COURT FILE NO.: 593/04
Toronto
DATE: 2005/07/26
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Justices matlow, jennings, linhares de sousa jj.
B E T W E E N:
roneson enterprises inc.
Appellant
(Respondent in Appeal)
- and -
THE MINISTER OF FINANCE
Respondent
(Appellant in Appeal)
Vicki A. Coristine, for the Appellant (Respondent in Appeal)
Lori E.J. Patyk, for the Respondent (Appellant in Appeal)
HEARD: June 23, 2005
MATLOW J.
[1] I would allow this appeal only in part by varying the judgment in appeal by deleting paragraph 1 (c) which by its terms extends the relief granted to the period beyond the period covered by the subject notice of assessment and paragraph 2 which contains the trial judge’s award of costs. The appeal is otherwise dismissed but, with respect, for reasons somewhat different than those given by the trial judge. The parties may make submissions regarding the costs of this appeal and the proceedings below in writing. The submissions asserting a claim for costs should be exchanged and delivered to the Registrar within 30 days of the release of these reasons and all other submissions within 45 days.
[2] This principal issue raised by this appeal addresses the obligation of operators of 25-cent single coin-operated vending machines to collect and remit Ontario retail sales tax to the Minister of Finance, the Appellant. The Respondent is a vendor of food, which it sells through its operation of such vending machines. Throughout the period relevant to this appeal, the Respondent failed to collect and remit tax and it defends its failure principally on the ground that, because it was impossible for it to collect and remit tax, it was exempt from the statutory requirement that it do so.
[3] By the judgment in appeal, the Respondent’s position was upheld and the Appellant’s notice of assessment requiring payment by the Respondent of $4,906.11 for “tax collected but not remitted, interest, and penalty covering the period from August 1, 1998, to July 30, 1999” was discharged and the Appellant’s claim to entitlement to be paid that sum was effectively dismissed.
[4] This appeal comes to this Court pursuant to a statutory route that begins with section 25 of the Retail Sales Tax Act (“the Act”) which confers jurisdiction for the hearing of a first level appeal on the Superior Court and continues with section 29 of the Act which provides as follows:
- The practice and procedure of the Superior Court of Justice, including the right of appeal and the practice and procedure relating to appeals, apply to every matter deemed to be an action under section 25, and every judgment and order given or made in every such action may be enforced in the same manner and by the like process as a judgment or order given or made in an action commenced in the court.
From section 29 of the Act, the route goes on to section 19 (1) (a) (iii) of the Courts of Justice Act which confers jurisdiction on this Court to hear appeals from a final order of a judge of the Superior Court dismissing a claim for an amount less than $25,000, exclusive of costs which is what the effective result of the judgment in appeal is.
[5] Throughout these reasons I will continue to refer to the judge who conducted the appeal below and whose judgment is now in appeal here as the “trial judge” as contemplated by section 29 of the Act. This form of reference also helps reduce the likelihood of confusion between the two levels of appeals which have now taken place.
[6] Both appeals have been argued on the basis of an “agreed statement of issues, facts and law” (“agreed statement”) and on the basis of various documents tendered by the parties. The body of the agreed statement reads, in part, as follows:
Issue
Whether the decision of the Tax Court of Canada in Distribution Levesque (1986) Ltee. v. R. 1997 26282 (TCC), [1997] 3 C.T.C. 2129, should apply to the Retail Sales Tax Act, R.S.O. c. R.31, as amended (“RSTA”), and, in particular, should supercede s.7 thereof.
Facts Not In Dispute
Roneson Enterprises Inc. (“Roneson”) is a vendor under the RSTA and holds a vendor permit.
The Minister of Finance (the “Minister”) is the representative of Her Majesty the Queen in Right of Ontario charged with the administration and enforcement of the RSTA.
The Minister issued a Notice of Assessment to Roneson in the amount of $4,906.11, consisting of tax collected, not remitted, interest and penalty. The period assessed was August 1, 1998 to June 30, 1999.
Roneson owns and operates 25-cent single-coin vending machines containing loose candy and/or nuts.
The coin-operated device is designed to accept only a single coin of 25 cents.
Eight percent of 23 cents is 2 cents which equals 25 cents.
The single-coin devices cannot collect an additional two cents.
The single-coin devices cannot give change.
There are vending machines capable of dispensing change. However, there is currently no technology available to modify the Appellant’s machines to accept more than a 25 cent coin or to allow change to be given.
Prior to the Levesque decision, Roneson collected and remitted GST and PST.
The Excise Tax Act was amended in 1996 to increase the tax exemption on supply to 25 cents.
There was no corresponding amendment to increase the exemption on tangible personal property to the RSTA.
Roneson was aware of the provision in subsection 40(2) of the RSTA allowing tax included pricing.
Roneson was advised by the Minister that it must use tax included pricing.
There is no dispute over quantum.
Roneson agrees the Levesque case makes no reference to the RSTA.
[7] Some of the important provisions of the Retail Sales Tax (“the Act”) which have application to this case are the following:
Section 2 (1) which requires purchasers of tangible personal property to pay the tax on purchases of property not exempted by the Act at the rate of 8% of the fair value of the property purchased;
Section 7 (1) which, in part, exempts tangible property (except beer) purchased at a price of less than 21 cents;
Section 10 which constitutes every vendor an agent of the Appellant and with the duty to “levy and collect” the tax “upon the purchaser or consumer”;
Section 13 which requires every vendor to remit the tax to the Appellant;
Section 18 (1) which gives authority to the Appellant, “where a vendor fails to make a return or remittance as required under this Act”, to make an assessment of the tax collected by such vendor and provides that the assessment shall “be deemed to be the tax collected by the vendor”;
Section 20 (3) which gives authority to the Appellant to assess “against every vendor who has has failed to collect tax that the vendor is responsible to collect under this Act a penalty equal to the amount of tax that the vendor failed to collect…”;
Section 40 (1) which, in part, prohibits a vendor from advertising, posting or otherwise quoting a price that includes the tax unless the vendor separates the amount of the tax payable and prohibits a vendor from holding out or stating that the tax will be assumed or absorbed by the vendor or that the tax will not be considered as an element of the price to the purchaser;
Section 40 (2) which provides for “tax- included pricing” which reads as follows:
Despite subsection (1), the Minister may, where he or she considers it appropriate, authorize a vendor to advertise or quote a price that includes the tax imposed by this Act but only where the amount or rate of the tax so included is separately specified in such manner as the Minister requires and the Minister may specify such other conditions with respect to the advertisement or quotation that the vendor must satisfy.
[8] In contrast to the position of the Respondent, it is the position of the Appellant that it was, and still remains, possible for the Respondent to collect and remit the tax by employing tax-included pricing and, moreover, that this is what the Respondent actually did during the period relevant to this appeal.
[9] In allowing the Respondent’s appeal, the trial judge made the following findings of fact and came to the following conclusions:
Tax-included pricing envisages a situation in which the price can be increased so that the tax can be passed on to, and thereby collected from, the purchaser. However, because the Respondent’s total price, inclusive of tax, must always be 25 cents, the Respondent cannot pass on any increase in the tax to the purchaser but must absorb the increase itself contrary to the intent and scheme of the Act. (paragraph 31).
In any event, the Respondent did not use tax-included pricing. Although the Appellant required the Respondent to use it, it cannot be said that, in the absence of a request by the Respondent for “authorization” to use it, the Appellant “authorized” it” as contemplated by section 40 (2) of the Act. (paragraph 20).
It is not possible for the Respondent to collect the tax from the purchaser. The requirement that the Respondent “submit retail sales tax has the effect of imposing that tax on the vendor and is therefore contrary to the intent and scheme of the Act”. (paragraph 34).
[10] With respect, I disagree with the first and third of these and agree only in part with the second.
[11] I am persuaded that it was and remains possible for the Respondent to comply with the provisions of the Act and to collect and remit the requisite tax from purchases made from its vending machines to the Appellant if it had applied for and obtained the authorization of the Appellant to use tax-included pricing as required by section 40 (2) of the Act.
[12] I am further persuaded that the Respondent has, for reasons undisclosed, never applied for authorization to use tax-included pricing and has never received the Appellant’s authorization to do so. Nor did the Respondent actually use it during the relevant period of time.
[13] In support of its submission to the contrary, the Appellant relies on paragraph 14 of the agreed statement which states that “Roneson was advised by the Minister that it must use tax included pricing” and on a letter from a Tax Advisory Specialist employed by the Ministry of Finance to the president of the Respondent dated October 21, 1999, nearly four months after the end of the period covered by the Appellant’s assessment which is the subject of this appeal. In that letter, which appears to be a response to letters seeking information about the Act and disputing the Respondent’s obligation to collect and remit tax, the writer stated, in part, as follows:
Since Roneson Enterprises Inc. (REI)’s vending machine sales are for a price of 25 cents, REI is required to charge ORST and must use tax-included pricing. REI must also advise customers that their prices include ORST by posting a notice in a clearly visible place stating that the price of items sold in their vending machines includes ORST.
If this is not done, all prices will be considered to be tax-extra. This could result in an assessment for failure to collect the proper amount of ORST.
[14] It is my view that the language of this letter, in the context in which it was written, makes it clear that it was not written in response to a request for authorization to use tax-included pricing. Nor was it intended or effective to confer authorization to use it. Accordingly, I would reject the Appellant’s submission on this issue.
[15] Based on the prevailing rate of tax during the relevant period of time, the Respondent would have been able to charge about 22 cents for each purchase made from a vending machine and still have been able to collect the required tax out of the 25 cents’ proceeds of each purchase. The ramifications of a subsequent change in the rate of tax need not be addressed at the present but can await the time if and when any change occurs. I observe, however, that a small increase in the rate of tax would still allow for the continued operation of the Respondent’s vending machines even though the effective purchase price would thereby be effectively reduced to allow for the collection of the tax out of the 25 cents’ proceeds. This might lead the Respondent, if it wishes, to decide to reduce the quantity or the quality of its product in order to maintain its profit margin. I need not and cannot totally foresee the consequences of a much larger increase in the rate of tax. If, for example, the rate of tax were to increase to as much as 25%, it would still be theoretically possible for the vendor to collect the tax and maintain a purchase price of 20 cents out of the 25 cents’ proceeds. However, at that point the exemption in section 7 (1) would apply removing the requirement to collect and remit the tax entirely. Clearly, this is logistical problem which would have to be addressed then and which might then require some amendment to the Act.
[16] In any event, just because compliance with the Act may be difficult or may result in the imposition of a cap on the effective purchase price of products sold through the vending machines does not affect the legal duty of vendors to comply with the Act. If it should turn out that it is too difficult or insufficiently profitable for the Respondent to comply, it will have to reassess the financial viability of conducting business through this type of vending machine and perhaps even stop doing so. It may seem harsh but, in law, there is no duty on the Appellant to facilitate this type of business or to help maintain its profitability.
[17] For these reasons, as indicated above I respectfully disagree with the trial judge’s first and third finding and conclusion set out in paragraph 9 above. However, I agree with her second finding and conclusion also set out in paragraph 9. On the facts of this case, it was possible for the Respondent to collect and submit the tax to the Appellant if it had applied and obtained authorization from the Appellant to use tax-included pricing and had actually used it.
[18] It follows, as a matter of law, that because the Respondent was not using tax- included pricing during the relevant time, the Appellant was not entitled to issue the subject notice of assessment against the Respondent pursuant to section 18 (3) of the Act and the Respondent was not required to make the payment demanded by the Appellant. It may be that the Appellant would still have been entitled to impose a penalty on the Respondent pursuant to section 20 (3) of the Act but that need not be determined here.
[19] Having found that it was possible for the Respondent to comply with the Act, it is not necessary for me to determine the result of this appeal if I had determined that it was not possible.
[20] I come, finally, to the “issue” set out in the agreed statement of issues, facts and law. With respect, it is my view that the ‘issue” is not worded in a way that accurately describes the real issue which both counsel sought to raise and which they actually pleaded and argued and dealt with in their respective factums and which both the trial judge and this Court nevertheless addressed.
[21] Taking the “issue” set out literally, I would respond that the decision in Distribution Levesque does not apply to the Act and, in particular, that it does not supercede section 7 of the Act.
[22] Distribution Levesque is a decision of a single judge of the Tax Court of Canada which considered a similar issue as here that arose under the Excise Tax Act. That Act did not have a provision similar to that of section 40 (2) of the Act under consideration here and, for that reason alone, it does not apply.
Matlow J.
Jennings, J.
Linhares de Sousa J.
Released: July 26^th^, 2005
COURT FILE NO.: 593/04
DATE: 2005/07/26
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
MATLOW, JENNINGS, LINHARES DE SOUSA JJ.
B E T W E E N:
RONESON ENTERPRISES INC.
Appellant
(Respondent in Appeal)
- and -
THE MINISTER OF FINANCE
Respondent
(Appellant in Appeal)
REASONS FOR JUDGMENT
MATLOW J.
Released: July 26, 2005