Docket UT99101
Order UT99-2

IN THE MATTER of an appeal by Purple Parrot Holdings Ltd. against a decision of the Provincial Tax Commissioner, dated January 25, 1999.

BEFORE THE COMMISSION

on Tuesday, the 20th day of April, 1999.

Wayne D. Cheverie, Q.C., Chair
 Elizabeth MacDonald, Commissioner
 Norman Gallant, Commissioner

Order

Contents

Appearances & Witnesses

Reasons for Order

1. Introduction
 2 Discussion & Findings
 3 Disposition

Order

Appearances & Witnesses

1. For Purple Parrot Holdings Ltd.

Blair Smith, President and Manager

2. For the Provincial Tax Commissioner

Counsel:
Ruth M. DeMone

3. For the Island Regulatory and Appeals Commission

Counsel:
Thomas A. Matheson

Staff:
Donald G. Sutherland
Director, Technical Services

Heather R. Walker
Recording Secretary

Reasons for Order

1. Introduction

This is an appeal under Section 10 of the Revenue Administration Act R.S.P.E.I. 1988, Cap. R-13.2, as amended, by Purple Parrot Holdings Ltd. (the "Appellant") against a decision of the Provincial Tax Commissioner ("Tax Commissioner" or "Respondent"), dated January 25, 1999. The appeal centers on the question of whether charges styled as coat check charges and collected by the Appellant are effectively admission charges subject to tax pursuant to the Revenue Tax Act, R.S.P.E.I. 1988, Cap. R-14, as amended.

The appeal was heard in Charlottetown on April 7, 1999.

2. Discussion & Findings

The record discloses that, on September 28, 1998, Notice of Assessment No. 270 was issued by the Department of Provincial Treasury to the Appellant in the following amounts:

Item

Amount

Tax on General Sales

$ 10,722.30

Tax on Purchases

4,367.15

Total Tax

$ 15,089.45

Interest to 31/08/98

6,727.12

Penalty

536.12

Total Assessment Due

$ 22,352.69

Under appeal is the tax on general sales totaling $10,722.30 plus applicable interest and penalties. The tax relates to charges collected by the Appellant for access to the Purple Parrot Restaurant, Pub and Night Club located in Summerside. The Appellant submits that the charges in question are coat check charges and are not subject to tax. The Respondent, on the other hand, submits that certain charges collected by the Appellant are admission charges and are subject to revenue tax.

Section 4 of the Revenue Tax Act reads as follows:

4. …every consumer of goods consumed in the province shall, at the time of taking delivery, pay to the Minister for the raising of revenue for provincial purposes, a tax at the rate of ten percent of the fair value of the goods.

Section 1.(e)(ii) of the Act defines goods as follows:

1(e)'goods' includes
…
(ii) admission charges…

Section 1(b.01) of the Revenue Tax Act Regulations defines admission charges as follows:

(b.01) 'admission charges' includes entrance fees, cover charges or other fees charged for admission to a place of entertainment.

Blair Smith, the Appellant's President and Manager, testified that, prior to opening the Purple Parrot, a decision was made to offer a coat check service to all patrons as a method of controlling admission to the premises. According to Mr. Smith, a subsequent call by a member of his staff to the local office of the Provincial Treasury indicated that coat check charges were not subject to tax. Mr. Smith indicated that this simply confirmed the business decision that had already been made to charge a coat check rather than an admission charge. The Appellant thereafter opened the Purple Parrot for business and proceeded to collect coat check charges upon which no tax was remitted to the Province.

As a result of a tax audit carried out in 1998, the Appellant was advised that a portion of the coat check charges collected between November of 1993—when the Appellant opened for business—and September 1998—when the audit was completed—were effectively admission charges subject to tax. The Appellant was given the opportunity to separate the charges into two categories—admission charges and coat check charges. The Appellant did this, apparently in response to a suggestion that, if he didn't, the auditors would do it themselves. Tax was subsequently assessed on the admission charges identified by Mr. Smith. It is noted that Mr. Smith opposed the process of separating the charges into the two categories described above but felt it was in his best interests to provide the requested breakdown.

During his evidence, Mr. Smith indicated that the coat check charge could vary anywhere from approximately $2.50 to $10.00 depending on the type of entertainment available at his establishment. The charge was mandatory and payable by everyone who wished to gain admission to the premises notwithstanding that a person might not have anything to check. Despite the mandatory nature of the charge and his testimony that the charge varied, the witness maintains that the charge is not an admission fee but a coat check charge.

The Respondent submits that the charges in question are admission charges within the meaning of the Revenue Tax Act and Revenue Tax Act Regulations. The Commission agrees. As noted above, admission charges are defined to include entrance fees, cover charges or other fees charged for admission to a place of entertainment. The evidence clearly discloses that the charge in question was a mandatory fee for admission to a place of entertainment. Calling it something else does not avoid the collection and payment of tax.

In the result,

1. the appeal is dismissed; and

2. the decision of the Provincial Tax Commissioner is affirmed.

Given the magnitude of the outstanding assessment and the period covered by the assessment, the Commission believes it would be appropriate for the Tax Commissioner to enter into discussions with the Appellant with a view of establishing a payment schedule that would allow the Appellant a reasonable period of time in which to pay the outstanding assessment. Such an approach would lessen the burden on the Appellant in meeting its legal obligation herein as well as protect the interests of all taxpayers that the assessment will be paid.

3. Disposition

An order dismissing the appeal and affirming the decision of the Tax Commissioner will therefore issue.

Order

UPON the appeal of Purple Parrot Holdings Ltd. against a decision of the Provincial Tax Commissioner, dated January 25, 1999;

AND UPON hearing the evidence adduced by the Appellant as well as what was alleged by counsel for the Respondent at a hearing conducted in Charlottetown on April 7, 1999;

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

IT IS ORDERED THAT

1. The appeal is dismissed; and

2. The decision of the Provincial Tax Commissioner is affirmed.

DATED at Charlottetown, Prince Edward Island, this 20th day of April, 1999.

BY THE COMMISSION:

Wayne D. Cheverie, Q.C., Chair
Elizabeth MacDonald, Commissioner
Norman Gallant, 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.