Kuwabara Payne McKenna Blumberg Architects v. The Minister of Finance
[Indexed as: Kuwabara Payne McKenna Blumberg Architects v. Ontario (Minister of Finance)]
96 O.R. (3d) 385
Court of Appeal for Ontario,
Winkler C.J.O., Goudge and Simmons JJ.A.
June 18, 2009
Taxation -- Sales tax -- Retail Sales Tax Act and Regulations exempting from retail sales tax books that are printed and bound and that are published solely for educational, technical, cultural or literary purposes and contain no advertising -- Architects causing third party to prepare volumes of designed blueprints and architectural and construction specifications -- Architects purchasing those volumes from third party and distributing them to other construction consultants, general contractors and people in building trades -- Architects exempt from retail sales tax when they purchased volumes -- Volumes coming within definition of "books" in Regulation as they were "published" -- Books "published" if they are disseminated or distributed to others -- Volumes solely for technical purpose -- Retail Sales Tax Act, R.S.O. 1990, c. R.31 -- Definitions, Exemptions and Rebates, R.R.O. 1990, Reg. 1012, s. 1(1).
The respondent, an architectural partnership, caused a third party to prepare volumes of designed blueprints and architectural and construction specifications, which it then purchased and distributed to other construction consultants, general contractors and those in the building trades. Under the Retail Sales Tax Act and the Regulation, purchasers of "books" as defined in the Regulation are exempt from retail sales tax. The Regulation defines "books" as meaning "books that are printed and bound and that are published solely for educational, technical, cultural or literary purposes and that contain no advertising. . .". The Minister of Finance took the position that the volumes did not come within that definition as they were not "published" and were not "solely" for a technical purpose, so that the respondent was required to pay retail sales tax when it purchased the volumes. The respondent's appeal was allowed. The Minister appealed.
Held, the appeal should be dismissed.
In the context of the Act and the Regulation, books are "published" if they are disseminated or distributed to others. As the volumes in question were distributed to others, they were "published" for the purposes of the Regulation. The Minister's argument that the volumes were not published "solely" for a technical [page386] purpose as the volumes were prepared to allow the respondent to fulfill its contracts with clients could not be accepted, as the definition in the Regulation speaks to the purpose of the book itself and not to the intention of those producing the book. Whether a volume is published solely for a technical purpose is determined by the content of the book, not what is in the minds of those who produce it. The volumes in question had a technical purpose.
APPEAL from the judgment of Spies J., [2006] O.J. No. 4712, 2006 39467 (S.C.J.) allowing an appeal from a decision of the Minister of Finance.
Statutes referred to Retail Sales Tax Act, R.S.O. 1990, c. R.31, ss. 2(1), 7(1) Rules and regulations referred to Definitions, Exemptions and Rebates, R.R.O. 1990, Reg. 1012, s. 1(1) General Regulation, R.R.O. 1990, Reg. 1013 Authorities referred to Ontario, The Ontario Committee on Taxation, 1967 (Smith Commission), 3 Vols. (Government Printer, 1967)
Dona M.H. Salmon, for appellant (Minister of Finance). Brian C. Pel, for respondent.
The judgment of the court was delivered by
[1] GOUDGE J.A.: -- Under the Retail Sales Tax Act, R.S.O. 1990, c. R.31, and the regulations made pursuant to it, purchasers of books that are printed and bound and are published solely for educational, technical, cultural or literary purposes and contain no advertising are exempt from retail sales tax.
[2] The respondent, an architectural partnership operating in Ontario, caused a third party to prepare volumes of designed blueprints and architectural and construction specifications, which the respondent then purchased and distributed to other construction consultants, general contractors and those in the building trades.
[3] The issue in this appeal is whether the respondent was required to pay retail sales tax when it purchased the volumes from the third party. At first instance, Spies J. found for the respondent and held that it was not. The Minister of Finance has appealed. For the reasons that follow, I would dismiss the appeal. Background
[4] The sections of the Act relevant to this appeal are ss. 2(1) and 7(1)45: [page387]
2(1) Every purchaser of tangible personal property, except the classes thereof referred to in subsection (2), shall pay to Her Majesty in right of Ontario a tax in respect of the consumption or use thereof, computed at the rate of 8 per cent of the fair value thereof. . . . . .
7(1) The purchaser of the following classes of tangible personal property, taxable services and admissions to a place of amusement is exempt from the tax imposed by section 2: . . . . .
- Books, as defined by the Minister, and repairs thereto.
[5] The Act was first introduced in 1961. From the beginning, books were exempt from retail sales tax. The purpose of this exemption was simply the social desirability of encouraging the reading of books. The 1967 report of the Ontario Committee on Taxation says as much (at Volume 3, paras. 75 and 79). The appellant does not contest this. Until 1982, the definition of "books" was in the legislation itself. At that point, the definition was moved into the regulations made under the Act.
[6] Today, the relevant regulation is Definitions, Exemptions and Rebates, R.R.O. 1990, Reg. 1012:
1(1) The following expressions used in subsection 7(1) of the Act are defined by the Minister: . . . . .
"books" means books that are printed and bound and that are published solely for educational, technical, cultural or literary purposes and that contain no advertising, including pages that are printed for insertion in such books, but not directories, price lists, time tables, rate books, catalogues, reports, fashion books, albums, books ruled for accounting or bookkeeping purposes, blank exercise, drawing or work books or any similar books and loose leaf sheets or pages that are printed for insertion in such books. (Emphasis added)
[7] The relevant facts are essentially undisputed. In the course of its activities as an architecture and project management firm, the respondent prepares volumes of design drawings and other architectural and construction specifications to be used in connection with building and design construction. The original materials are then provided to a third-party duplicator for copying, stapling and binding into book form. The respondent then purchases the volumes from the duplicator and distributes them to other construction consultants, general contractors and those in the building trades. In some cases, the volumes are distributed free of charge by the respondent. In other cases, they are sold by the respondent. On a large building project, 60 to 70 sets of volumes are made and distributed. The parties agree that, although it is [page388] not certain, it is to be presumed that the volumes are not for sale to the general public and are kept confidential by those who obtain copies.
[8] All of the volumes are books that are printed and bound, are technical in nature and contain no advertising. None are directories, price lists or any of the other specific types of books that are excluded from the definition of "books" in the regulation.
[9] The appellant Minister is responsible for administering the Act. The respondent lodged claims with the Minister seeking a refund for the retail sales tax it paid from June 1994 to February 1995 and from February 1995 to February 1999 on its purchases of the volumes from the duplicator. The appellant disallowed the claims and the respondent appealed. Under the Act, these appeals are deemed actions in the Superior Court of Justice.
[10] The trial judge allowed the appeal and concluded that the respondent's claims for refund should be allowed pursuant to those provisions of the Act that entitle the taxpayer to a refund of tax that was not required to be paid in the first place. She found first that the volumes were "published", because that term speaks to the purpose of publication, and that its ordinary meaning, namely, to make available to at least one person, was met in this case. Secondly, she concluded that, having regard to the content and intended use of the volumes, they were solely technical. Thus, the volumes were books that were exempt from retail sales tax when purchased by the respondent. Analysis
[11] The fundamental issue in this appeal is whether the volumes in question meet the definition of "books" in Reg. 1012. The appellant accepts that the volumes are books that are printed and bound, contain no advertising, are technical in content and are not within the specific exclusions from the definition found in the regulation.
[12] However, the appellant says that for two reasons the volumes do not come within the definition. First, the appellant argues that the volumes are not "published" because they are not produced for sale to the public or made generally available to the public. Second, the appellant says that the volumes do not meet the "solely" for technical purposes requirement.
[13] I turn first to the requirement in Reg. 1012 that "books" means books that are published. Only books that are published are exempted. This requirement focuses on the books and whether they are published. It does not require the identification of anyone as the publisher. [page389]
[14] I cannot agree with the appellant that books must be produced for sale to the public or be made generally available to the public to attract the exemption. There is nothing in the language of the regulation that requires that a book be sold to or made available to the general public rather than merely to a targeted part of the public in order to qualify. In fact, the extension of the definition to technical works, which are very likely to be targeted not to the public but to a selected group, clearly suggests the contrary. Moreover, to limit the definition in this way would undercut the purpose of the exemption, namely, to encourage the reading of books in the public interest, because it would exclude books published for specialized audiences.
[15] In my view, in the context of the Act and the regulation, books "are published" if they are disseminated or distributed to others. That is the plain and ordinary meaning of the phrase in the regulation. This accords with the first definition of "publish" found in the Oxford English Dictionary, 2nd ed., namely, to "disseminate". It also serves the exemption's purpose of encouraging the reading of books by including in the exemption books distributed just to a targeted audience. This would include in the exemption the distribution of, for example, educational books distributed only to school children, or cultural books distributed only to a specific cultural community, or technical books distributed only to those who could make use of them, all of which surely serve the public interest sought to be achieved by the regulation.
[16] In this case, the volumes in question are distributed to those who can use them, namely, construction consultants, general contractors and those in the building trades. In my view, this means they "are published" for the purposes of the regulation and meet this qualification for being "books". Given this range of recipients, it is unnecessary to decide whether distribution to one person alone would be sufficient or whether, as in this case, a larger targeted audience is necessary.
[17] The appellant seeks some support for his position that these volumes are not published by looking to s. 7(1)40 of the Act and another of its regulations, General, R.R.O. 1990, Reg. 1013. In combination, they provide that the exemption provided to a manufacturer or producer for purchase of materials that are then used to manufacture or produce tangible personal property does not apply to architects who produce printed matter in connection with rendering professional services.
[18] The appellant argues that this shows a legislative intention that the tax apply to firms like the respondent in the circumstance of this case. I do not agree. The exclusion of architects [page390] from the exemption of purchases that go into producing "in house" materials simply does not speak to the facts in this case where the respondent purchases books that it then disseminates to a target audience. The respondent is not purchasing materials that go into its in-house productions. The exclusion in Reg. 1013 simply does not apply to the exemption at issue.
[19] The second aspect of the definition of "books" raised by the appellant is the requirement that they be published "solely" for a technical purpose. As I have said, the appellant does not contest that the volumes in question here are for a technical purpose. However, the Minister argues that they are prepared to allow the respondent to fulfill its contracts with clients and are therefore not solely for a technical purpose.
[20] The answer to this argument is found in the distinction between the intention of those producing the book and the purpose of the book itself. In my view, the definition in the regulation speaks to the latter and not to the former. The requirement is that the book serve an educational, technical, cultural or literary purpose for those who use it. This is determined by the content of the book, not what is in the minds of those who produce it. That is the plain meaning of the language of the regulation.
[21] Moreover, if the intention or purpose of the producer was the measure of this requirement, it would exempt from this exclusion any books produced for sale, since that would bespeak a commercial purpose as at least one of the purposes and thus take it outside of the four purposes permitted by the regulation. That simply cannot have been the intention of the drafters of a regulation that is part of a commercial sales regime.
[22] The appellant acknowledges that the volumes in question have a technical purpose. The commercial purpose or intention of the respondent is not relevant to the "sole purpose" requirement of the regulation. Since the appellant acknowledges that the volumes in question do indeed have a technical purpose, this aspect of the definition of "books" as set out in the regulation is met.
[23] In summary, the appellant acknowledges that the volumes meet all the requirements of Reg. 1012 save the two challenged. I have concluded that neither of the appellant's challenges can succeed and that the volumes meet these two requirements as well. When the respondent purchased these volumes, the respondent was therefore exempt from retail sales tax.
[24] The appeal is dismissed. Costs to the respondent in the amount of $8,000, inclusive of disbursements and GST.
Appeal dismissed.