Docket UT94101
Order UT94-2IN THE MATTER of an appeal by Bayview Construction Ltd. of a decision of the Provincial Tax Commissioner, dated February 1, 1994.
BEFORE THE COMMISSION
on Tuesday, the 29th day of November, 1994.
Linda Webber, Chair
John L. Blakney, Vice-Chair
Deborah MacLellan, Commissioner
Order
Contents
Reasons for Order
- Introduction & Background
- Findings
- Disposition
Order
Reasons for Order
1. Introduction & Background
This is an appeal under Section 10 of the Revenue Administration Act, Stats. P.E.I. 1991, Cap R-13.2, by Bayview Construction Ltd. (hereinafter sometimes referred to as the "Appellant" or "Bayview") against a decision of the Provincial Tax Commissioner, dated February 1, 1994. The appeal was filed with the Commission on March 4, 1994 and written submissions were filed by counsel for the Appellant, John A. Carr, Q.C., on July 5, 1994 and by Counsel for the Respondent, Roger B. Langille, Q.C., on August 31, 1994. Counsel agreed that an oral hearing of the appeal was not necessary.
Sections 9 and 10 of the Revenue Administration Act, read as follows:
9. (1) Where a person considers that he is not liable to taxation under a revenue Act or disputes liability for the amount assessed against him, he may, within sixty days of the date of service or mailing of the notice of assessment serve on the [Provincial Tax] Commissioner a notice of objection setting out the reasons for the objection and all relevant facts.
(2) A notice of objection is sufficiently served if delivered to the office of the Commissioner or sent by registered mail addressed to the Commissioner.
(3) The Commissioner shall, within sixty days of receipt of the notice of objection, reconsider the assessment or estimate and vacate, confirm or vary it, and he shall thereupon notify the objector of his decision by registered mail.
10. (1) If a taxpayer or collector is dissatisfied with the decision of the Commissioner under subsection (3), he may, within thirty days from the date of mailing of the decision, appeal to the Island Regulatory and Appeals Commission hereafter referred to as the Commission.
(2) Any appeal shall be commenced by serving upon the Commission a notice of appeal in writing setting out the grounds of the appeal and stating briefly the facts relative thereto.
(3) A notice of appeal is sufficiently served if delivered to the office of the Commission or sent by registered mail addressed to the Commission.
(4) On the hearing of the appeal both the appellant and the Commissioner are entitled to appear and be heard and to submit further evidence.
(5) The Commission may, in writing, designate a person to act on its behalf and hear an appeal under this section and any reference in this section or section 11 to the Commission includes a person so designated.
(6) Upon any appeal, the Commission may affirm, vary or reverse the decision of the Commissioner and shall give the appellant written notice of its decision by registered mail.
The Appellant had originally filed a Notice of Objection with the Provincial Tax Commissioner on January 16, 1994 in connection with taxes assessed on sales of concrete by the Appellant. For ease of reference, the Notice of Objection and the Decision of the Provincial Tax Commissioner under appeal herein are set out below.
January 16, 1994
Provincial Tax Commissioner
P.O. Box 1330
Charlottetown P.E.I.
C1A 7N1
Notice of Objection
RE: Assessment # 1694 November 22, 1993
Dear sir:
There are two areas of this assessment. We agree with the amount shown on line #4 of the assessment "Tax on Purchases". We wish to object to the amount shown on line #2 of the assessment "Tax on General Sales".
There are two errors in the calculation of the amount on line #2. The first and most significant error is the use of $14.53 per cubic yard as the allowable delivery charge in determining the taxable amount of concrete sales. This amount was taken from a sample calculation and does not reflect the actual delivery cost. At the time of the audit we provided the auditor with a draft copy of what we believed the actual costs to be, and while the auditor did not refute our amount, he used the $14.53 figure in all calculations. The second error in calculation is in determining the "Net Taxable Sales" by deducting P.S.T. reported from Sales including P.S.T. "Net Taxable Sales" should be determined by deducting P.S.T. Payable from Sales including P.S.T. (or by dividing Sales including P.S.T. by a factor of 1.1).
Enclosed1 is our calculation of delivery costs and P.S.T. due on General Sales based on that delivery charge and using the factor of 1.1 to calculate Taxable Sales.
Yours truly,
(Sgd) Ronald F. Hughes
Ronald F. Hughes,
President
[Bayview Construction Ltd.]
February 1, 1994
CERTIFIED MAIL
Bayview Construction Ltd.
Winsloe R.R. 9
P.E.I.
C1E 1Z3
Attention: Ronald Hughes
Dear Mr. Hughes,
This is in response to your Notice of Objection dated January 16, 1994 regarding your recent Sales Tax Assessment.
I have reviewed the circumstances surrounding your Objection and render my decision as follows:
(1) Calculation of net Taxable Sales - I will have the Auditor review this area again with your accountant and any warranted adjustment will be made.
(2) Allowable Delivery Charge - You have stated that your actual delivery charge is $38.64 and that this figure was used in determining the taxable amount for concrete sales. I refer you to Revenue Tax Guide 102 which states that Ready-Mix Concrete manufacturers must collect tax on the deemed retail selling price per cubic yard, which includes a $14.53 delivery charge allowance.
This formula came about as a result of a Supreme Court decision in June 1986 which ruled that the making of asphaltic and ready-mix concrete is considered a manufacturing operation. Subsequent to this decision, all asphaltic and ready-mix concrete manufacturers were contacted and the change in tax application was fully discussed. We further contacted and met with the Construction Association of P.E.I. and their members in this regard.
Since that time there was no change made in the calculation of provincial sales tax for ready-mix concrete, thus the delivery charge allowance of $14.53 must be used for tax purposes.
Based on the above, I regret to advise you it is my decision that no adjustment to your audit assessment in this area is warranted.
Depending on the outcome of (1) above, please contact Mr. Blair White regarding your account status.
Very truly yours,
(Sgd) J.B. Ramsay
J.B. RAMSAY
Provincial Tax Commissioner
/jmg
cc: R.B. White
Chief Tax Administrator
As noted in this correspondence, the item of disagreement under appeal is the Tax Commissioner's use of $14.53 per cubic yard as the delivery charge allowed to be deducted from the retail selling price in order to determine the price upon which tax is assessed.
2. Findings
The Respondent suggests in his written brief that whether or not the Appellant is allowed to deduct any cost of delivery from the sale price of goods is an issue in this case. Since the Provincial Tax Commissioner in his decision allowed for such a deduction we cannot accept that this point is in issue. To do so would appear to be allowing the Provincial Tax Commissioner to argue that his own decision was in error and to be, in effect, allowing him to appeal his own decision. The decision-maker has no such right of appeal.
As well, we note that the Respondent's brief makes the statement "[a]pparently, there will be no evidence led as to the basis of the Commissioner's calculation of the delivery cost or that proposed by the Appellant." (p.5, para 20) However, the Notice of Appeal contained-as an attachment-a letter dated January 16, 1994 from the president of Bayview Construction Ltd. to the Provincial Tax Commissioner with a calculation showing in some detail how the Appellant arrived at the $38.64 delivery cost. In our view, this was evidence to which the Respondent could have responded if he disputed the calculations. His failure to do so or to in any way suggest that the method of arriving at the $38.64 figure was questionable, leads us to conclude that this figure is not in issue. If it was, the Respondent had a responsibility to deal with it in his submission.
The legislation governing provincial sales tax assessments is the Revenue Tax Act, R.S.P.E.I. 1988 Cap. R-14. The Respondent's position appears to be that the $14.53 delivery charge "allowance" is an exercise by the Provincial Tax Commissioner of his powers under s.7(3) of the Act:
Where the Commissioner considers it necessary or advisable, he may determine the fair value of any goods for the purposes of taxation under this Act and thereupon the fair value of the goods for this purpose shall be as determined by him.
The Commissioner's letter refers to a "deemed retail selling price per cubic yard" and states that this "includes a $14.53 delivery charge allowance." He is, in making those statements, referring to Revenue Tax Guide 102. Further on in the letter he refers to a "formula".
Two questions arise:
1) Is a "formula" equivalent to a determination of fair value?
2) What part does the $14.53 delivery charge play in the formula?
We conclude from the Provincial Tax Commissioner's decision that he believed he was bound by Revenue Tax Guide 102. The Respondent's argument appears to be that the Guide is an exercise of the Commissioner's power under s.7(3). For the purposes of this decision, we will accept the development of a formula as an acceptable exercise of the Commissioner's s.7(3) powers because the decision does not turn on that issue. In a future, case, we might need to explore that question further.
The portion of the Guide relevant to this matter is that entitled "Ready-Mix Concrete". We reproduce it here in full:
Ready-Mix Concrete
Ready-mix concrete manufacturers must register as vendors pursuant to the Revenue Tax Act and collect tax on the deemed retail selling price per cubic yard. The deemed retail selling price is the normal retail price as determined by the vendor from time to time plus The Goods and Services Tax less the delivery or transportation charge.
EXAMPLE -
(1) Calculation of Provincial Sales Tax
| Manufacturers Normal Retail Price | $ 94.45 |
| Plus: Goods and Services Tax at 7% | 6.61 |
| $101.06 | |
| Less: Delivery Charge | 14.53 |
| Deemed Selling Price | $ 86.53 |
| Provincial Sales Tax at 10% | 8.65 |
(2) Manufacturers Invoice
| Normal Retail Price | $ 94.45 |
| Goods and Services Tax | 6.61 |
| Provincial Sales Tax | 8.65 |
| TOTAL | $109.71 |
B: Government and Municipalities
Both the P.E.I. Government and Municipalities are exempt from tax on their purchases of Ready-Mix Concrete.
Note: This circular is provided as a general guide and should not be considered a substitute for the legislation. If any further assistance is needed regarding tax application, please contact this office.
The words used in this guide state quite clearly that "the delivery or transportation charge" is to be deducted from "the normal retail price" in order to arrive at the "deemed retail selling price". These words suggest no substitution by government of any artificial delivery price for an actual delivery price.
The words used in the Guide are followed by an "example". Again, nothing in the example indicates that any price other than actual cost is to be used when deducting the delivery charge. In our view, there is no more justification for doing that than for saying that the normal retail price shall be $94.45 in all cases.
As a result, even accepting the Guide as a valid exercise of powers under s.7(3), we see no basis of support for using the arbitrary amount of $14.53 per cubic yard.
Both the Tax Commissioner's letter decision and Respondent's written argument refer to some discussions or agreements with the construction industry on this matter. We can see no relevance to those discussions or agreements. The Commissioner has a responsibility under the Act. Even accepting Guide 102 as a valid exercise of the Commissioner's power under s. 7(3), the plain, clear meaning of the words used in that Guide allow a deduction of actual delivery costs from actual retail price (plus GST) in order to arrive at the deemed selling price upon which tax shall be assessed.
The evidence before us, uncontested by the Respondent, is that the actual delivery cost in this case is $38.64 per cubic yard.
For the reasons stated above, the appeal is allowed and the decision of the Tax Commissioner on this issue is reversed. Sales tax is to be payable upon the deemed selling price as recalculated using $38.64 per cubic yard as the delivery cost.
3. Disposition
An Order allowing the appeal will therefore issue.
Order
UPON the appeal of Bayview Construction Ltd. against a decision of the Provincial Tax Commissioner dated February 1, 1994;
AND UPON reading and considering the written submissions of John A. Carr, Q.C., counsel for the appellant, and Roger B. Langille, Q.C., counsel for the Provincial Tax Commissioner;
NOW THEREFORE, for the reasons given in the annexed Reasons for Order,
IT IS ORDERED THAT
1. The appeal is allowed; and
2. The decision of the Provincial Tax Commissioner dated February 1, 1994 is reversed; sales tax is to be payable upon the deemed selling price as recalculated using a delivery cost of $38.64 per cubic yard.
DATED at Charlottetown, Prince Edward Island, this 29th day of November, 1994.
BY THE COMMISSION:
Linda Webber, Chair
John L. Blakney, Vice-Chair
Deborah MacLellan, Commissioner
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.
1
Enclosure omitted from quotation.