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Docket: UT02101
Order UT02-04

IN THE MATTER of an appeal by Dianne M. Dunstan against a decision of the Provincial Tax Commissioner, dated December 12, 2001.

BEFORE THE COMMISSION

on Monday, the 15th day of July, 2002.

Ginger Breedon, Chair
Norman Gallant, Commissioner
Anne Petley, Commissioner

Order

Contents

Reasons for Order

1.    Introduction

2.    Background

3.    Discussion & Findings

4.    Disposition

Order

Reasons for Order

1.  Introduction

[1]      This is an appeal by Dianne M. Dunstan ("Appellant" or "Dunstan") against a decision of the Provincial Tax Commissioner ("Tax Commissioner" or "Respondent"), dated December 12, 2001. The appeal relates to taxes assessed on house design plans utilized for the construction of a residence in Prince Edward Island.

[2]      The appeal was filed with the Commission on December 31, 2001. Written submissions were subsequently filed by the Appellant on April 15, 2002 and by the Respondent on May 1, 2002. A reply submission was filed by the Appellant on June 21, 2002.

[3]      With the consent of the Appellant, the written submissions were made in lieu of a formal hearing.

2.    Background

[4]      The April 15, 2002 filing of the Appellant is helpful in understanding the background to the appeal and is repeated, in part, below (paragraph numbers are omitted):

The Appellant's principal residence, for purposes of the Canada Income Tax Act, and primary place of residence, was . . . Halifax, Nova Scotia, . . . until December, 1998.

In 1997 the Appellant contracted with Atlantic Home Design for assistance in developing a house design with the intent, but no commitment, of building a residence in PEI.

Atlantic Home Design is a Nova Scotia Company and, as such, is required to collect 15% HST on goods purchased and delivered in Nova Scotia.

The Appellant paid the 15% HST on the goods received from Atlantic Home Design.

Atlantic Home Design finalized a design, not architectural plans, for a three bedroom house, in February, 1998. Atlantic Home Design retains ownership of the plan as a ‘stock plan'.

The Appellant commenced construction of a four bedroom house in September, 1998 and construction was completed in December, 1998. The house is similar to, but differs in many significant details from that of, the design provided by Atlantic Home Design. Revisions including the addition of a room, and necessary architectural and building plans were completed and paid for in PEI. Tax pursuant to the PEI Revenue Act (sic) was paid on this work.

Appellants principal residence became . . . PEI in December, 1998.

(Appellant's April 15, 2002 filing, pp. 1-2)

[5]  As a result of an information-sharing agreement between the Respondent and the Canada Customs and Revenue Agency ("CCRA"), certain information supplied by the Appellant on the GST new housing rebate program was reported to the Respondent. This later resulted in the issuance of Notice of Assessment No. 3161, dated August 1, 2001. Included in the assessment was an amount for designs/drawings[1], the matter at issue here.

[6]      The Appellant subsequently filed an objection on the assessment with the Tax Commissioner. By letter dated December 12, 2001, the Tax Commissioner issued a decision on the objection wherein he found, among other things, that the Appellant brought taxable house plans into P.E.I for consumption within the Province. It is against this decision that the within appeal is filed.

3.    Discussion & Findings

 [7]    The Appellant submits that the house design plans are not taxable as the plans were purchased in Nova Scotia at the time the Appellant was resident in Nova Scotia. According to the Appellant:
No firm commitment to build a residence, or to move the principal place of residence, was in place at the time of acquiring the goods and therefore no tax exemption in Nova Scotia was available.

(Appellant's April 15, 2002 filing, paragraph 12)

[8]     The Appellant further submits that the Revenue Tax Act must be interpreted reasonably and in a manner consistent with legislation in other jurisdictions. According to Dunstan, such interpretation must not result in an absurd situation.

[9]     The Appellant contends that the Respondent's interpretation of the legislation is unreasonable and that it results in an absurdity. In the words of Dunstan:

The Respondent's interpretation is so far reaching as to encompass all items brought into the province for consumption regardless of whether appropriate tax has been paid pursuant to other statutes in our jurisdictions.

In the matter at hand the interpretation is not consistent with other Statutes in other jurisdictions. To assert, as the Respondent does, that goods purchased in Nova Scotia for which appropriate tax has been paid, would be subject to the PEI Revenue Tax Act twelve months later, would make the PEI Revenue Tax Act inconsistent with other statutes.

It is the Appellant's position that in the matter at hand the Respondents interpretation results in an absurd situation. The Appellant would be required to pay double tax on the goods purchased.

 (Appellant's April 15, 2002 filing, pp. 2-3)

[10]     The Appellant submits, as well, that legislation should not be interpreted in a manner that would result in an uncorrectable inequity. According to the Appellant, such an interpretation would result in taxation in both Prince Edward Island and Nova Scotia.

[11]    The Tax Commissioner submits that the plans in questions are goods subject to provincial revenue tax. According to the Respondent:

It is the position of the Provincial Tax Commissioner that Ms. Dunstan purchased the house design plans in Nova Scotia, as acknowledged in her notice of appeal, and used those plans as the basis for construction of her new residence in the province of Prince Edward Island. Therefore, the Commissioner submits that the designs were consumed in Prince Edward Island and are subject to tax.

Subsections 9(3) and 9(4) of the Revenue Tax Act state as follows:

9(3)    Every person who brings or causes to be brought, into the province or who receives delivery in the province of goods, for his own consumption or for the consumption of another person at his expense, or, on behalf of or as agent for a principal who desires to utilize such goods for consumption by such principal or by any other person at his expense, shall immediately report the matter to the Commissioner and forward or produce to him the invoice, if any, in respect of such goods and any other information required by the Commissioner with respect to the same.

 (Respondent's February 22, 2002 filing, pp. 2-3)

[12]      Later, in its May 1, 2002 filing, the Respondent has this to say:

The Provincial Tax Commissioner states that the house plans in question, while purchased in Nova Scotia, were consumed in Prince Edward Island when the plans were used to construct a house in Prince Edward Island. The fact that the Dunstan's were resident in the Province of Nova Scotia at the time of the purchase is irrelevant. Residency, while relevant for income tax purposes, does not alter the fact that the house plans were brought into Prince Edward Island by the Dunstan's and used for the construction of a house in this province, which triggers the obligation to pay tax under the Revenue Tax Act.

 The fact that the taxpayer paid tax in another jurisdiction does not render the goods not taxable in this jurisdiction. If someone from Prince Edward Island purchases a television in New Brunswick and brings the television into Prince Edward Island, s. 7(2) of the Revenue Tax Act imposes tax on that item at the time it is brought into the province regardless of whether or not tax was paid in New Brunswick.

Subsections 7(1) and 7(2) of the Revenue Tax Act provide:

7.(1) If the goods to be consumed are purchased at a retail sale within the province, the consumer shall pay the tax computed on the fair value of the goods at the time of the purchase.

(2) If the goods to be consumed are not purchased at a retail sale within the province, the consumer shall pay the tax on the fair value thereof, determined in the manner following:

(a)    if the goods are primarily intended for consumption by use only, the tax shall be computed on the fair value of the goods at the time they are brought into the province;
(b)    if the goods are primarily intended for consumption otherwise than by use only, the tax shall be computed on the fair value of the goods at the time of consumption.

The Provincial Tax Commissioner asserts that tax became payable on the goods upon being brought into Prince Edward Island by the Dunstan's for their own consumption

(Respondent's May 1, 2002 filing, pp. 1-2)

[13]   The Commission was provided with copies of two invoices for the work provided by Atlantic Home Design to the Dunstans. The first invoice, dated October 29, 1997, describes the work this way:

Quantity

Description

Price

Amount

8

hours site inspection "PEI"

 

 

5 ½

hours consultation design time

 

 

 

13 ½ hours @

60/hr

810.00

 

 

15% HST

121.50

 

Total

 

$ 931.50

[14]    The second invoice, dated February 17, 1998 describes the work as:

Quantity

Description

Price

Amount

 

"Stock Option Plan"

 

 

 

Drafting Service Rendered

 

953.00

 

 

15% HST

142.95

 

Total

 

$ 1095.95

[15]    It is submitted by the Respondent and acknowledged by the Appellant that the work described on the first invoice took place in Prince Edward Island. The drafting services indicated on the second invoice apparently occurred in Nova Scotia.

[16]    Based on the description of the work carried out, it would appear to the Commission that the goods at issue here are more in the nature of a consulting service than of a chattel personal.  While the result of the various activities undoubtedly resulted in these plans, as modified, being utilized in the construction of the residence, it would appear that the plans were substantially  the product of the site inspection, design time and drafting services described on the invoices. In our view, the plans were not a ready-made, off-the-shelf product.

[17]    In the course of this proceeding, the Respondent was asked to comment on the extent, if any, to which it believed the current appeal is governed or affected by the decision of the Prince Edward Island Supreme Court, Appeal Division in Island Telecom Inc. v. IRAC (PEI) 2001 PESCAD 27. The Tax Commissioner's response is set out below:

The Provincial Tax Commissioner submits that the Island Tel case has no bearing on the matter before the Commission. In this case, the goods on which the Provincial Tax Commissioner assessed tax are house plans purchased by the Dunstan's for their own consumption. Therefore, the good brought into the province was a tangible good, not an intangible good as was the case in the Island Tel case, which involved the provision of services, not products.

Further, even if the goods provided are viewed as services, according to invoice #561254 dated October 29, 1997, the site inspection was carried out in Prince Edward Island . . .  Therefore, to the extent that the items on which tax was assessed include services, these services were provided in Prince Edward Island. The other invoice # 561291 dated February 17, 1998, was for the production and sale of a tangible good, house plans, to the Dunstan's. That good was subsequently brought into the Province of Prince Edward Island and consumed, and is therefore subject to Prince Edward Island revenue tax.

 (Respondent's May 1, 2002 filing, p. 3)

[18]    In the Island Tel case, the P.E.I. Supreme Court, Appeal Division, discussed the taxation of services. According to Webber, J.A.,

 [43]    The first question to be asked is whether or not the Act as worded clearly imposes a tax on the services at issue. In the instant case, it does not. The taxing section refers to the liability of a consumer of goods consumed in the province to pay tax at the time of taking delivery of the goods. While "goods" has been redefined in the Act to include professional services such as accounting, legal, consulting, engineering and architectural services, simply including those services in the definition of "goods" does not clarify how or when they are consumed in the province. This case has arisen because a service is not a good and analogies between the two are necessarily inexact. Thus, exactly when the tax is applicable is not clear.

[44]    The entire structure of the legislation with its emphasis on bringing goods into the province or receiving delivery of goods in the province, emphasizes the design of the legislation so as to tie the tax to the physical location of the taxed item. Therefore, any analysis of services must take into consideration the nature of such service and when and how such service might attain a physical presence in the province. As noted above, this only clearly occurs when the service is an act carried out in the province.

[45]    The law taxing professional services attempts to require the payment of tax by those who use those services in the province. However, the statutory description "at the time they are brought into the province" is simply inapplicable to services. "Consumption" is also a difficult concept to apply to services. Defining consumption as "use" is of no real assistance. You most (sic) clearly "consume" a service when and where you obtain that service, whether it be a repair service, a consulting service, a food service, a hotel service, or an accounting service.

(emphasis added)

[19]    Based on the above comments, and having fully considered the submissions of the parties and the applicable law, the Commission finds that the services provided under the October 29, 1997 invoice are consulting services carried out in Prince Edward Island and are thus taxable. The Commission further finds that the services provided under the February 17, 1998 invoice were not carried out in Prince Edward Island and are thus not taxable.

4.  Disposition

[20]    An order varying the December 12, 2001 decision of the Tax Commissioner will therefore be issued.

Order

 UPON the appeal by Dianne M. Dunstan against a decision of the Provincial Tax Commissioner, dated December 12, 2001;

NOW THEREFORE for the reasons given in the annexed Reasons for Order:

IT IS ORDERED THAT

1.    the decision of the Provincial Tax Commissioner, dated December 12, 2001 is varied;

2.     P.E.I. revenue tax is not due or payable on Atlantic Home Design Invoice No. 561291, dated February 17, 1998; and

[1] See Letter dated August 1, 2001 from Mary Hennessey, Provincial Treasury, which accompanied Notice of Assessment No. 3161.

NOTICE

Section 12 of the Island Regulatory and Appeals Commission Act reads as follows:

12. The Commission may, in its absolute discretion, review, rescind or vary any order or decision made by it or rehear any application before deciding it.

Parties to this proceeding seeking a review of the Commission's decision or order in this matter may do so by filing with the Commission, at the earliest date, a written Request for Review, which clearly states the reasons for the review and the nature of the relief sought.

Sections 13.(1) and 13(2) of the Act provide as follows:

13.(1) An appeal lies from a decision or order of the Commission to the Appeal Division of the Supreme Court upon a question of law or jurisdiction.

(2) The appeal shall be made by filing a notice of appeal in the Supreme Court within twenty days after the decision or order appealed from and the Civil Procedure Rules respecting appeals apply with the necessary changes.