply with the regulation, any income attributable to a third-party sign is not to be included in the valuation of any property for assessment purposes. 1 Assessment Act, R.S.O 1990, c A.31: https://www.ontario.ca/laws/statute/90a31. © Municipal Property Assessment Corporation 2016 All rights reserved 5 1.3 Classification MPAC’s role is to accurately assess and classify all properties in Ontario in accordance with the Assessment Act and its associated regulations established by the Government of Ontario. The classification of a property will determine which tax rate will be applied by the municipality or taxing authority. All properties are classified according to their use and Ontario Regulation 282/98 of the Assessment Act sets out how various property uses are classified. In accordance with Section 5(1)1 of Ontario Regulation 282/98, amusement parks are considered part of the Commercial Property Class with certain rides being eligible for property tax exemption under Section 3(1)23 of the Assessment Act. If a portion of the property is used for other purposes, it may be necessary to value those components separately and sum the component values to achieve the correct total current value. It may also be necessary to apportion the total value of the property between the various uses to ensure that the appropriate tax rate is applied to the relevant parts of the property. 1.4 The Use of This Methodology Guide This Methodology Guide is intended to: • Ensure MPAC’s assessed values for these properties are fair, accurate, predictable and transparent. • Provide direction to assessors and clear explanations to municipalities, taxpayers and Assessment Review Board members. • Ensure that MPAC’s methodology for valuing these properties is well documented and aligns with industry standards. • Explain the thought process/decision-making process that an assessor should undertake to apply the valuation methodology. • Ensure a consistent approach to valuing these property types. • Support MPAC assessors in conducting their due diligence in: Ø applying Ontario’s legislation and regulations Ø adhering to industry standards for market valuation in a mass appraisal environment © Municipal Property Assessment Corporation 2016 All rights reserved 6 It should be noted that this Methodology Guide is not intended to be a substitute for an assessor’s judgment in arriving at a market value–based assessment (i.e., current value) for a particular property. However, given that the Methodology Guide explains industry standards for property assessment, conforms to valuation industry norms, and adheres to provincial legislation and regulation, MPAC assessors are expected to follow the procedures in the Methodology Guide and be able to clearly and satisfactorily justify any deviations from it. 1.5 Consultation and Disclosure MPAC is committed to providing municipalities, taxpayers and all its stakeholders with the best possible service through transparency, predictability and accuracy. In support of this commitment, MPAC has defined three levels of Disclosure as part of its delivery of the 2016 province-wide Assessment Update: • Level 1 – Methodology Guides explaining how MPAC approached the valuation of particular types of property • Level 2 – Market Valuation Reports explaining how the methodology outlined in Level 1 has been applied at the sector level for the purposes of each assessment • Level 3 – Property Specific Valuation Information available to property taxpayers, their representatives and municipalities © Municipal Property Assessment Corporation 2016 All rights reserved 7 2.0 The Valuation Process The valuation process always begins with a determination of the highest and best use of the subject property. Any reliance upon this guide is made only after the assessor has determined that the highest and best use of the subject property is that of an amusement park. Assessors determine the value of a property using one of three different approaches: • the direct (sales) comparison approach • the income approach • the cost approach 2.1 Outline In the direct (sales) comparison approach, value is indicated by recent sales of comparable properties in the market. In considering any sales evidence, it is critical to ensure that the property sold has a similar or identical highest and best use as the property to be valued. In the income approach (or, more accurately, the income capitalization approach), value is indicated by a property’s revenue-earning power, based on the capitalization of income. This method requires a detailed analysis of both income and expenditure, both for the property being valued and other similar properties that may have been sold, in order to ascertain the anticipated revenue and expenses, along with the relevant capitalization rate. In the cost approach, value is estimated as the current cost of reproducing or replacing improvements of the land (including buildings, structures and other taxable components), less any loss in value resulting from depreciation. The market value of the land is then added. MPAC uses the income approach to value large regional amusement parks. The particular valuation method used is called the direct capitalization method. The direct capitalization method for amusement park properties has the following steps: • Determine the stabilized revenues for the amusement park. • Determine stabilized operating expenses for the amusement park. • Determine net operating income (NOI) © Municipal Property Assessment Corporation 2016 All rights reserved 8 • Deduct replacement allowance. • Determine NOI, adjusted for replacement allowance. • Determine overall cap rate (Basic Rate + Effective Tax Rate). • Capitalize NOI into value (Value = Income (net operating)/ Rate). • Determine total property value. • Deduct for fixtures, furnishings and equipment (FF&E) • Determine current value assessment. • Determine current value of exempt rides. 2.2 Approach There are three main phases in the valuation process used by MPAC: • data collection • analysis of the data collected • valuation 2.3 Data Collection The data required for amusement park valuations come from a number of sources: • MPAC conducts periodic inspections of amusement parks. • Property owners are required to provide MPAC with details including actual income and expenses. • MPAC also collects information about sales and transfers of amusement parks. • There is other published information about amusement parks. When collecting data for the assessment of an amusement park, it’s important to categorize the amusement park site according to its uses. When doing so, consider if any uses need to be valued separately from the amusement park. © Municipal Property Assessment Corporation 2016 All rights reserved 9 MPAC generally collects the following types of data for amusement parks: • general data • financial data • property description • revenue data (attendance revenue, parking revenue, food, merchandise, games, entertainment, accommodation, etc.) • amusement park statistics for attendance • building and ride land valuation data • rental data for leased spaces (retail, restaurants, concessions, etc.) • FF&E data Confidentiality As outlined above, it is important to be aware that, in order to enable MPAC to produce an accurate valuation of the property concerned, information needs to be obtained from a variety of sources. This will include information from MPAC’s records, from the owner or operator of the property, from the municipality in which the property is located, from the assessor’s visit to the property, and from other sources. All stakeholders in the property tax system have an interest in ensuring that the current value provided by MPAC is correct; in order to achieve this, it is necessary for all parties to cooperate in the provision of information. It is appreciated that some of the information outlined above may be of a commercially sensitive nature. MPAC recognizes the need to ensure that any information provided to it is properly safeguarded and only used for the purpose for which it is supplied. Assessors must appreciate the nature of this undertaking and ensure data is treated accordingly. If, after an appeal has been filed, MPAC receives a request for the release of actual income and expense information, or other sensitive commercial proprietary information, the usual practice is to require the person seeking the information to bring a motion before the Assessment Review Board (ARB), with notice to the third parties, requesting that the ARB order production © Municipal Property Assessment Corporation 2016 All rights reserved 10