Supreme Court of Canada
Simpsons-Sears Ltd. v. Provincial Secretary (N.B.) et
al., [1978] 2 S.C.R. 869
Date: 1978-01-19
Simpsons-Sears
Limited Appellant;
and
The Provincial
Secretary of the Province of New Brunswick and The Minister of
Justice of the Province of New Brunswick Respondents;
and
The Attorney
General for Ontario, The Attorney General for British Columbia and The Attorney General for Alberta
Intervenants.
1977: May 30, 31; 1978: January 19.
Present: Laskin C.J. and Martland, Judson,
Ritchie, Spence, Pigeon, Dickson, Beetz and de Grandpré JJ.
ON APPEAL FROM THE SUPREME COURT OF NEW BRUNSWICK, APPEAL DIVISION
Constitutional law—Taxation—Provincial sales
tax—Catalogues distributed free—Social Services and Education Tax Act, R.S.N.B.
1973, c. S-10, ss. 4, 5, 7.
The appellant is a large national retail
merchandising company with head office in Toronto. It carries on business in several Provinces of Canada through its
retail stores, of which there are three in New
Brunswick, and by means of catalogues which the
company distributes to prospective customers for use in ordering through its
sales offices, of which there were nineteen in New
Brunswick in 1972. Each year the company prepares,
issues and distributes two major catalogues in the Atlantic region. These are
prepared and printed in Toronto.
Some are sent by mail to known customers in New
Brunswick and others are distributed by home-delivery
from the sales offices and retail stores in the Province. The question is
whether or not the free distribution of the catalogues in New Brunswick is “consumption” of the
catalogues within the meaning of the Social Services and Education Tax Act, R.S.N.B.
1973, c. S-10, so as to make the appellant a consumer of goods consumed in
the Province. The tax imposed by s. 4 of the statute as originally enacted
was a sales tax upon “goods purchased at retail sale” within the Province and
it was made payable by the purchaser. In 1957 the present s. 4 was
substituted therefor with the difference that the tax imposed at that time was
“computed at the rate of 3 per centum of the fair value …”. Barry J. of the
Queen’s Bench Division set aside the tax assessment imposed in
[Page 870]
respect of the catalogues as invalid on the
grounds that it was beyond the purview of the Act and beyond the powers of the
Government of New Brunswick to impose constitutionally. The Appeal Division
however reversed.
Held (Martland,
Pigeon, Beetz and de Grandpré JJ. dissenting): The appeal should be allowed.
Per Laskin
C.J. and Judson, Ritchie, Spence and Dickson JJ.: Reading the section as
amended in the context of the statute as a whole the tax remains in the case of
a retail sale within the Province a sales tax payable by the purchaser. Both
ss. 5(1) and 7(1) relate to cases of such a retail sale within the Province and
when read together can only be construed as imposing a tax payable by the
consumer when he purchases goods at such a sale. The tax referred to in ss.
5(1) and 7(1) is obviously the tax imposed by s. 4 and the “consumption”
referred to in s. 4 has to be construed as a consumption after sale if
the goods are to be purchased at retail within the Province; “a sale” is an
essential component of the taxable consumption. In this case there is no sale
within or without the Province either at retail or otherwise, the question
therefore is whether the language of the statute can convert a free distributor
into a taxable consumer under s. 5(2). To construe consumption in
s. 1(b) as meaning that every “use of goods” is taxable would be absurd
and it is more reasonable to interpret the definition as being directed to
“ultimate use”. The catalogues are not to be regarded as finally consumed by
the appellant. The distribution merely gives potential customers the use of the
catalogues for making purchases within the Province but it is the purchase of
the goods and not the distribution which attracts the tax. The only final use
made of the catalogues is by those recipients who become purchasers for
consumption.
Per Laskin
C.J.: The language of the Act cannot be construed to convert a distributor into
a taxable consumer of the catalogues mailed or delivered free to persons in New Brunswick.
The present form of the taxing statute
derives from an effort by the provincial legislatures to find a drafting
formula to meet the test of a direct tax. This was found in imposing the
tax on the “consumer” and fortifying the charge by making retail sellers the
agents for the
[Page 871]
collection of that tax. It would be strange
if under the definition of “consumer” a Province could validly tax a seller or
a distributor regardless of the subsequent impact or general tendency of the
tax.
Per Martland,
Pigeon, Beetz and de Grandpré JJ. dissenting: Although the
appellant obtained an order stating constitutional questions as to the validity
of the tax on the catalogues, the submissions were limited to the contention
that the tax was not due under the circumstances. Atlantic Smoke Shops, Ld.
v. Conlon, [1943] A.C. 550, and Cairns Construction Ltd. v. Government
of Saskatchewan, [1960] S.C.R. 619, effectively dispose of the
constitutional objections based on the admitted fact that the cost of the
catalogues was part of appellant’s general expenses which have to be covered by
the mark-up of the goods sold. The free distribution of catalogues should not
be considered as a gift but as a business expenditure. Such free distribution
should be regarded as a “use” under the Act in the same way as a “use” by a
manufacturer or producer of items for advertising was under the federal
legislation considered in the Wampole case, [1931] S.C.R. 494. As the
appellant had borne the cost of the catalogues in question it should be held
liable for the tax.
[Atlantic Smoke Shops, Limited v. Conlon, [1943]
A.C. 550; Canadian Industrial Gas and Oil Limited v. Government of
Saskatchewan, [1978] 2 S.C.R. 545; Cairns Construction Limited v.
Government of Saskatchewan, [1960] S.C.R. 619; Attorney General for
British Columbia v. Kingcome Navigation Company Limited, [1934] A.C.
45; R. v. Henry K. Wampole & Co. Ltd., [1931] S.C.R. 494; Oriental
Bank Corporation v. Wright, (1880) 5 A.C. 842 (P.C.); I.R.C. v. Ross
and Coulter, [1948] 1 All E.R. 616 referred to.]
APPEAL from a judgment of the Supreme Court
of New Brunswick, Appeal Division,
allowing an appeal from a judgment of Barry J.
holding that the appellant was not liable to pay New Brunswick sales tax under
the Social Services and Education Tax Act now R.S.N.B. 1973,
c. S-10, in respect of catalogues distributed free in the Province. Appeal
allowed, judgment at trial restored, Martland, Pigeon, Beetz and de Grandpré
JJ.
[Page 872]
dissenting.
E. Neil McKelvey, Q.C., R.M. Sedgewick,
Q.C., and Eric Nazzer, for the appellant.
B.A. Crane and R. Speight for the
respondent.
Blenus Wright and V.L. Freidin for the
intervenant Attorney General for Ontario.
J.I. Bird and Norman Tarnow for the
intervenant Attorney General for British Columbia.
Wm. Henkel, Q.C., and E.F. Gamache for
the intervenant Attorney General for Alberta.
THE CHIEF JUSTICE—I have had the advantage of reading
the reasons of my brothers Ritchie and Pigeon, and I agree with my brother
Ritchie’s primary conclusion that the language of the New Brunswick Social
Services and Education Tax Act cannot be construed to convert a distributor
into a taxable consumer of the catalogues which that distributor mails or
delivers free to persons in New Brunswick. This is enough to dispose of the
appeal which I would allow as proposed by my brother Ritchie.
I make only this additional observation relating
to the present form of the taxing statute which charges the consumer and not
the purchaser, as was the case before 1957. The difference in formulation owes
much to the judgment of the Privy Council in Attorney-General for British
Columbia v. C.P.R., where
a gasoline tax charged on a “purchaser” was struck down as indirect. This led
to a provincial search for a drafting formula which would meet the test of a
direct tax, and it was found in imposing the tax on the “consumer” and
fortifying the charge by making retail sellers the agents of the government for
the collection of the tax: see Attorney‑General for British Columbia v.
Kingcome Navigation Co. Ltd.
[Page 873]
However “consumer” is defined, it must be
related to direct taxation, and it would be strange indeed if, under the terms
of a definition of “consumer”, a Province could validly tax a seller or a
distributor, regardless of the subsequent impact or general tendency of the
tax. Constitutional limitations cannot be evaded by such a bootstrap exercise.
This issue lurks in the present case, but it is unnecessary to pursue it.
The judgment of Martand, Pigeon, Beetz and de
Grandpré JJ. was delivered by
PIGEON J. (dissenting)—This is an appeal
from the unanimous judgment of the Appeal Division of the Supreme Court of New
Brunswick reversing the judgment of Barry J. of the Queen’s Bench Division and
restoring a tax assessment of $57,642.41 against appellant Simpsons-Sears
Limited. The assessment was made under what might be called the New Brunswick
sales tax act, the proper title of which is the Social Services and
Education Tax Act now R.S.N.B. 1973 c. S-10. The facts which are not
in dispute, were summarized by Hughes C.J.N.B. as follows:
… Simpsons-Sears Limited, (herein referred
to as “the company”) is a large national retail merchandising Company with head
office in Toronto. It carries on business in several of the Provinces of Canada
through its retail stores of which there are three in New Brunswick, and by
means of catalogues which the Company distributes to prospective customers for
use in ordering merchandise through the Company’s sales offices of which there
were nineteen in New Brunswick in 1972. Each year the Company prepares, issues
and distributes large numbers of two major catalogues in the Atlantic Region,
one in the spring season and the other in the fall. In these catalogues the
Company advertises a wide selection of merchandise at stated prices and gives
instructions how to order merchandise by mail and also by telephone. In
addition the Company distributes in large numbers several smaller catalogues
displaying seasonal selected merchandise.
The Company’s catalogues are planned,
prepared and printed in Toronto under the supervision of its general catalogue
order merchandising manager. …
[Page 874]
Some of the catalogues are sent by mail
from Ontario to persons in New Brunswick who have previously purchased goods
from the Company. Others are delivered by various means to customers’ homes
from the Company’s sales offices and retail stores in the Province. The Company
was assessed under the Act with respect to all catalogues delivered to persons
in New Brunswick in the year 1972 without cost to the recipients. Counsel for
the parties have agreed, (a) that the catalogues are “goods” within the meaning
of the Act; (b) that 383,976 catalogues were mailed by the Company in Ontario
in 1972 to customers in New Brunswick; (c) that the fair value of the
catalogues so mailed for the purpose of the Act was $239,762 and that the tax
thereon, if exigible, would be $19,180.96; (d) that during 1972 the Company
also delivered to customers in New Brunswick 419,181 catalogues; (e) that the
fair value of the catalogues so delivered for the purpose of the Act was
$386,786 and the tax thereon, if exigible, would be $30,942.88, and (f) that
interest on the assessment would be $7,518.57.
The relevant provisions of the Social
Services and Eduction Tax Act, which were in effect at the time
Simpsons-Sears is alleged to have become liable to the tax are the following:
1. In this Act, unless the context
otherwise requires
…
(b) “consumption” includes use and also
includes the incorporation into any structure, building, or fixture, of goods
including those manufactured by the consumer or further processed or otherwise
improved by him;
(c) “consumer” means a person who
(i) utilizes or intends to utilize within
the Province goods for his own consumption, or for the consumption of any other
person at his expense; or
(ii) utilizes or intends to utilize within
Province goods on behalf of or as the agent for a principal, who desired or
desires to so utilize such goods for consumption by the principal or by any
other person at the expense of the principal;
…
4. Every consumer of goods consumed in the
Province shall pay to the Minister for the raising of a revenue for Provincial
purposes, a tax in respect of the consumption of such goods, computed at the
rate of eight per centum of the fair value of such goods.
[Page 875]
5. (1) If the goods to be consumed are
purchased at a retail sale within the Province, the consumer shall pay such tax
computed on the fair value of the goods at the time of such purchase.
(2) If the goods are not purchased at a
retail sale within the Province, the consumer shall pay such tax on the fair
value thereof, determined in the manner following, namely:
(a) if the goods are primarily intended for
consumption by use only, such 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, such tax shall be computed on the fair
value of the goods at the time of consumption.
…
7. (1) In case of a retail sale within the
Province, the tax shall be payable by the purchaser at the time of the purchase
on the whole amount of the purchase price.
(2) 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.
(3) If the goods so brought in are
primarily intended for consumption by use only, he shall pay the tax payable
with respect to their consumption at the time such goods are brought into the
Province.
(4) If the goods are primarily intended for
consumption, otherwise than by use only, he shall pay such tax at the time of
consumption.
In setting aside the tax assessment the trial
judge said:
In the instant case, there was no sale of
the catalogues in New Brunswick. The catalogues come from Toronto and are
mailed free or given away free. The mailing takes place in Toronto to people in
New Brunswick. The remainder of the free distribution takes place in this
province. The sole purpose is to promote the sale of goods by Simpsons-Sears
Limited in New Brunswick,
[Page 876]
and the taxes collected from the purchaser
on a very high proportion of such sales so effected and remitted to the
respondent province. One can hardly say that the catalogues are consumed in
this province and they are certainly not sold here. Without doubt, they are
used here by at least some of the recipients. It is possible to define “use” as
including the distribution by the appellant but, in my opinion, the user in fact
is the recipient of the distributed catalogue. Its use by the appellant is
transitory.
Bearing in mind that many authorities hold
such opposite views, I express my opinion that the statute never contemplated a
tax on catalogues purchased in another province and distributed without charge
to people in this province. The plain ordinary common sense meaning to me, at
least, of the words “sale”, “purchase”, “consumption”, or “use” in the statute
bear no relation to the present factual situation. A dictionary definition is
not necessarily helpful in interpreting a taxation statute.
As against this Hughes C.J.N.B. said:
Having regard to the fact the company
employs catalogues to a purpose, I do not see how it can be successfully argued
that the company does not use or consume them. If the questions were asked:
Does the company utilize catalogues in its business?, I think the answer must
be in the affirmative; and it seems to me that it makes no difference whether
the catalogues were kept only at company’s retail stores or sales offices where
customers could order goods from them, or whether the catalogues were delivered
to prospective customers at their homes.
Counsel for the respondent made a special
submission with respect to the catalogues mailed in Ontario to persons in New
Brunswick. Counsel contends that even if the Court should find that the company
utilized the catalogues it did not do so within New Brunswick. It seems to me
the company is in no different position from any other resident of the Province
who orders goods from a merchant outside the Province for delivery by mail to
himself or to another person for that person’s use or consumption at the
expense of the person who ordered them. Although the company has its head
office in Ontario it has several places of business within the New Brunswick
and is therefore a person within the Province who may be taxed here, if taxed
directly: See Bank of Toronto v. Lambe (1887), 12 App. Cas. 575.
[Page 877]
The contention that the tax was indirect was
rejected essentially on the following basis:
The case of C.P.R. v. Attorney
General for Saskatchewan, [1952] 2 S.C.R. 231 was also cited in support of
the submission that the tax on catalogues in the circumstances of the present
case is ultra vires the province. In that case Rand, J. stated at
p. 251:
Lord Greene in the same case (British
Columbia v. Esquimalt & Nanaimo Railway Company (1950) A.C. 87) speaks of
the “fundamental difference” between the “economic tendency” of an owner to try
to shift the incidence of a tax and the “passing on” of the tax regarded as the
hallmark of an indirect tax. In relation to commodities in commerce, I take
this to lie in the agreed conceptions of economists of charges which fall into
the category of accumulating items: and the question is, what taxes, through
intention and expectation, are to be included in those items? If the tax is
related or relateable, directly or indirectly, to a unit of the commodity or
its price, imposed when the commodity is in course of being manufactured or marketed,
then the tax tends to cling as a burden to the unit or the transaction
presented to the market. However much, in any case, these may be actually
“intended” or “expected” to be passed on, it is now settled that they are to be
so treated: Attorney-General for British Columbia v. C.P. Railway Company,
[1927] A.C. 934; R. v. Caledonian Collieries, [1928] A.C. 538.
In my opinion a catalogue is not a
commodity in commerce in the ordinary sense, and a tax imposed with respect to
the consumption of catalogues by the company cannot be passed on as such.
Applying the test formulated by Mr. Justice Rand it is my opinion the tax
imposed by the Act on catalogues is not related or relateable to any unit of
the commodities which the company advertises and sells and cannot be regarded
as a tax which clings as a burden to a unit of the commodity or its price, or
to the transaction presented to the market. The mere fact that the company may
be able to shift the burden of the tax to the purchasers of its merchandise is
not, in my opinion, sufficient to make the tax an indirect one, for almost
everything purchased by a merchandiser of goods for the purpose of doing
business, except the merchandise which he purchases for resale, attracts a tax
under the Act. Naturally a merchandiser of goods seeks to recover such taxes
and any
[Page 878]
other direct taxes, such as real property
and business taxes which he pays on his business premises, from the purchasers
of his merchandise, but that does not make such taxes indirect taxes. Professor
La Forest in his publication entitled The Allocation of Taxing Power Under the
Canadian Constitution commented on the effect of passing on the burden of a tax
at p. 65 as follows:
What is required is the passing on of the
tax itself in a recognizable form, not its recovery by more or less circuitous
operation of economic forces. For that reason, subtle tracing of the ultimate
economic incidence of a tax is irrelevant, and evidence of such economic
tendencies will be rejected.
Although Simpsons-Sears obtained an order
stating constitutional questions as to the validity of the tax on the two
classes of catalogues, counsel appeared to concede the validity of the statute
and to limit his submissions to the contention that the tax was not due under the
circumstances. In any event, in view of what was decided by the Privy Council
in Atlantic Smoke Shops Ltd. v. Conlon
as to the constitutional validity of the New Brunswick Tobacco Sales
Act, I fail to see how a different conclusion could be reached with respect
to another sales tax legislation so closely similar in nature. In this
connection I would quote some passages from the unanimous judgment of the Court
rendered by Martland J. in Cairns Construction Ltd. v. Government of
Saskatchewan, holding
that a builder was liable for sales tax on the price of components incorporated
in houses built for a landowner or for resale (at pp. 626, 627, 629 and 630):
The appellant seeks to distinguish the Conlon
decision and that of the Privy Council in Attorney-General for British
Columbia v. Kingcome Navigation Company Limited ([1934]
A.C. 45), on the grounds that the taxes in question in those cases related
to goods purchased for the purpose of consumption by the buyer, tobacco in the Conlon
case, fuel oil in the Kingcome case. The Act in question in the
present case relates not only to personal property purchased for consumption,
which were referred to in argument as non-durable goods, but also to personal
property purchased for use, referred to in argument as durable goods. It was
contended that the
[Page 879]
major incidence of the tax imposed by the
Act would be upon durable goods. Such goods, it was argued, would, by their
nature, continue, after their purchase, to be capable of being the
subject-matter of subsequent trading. If they were subsequently traded, the
purchaser of them, who had paid the tax, would seek to pass it on to a
subsequent purchaser. Consequently it was submitted that a tax upon durable
goods is an indirect tax. The trading in of second-hand automobiles was cited
as an example. …
… In my opinion, the same reasoning which
led the Privy Council to conclude, in the Kingcome and Conlon cases,
that the respective statutes there under consideration imposed direct taxation
is properly applicable to the Act now under consideration and is not rendered
inapplicable because the present statute applies to durable as well as to
consumable goods. It is true that the number of cases in which there might be a
resale, as second-hand goods, by the taxpayer, of personal property which he
has purchased for his own use and on which he has paid tax is greater in
relation to durable goods than consumable goods. Our task, however, is to
consider the general tendency of the impost for the purpose of classifying the
tax. In my view, the sale by the taxpayer, as second‑hand goods, after
using it, of personal property which he has purchased for his own use, is
exceptional when considering the general tendency of the tax as a whole. I
cannot reach the conclusion that the Legislature, in imposing the tax, must
have had the expectation and intention that it would be passed on.…
Is the general character of the tax altered
because a house-builder, such as the appellant, would seek, as he undoubtedly
would seek, in fixing the price of the house, to recoup the tax which he was
required to pay in respect of the component parts? I do not think that it is.
In my view, this attempt to recoup the tax in such cases is no different from
the attempt which, in argument in the Kingcome case, it was suggested
would be made by the manufacturer or the transporter to pass on the fuel oil
tax there in question in the price of the article manufactured or transported.
The appellant would undoubtedly seek, when selling the house which he
constructed, to recoup himself for municipal land taxes which he had been
required to pay on the land on which the house is situated, yet, clearly, a tax
of this general character does not cease to be direct because cases may occur
in which the taxpayer may be able to pass it on, as was established in City
of Halifax v. Fairbanks Estate (1928 A.C. 117)….
These observations effectively dispose of the
constitutional objections based on the admitted
[Page 880]
fact that the cost of the catalogues was part of
Simpsons-Sears general expenses which, of course, have to be covered by the
mark-up of the goods sold, if the business is to be operated profitably.
In my view practically all the points raised by
counsel for Simpsons-Sears boil down to the submission that the actual users of
the catalogues, the ultimate consumers intended to be taxed, were the persons
to whom those catalogues were given by Simpsons-Sears. As to this, I have to
note that in Cairns Construction, the builder was held to be the final
user, Martland J. saying (at p. 629):
… it also appears to me that a person who
purchases personal property and incorporates it into something else, in the
process of which it loses its own identity as personal property, is the final
user of that personal property so incorporated. …
In the instant case consideration must be given
to what was decided by this Court with respect to federal sales tax, in a case
mentioned by Hughes C.J.N.B.: R. v. Henry K. Wampole & Co. Ltd., where tax was claimed on samples
produced for free distribution. Anglin C.J.C. speaking for the majority said at
pp. 496-497:
… My construction of clause (d) of
section 87 is that the “use” by the manufacturer or producer of goods not
sold includes any use whatsoever that such manufacturer or producer may make of
such goods, and is wide enough to cover their “use” for advertising purposes by
the distribution of them as free samples, as is the case here. …
But, in clause 4 of the Special Case, we
find the following statement:
4. The cost of producing such samples was
paid by the company as a necessary expense of business, and the company in its
books treated such expense as a necessary cost of production of articles
manufactured and sold, in respect of which last mentioned articles the company
has paid sales tax.
It is obvious to me that it cannot have
been the intention of the Legislature to tax the same property twice in the
hands of the manufacturer. Having regard to the admission of paragraph 4, above
quoted, such double taxation
[Page 881]
would ensue were we to hold the samples
here in question to be now subject to the consumption or sales tax, it being
there admitted that the cost of producing such samples is included in the “cost
of production of articles manufactured and sold, in respect of which … the company
has paid sales tax”.
If the cost or value of these goods used as
samples has already been a subject of the sales tax in this way, it would seem
to involve double taxation if they should be held liable for sales tax on their
distribution as free samples.
Both parties rely on this decision: the
respondents quoting it as supporting the view that the free distribution of the
catalogues is the final use, the appellant as supporting the submission that
double taxation is involved and the statute should be construed so as to avoid
it. However, it should be borne in mind that the Wampole case turned
upon the construction of a totally different statute where the tax is levied
not on the consumer, the ultimate user, but on the manufacturer. The present
case falls to be decided on the relevant statute and it turns mainly on the
application of subs. 2 and 3 of s. 7 of the Act the relevant parts
of which read:
(2) 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, … shall immediately report the matter to the Commissioner …
(3) If the goods so brought in are
primarily intended for consumption by use only, he shall pay the tax payable
with respect to their consumption at the time such goods are brought into the
Province.
Assuming that, as urged by the appellant, the
recipients of the catalogues are the ultimate users, it seems clear to me that
Simpsons-Sears is a person who has caused those goods to be brought into the
province for the use of other persons at its expense, seeing that under
s. 1(b) consumption “includes use”.
As against this two objections are made: first,
that the tax in question is not meant to be a gift tax and second, that the
recipients are liable to the tax and double taxation should be avoided.
[Page 882]
With respect to the first objection, I should
say that the free distribution of catalogues, like the free distribution of
samples or other advertising material, should not properly be considered as a
gift but as a business expenditure. Item (z) of the exemptions in s. 10 of
the Act (now item (gg) in s. 11) clearly indicates the
Legislature’s intention to tax catalogues, it reads:
(z) books which are printed and bound, and
which are solely for educational, technical, cultural or literary purposes, but
not including directories, price lists, timetables, rate books, catalogues,
periodic reports, fashion books, albums, magazines, periodicals, books for
writing or drawing upon, or any books of the same general classes;
The Legislature must have been aware that
catalogues, like price lists, timetables and rate books, are not usually sold
to the ultimate user when distributed to the general public. I can see no
reason why the free distribution of catalogues would not be a “use” under the
New Brunswick Act, as well as under the Federal Act considered in the Wampole
case.
As to the double taxation argument, it must be
conceded that nothing in the Act expressly exempts the recipients of catalogues
from being taxed as ultimate users. But such is the situation of every consumer
of taxable goods provided at another’s expense. In this respect, the situation
of the recipients is not different from that of guests at a banquet, the host
is liable for the tax just like the man who buys cigars for free distribution
on the occurrence of a blessed event. Is the tax collector’s claim going to be
defeated by the objection that the guests are legally liable for the tax and
nothing exempts them? Will the host be allowed to say that this is not a gift
tax?
In my view, if there is any substance in the
contention that the Act should be construed so as to avoid double taxation,
then the conclusion should be that the recipients of the catalogues, like
guests at a banquet, should be held not to be taxable. Otherwise, the words of
the statute “or for
[Page 883]
consumption of another person at his expense”
are deprived of any meaning. These words have obviously been inserted for the
purpose of having the giver taxed in the case where goods are provided free to
an ultimate consumer. They were in s. 5 of the Tobacco Tax Act which
was held valid by the Privy Council of the Atlantic Smoke Shops case. It
read:
5. Every person residing or ordinarily resident
or carrying on business in New Brunswick, who brings into the Province or who
receives delivery in the Province of tobacco for his own consumption or for the
consumption of other persons at his expense or on behalf of or as agent for a
principal who desires to acquire such tobacco for consumption by such principal
or other persons at his expense shall … pay the same tax …
Viscount Simon L.C. said at pp. 566-567:
… There is an obvious distinction between
an indirect tax, like an ordinary customs or excise duty, which enters into the
cost of an article at each stage of its subsequent handling or manufacture, and
an impost laid on the final consumer, as “the particular party selected to pay
“the tax,” who produces the money which his agent pays over. This is mere
machinery, and resembles the requirement in British income tax that in certain
cases A is assessed for tax which B really bears—a circumstance which does not
make income tax “indirect”. The test for indirect taxation which Mill
prescribed is the passing on of the burden of a duty by the person who first
pays it through subsequent transactions to future recipients in the process of
dealing with the commodity, or, at any rate, the tendency so to pass on the
burden. Here the position is quite different. It is really the principal who in
this case also both pays the tax and bears it. Their Lordships find it
impossible to suppose that, in applying the economic distinction which is at
the bottom of Mill’s contrast, it would be correct to call this tax “direct” if
a man bought a packet of cigarettes over the counter by putting his hand in his
pocket and paying price and tax himself to the vendor, but “indirect” if he
stood outside the shop and gave his wife the necessary amount to get the
cigarettes and pay the tax for him. …
In my view, the same reasoning must be made in
the case of goods bought for the use of another at
[Page 884]
one’s expense as in the case of goods bought for
another as his agent. When the agent pays the tax he pays it for his principal and
similarly when the giver pays the tax on goods bought for the use of another at
his expense he pays it to the exoneration of the recipient. The man who picks
up the check of his guest at the restaurant pays the tax on his meal as well as
the cost of the meal and no question of double taxation arises, no tax
collector was ever heard to have claimed a second tax from the guest on the
basis that the host had paid his own tax, anymore than no one ever heard of a
tax collector claiming a second tax from the principal when it had been paid by
an agent. It should make no difference whether the check is picked up for a few
guests or for a large number or whether the checks are paid cash or billed. In
the present case Simpsons-Sears has picked up the check for the cost of the
catalogues. I can see no reason why it should not be liable for the tax.
As to the contention that the catalogues were
not really supplied at Simpsons-Sears’ expense because this was done for
business purposes with a view of earning a profit and was covered by the
mark-up of goods sold, I would say first that this implies a construction of
the statute which is not in accordance with the usual meaning of the words. In
the usual meaning of language, a tradesman is always considered as supplying something
at his expense when he is supplying it without charge. If a merchant says: «All
merchandise delivered at our expense», every one understands this to mean that
there is no charge for the delivery. It will never be understood to mean that
this expenditure is not borne out of the profits made on sales and, in that
sense and from the point of view of an economist, included in the price of the
goods. In respect of the catalogues, the situation is even clearer than for any
other business expense, because the recipients are under no obligation to
purchase goods and they may well get them without buying any goods. Martland
J’s observations in the Cairns Construction case at pp. 629-30 should in
my view apply a fortiori against any view that, in law, the cost of
catalogues given free, is part of the goods sold.
[Page 885]
It should finally be noted that double taxation
is not unconstitutional. For instance, it is settled that legislatures may levy
death taxes on transmissions within the province as well as on property within
the province. Whenever the situs is in a province other than that in
which the transmission occurs this may result in double taxation which will be
avoided only if taxing provinces cooperate. In the present case, the Court was
informed that no tax had been claimed by Ontario, para. 40 of s. 5 of
The Retail Sales Act (R.S.O. c. 415), exempting “tangible personal
property to be shipped by the vendor for delivery outside Ontario”. A question
was raised by counsel for the Attorney General of Ontario as to whether this
exemption was properly applicable to the catalogues mailed from Toronto in view
of s. 41 of the Post Office Act (R.S.C. c. P-14). It does not
appear to me that this question, which is at variance with administrative
practice and never appears to have been raised previously, needs to be
considered in the present case. What the situation may be under the Ontario Act
is not required to be determined in the present case. Even assuming the
catalogues mailed from Toronto became the property of the addressees in
Ontario, the fact remains that Simpsons-Sears did cause those addressees to
receive delivery thereof in the Province of New Brunswick for their use at its
expense.
Counsel for the intervenants other than Ontario
were content to support respondents’ submissions.
I would dismiss the appeal with costs to the
respondents and, as usual, there should be no costs to or against the
intervenants.
The judgment of Judson, Ritchie, Spence and
Dickson JJ., in which Laskin C.J. also concurred, was delivered by
RITCHIE J.—The difficult question raised by this
appeal is whether or not the free distribution of catalogues by Simpsons-Sears
Limited in New Brunswick constitutes “consumption” of these catalogues within
the meaning of the Social Services and Education Tax Act, R.S.N.B. 1973
c. S-10 (hereinafter referred to as the “statute”, so as
[Page 886]
to make that company subject to tax as a
consumer of goods consumed in the Province. Section 4 of the statute provides:
4. Every consumer of goods consumed in the
Province shall pay to the Minister for the raising of a revenue for Provincial
purposes, a tax in respect of the consumption of such goods, computed at the
rate of eight per centum of the fair value of such goods.
The meaning of the words “consumer” and
“consumption” is explained by s. 1(b) and (c) of the statute, the relevant
portions whereof read as follows:
1. In this Act, unless the context
otherwise requires
…
(b) ‘consumption’ includes use and also
includes the incorporation into any structure, building, or fixture, of goods
including those manufactured by the consumer or further processed or otherwise
improved by him;
(c) ‘consumer’ means a person who
(i) utilizes or intends to utilize within
the Province goods for his own consumption, or for the consumption of any other
person at his expense.
When the statute was first enacted by c. 17
of the New Brunswick Acts of 1950, the predecessor of the present s. 4
provided that:
4. Every purchaser of goods purchased at a
retail sale in the Province shall pay to His Majesty in the right of the
Province for the raising of revenue at the time of making the purchase a tax in
respect of the consumption of the goods and the tax shall be computed at the
rate of 4 per centum of the purchase price of the goods purchased.
It was not until 1957 (New Brunswick Acts 1957
c. 59) that this section was repealed and the present s. 4
substituted therefor with the difference that the tax imposed at that time was
“computed at the rate of 3 per centum of the fair value …”.
The tax imposed by s. 4 of the statute as
originally enacted created a sales tax upon “goods purchased at retail sale
within the Province” and it was made payable by the purchaser. But it is now
contended by the respondent that the amended section provides for a tax on
“consumption” or “use” payable by the “consumer” whether he be
[Page 887]
purchaser, vendor, or producer of the goods and
whether they have been purchased at retail sale within the Province or not.
It appears to me that when the amended section is
read in the context of the statute as a whole, the tax imposed by s. 4
remains, in the case of a retail sale within the Province, a sales tax payable
by the purchaser.
Section 5(1) of the present statute provides:
5 (1) If the goods to be consumed are
purchased at a retail sale within the Province, the consumer shall pay such tax
computed on the fair value of the goods at the time of such purchase.
This section must, however, be read in
conjunction with s. 7(1) which reads as follows:
7. (1) In case of a retail sale within the
Province, the tax shall be payable by the purchaser at the time of the
purchase on the whole amount of the purchase price. [The italics are my own].
These two sections both relate to cases
where there has been “a retail sale within the Province” and in my view when
they are read together s. 5(1) can only be construed as imposing a tax
payable by “the consumer” when he purchases goods at such a sale.
The “tax” referred to in both these
sections is obviously “the tax” imposed by s. 4 which is the charging
section and when that section is read in light of s. 5(1) the
“consumption” therein referred to is to be construed as meaning a
consumption after sale if the goods are to be purchased at retail within
the Province. For these purposes “a sale” is an essential component of the
taxable consumption and where there has been such a sale the tax “shall be
payable by the purchaser” under s. 7(1).
This interpretation is reinforced by reference
to many other sections of the Act. I refer by way of example to s. 17
which reads:
17. The tax imposed by section 4 and
payable under subsection (1) of section 5, … shall be collected or
made as the case may be at the time of the purchase on the whole amount of
the purchase price. [The italics are my own].
As I have indicated, the predecessor of the
present statute was originally enacted as a Sales
[Page 888]
Tax Act imposing a direct tax on the purchaser
within the meaning of the language employed by Viscount Simon in Atlantic
Smoke Shops, Limited v. Conlon, and
in amending s. 4 so as to place the burden of the tax on the consumer, the
Legislature of New Brunswick nevertheless retained “a sale” or “purchase” as a
precondition of taxable consumption at least with respect to goods purchased at
retail in New Brunswick.
In the present case there is no sale of
catalogues within or without the Province either at retail or otherwise. The
appellant is the producer, not the purchaser of the catalogues and potential
customers receive them free of charge. I have referred to the last cited
sections only to show that the original concept of a sales tax payable by
the consumer purchaser is maintained in the present statute in respect of
retail sales within the Province. The question here, however, is whether in the
case of goods not purchased within or without the Province the language
employed in the statute serves to convert a free distributor into a taxable
consumer.
In this regard it becomes relevant to consider
the provisions of s. 5(2) of the statute which impose a tax on the
consumption of goods “not purchased at a retail sale within the Province” and
which read as follows:
5. (2) If the goods are not purchased at a
retail sale within the Province, the consumer shall pay such tax on the fair
value thereof, determined in the manner following, namely:
(a) if the goods are primarily intended for
consumption by use only, such 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, such tax shall be computed on the fair
value of the goods at the time of consumption.
The word “consumption” as it occurs in the
phrase “consumption by use” and “consumption otherwise than by use” in this
subsection must, as it seems to me, connote something more than and
different from “use” simpliciter, and in my opinion it is to be construed in
this context as importing
[Page 889]
finality so that the consumer either by use or
otherwise is the ultimate consumer and it is he who bears the tax. Incidental
use such as that which the appellant makes of its catalogue is not, in my
opinion, “consumption” within the meaning of this section or of s. 4
of the statute.
To construe the definition of “consumption” in
s. 1(b) as meaning that every “use of goods” is taxable under the statute,
in my view, if read literally could give rise to the absurdity that whenever a
citizen uses an article his use attracts the tax. I cannot attribute this
intention to the Legislature and find it more reasonable to interpret the
definition as being directed to “ultimate use”.
The catalogues in this case are not finally
consumed by the appellant who distributes them for the benefit of such of the
recipients as make retail purchases from them. The distribution merely places
the catalogues in the hands of potential customers for use by them in making
purchases within the Province, but it is the purchase of the goods and not the
distribution or receipt of the catalogues which attracts the tax.
If I should be wrong in the above conclusions
and the statute can be regarded as imposing a tax on the appellant’s free
distribution of catalogues, the further question arises as to whether such a
tax can under the circumstances of this case be said to be “direct taxation
within the Province” within the meaning of s. 92(2) of the B.N.A. Act. The
distinction between direct and indirect taxation has been fully explored by my
brothers Martland and Dickson in the course of their respective reasons for
judgment in the recent case of Canadian Industrial Gas and Oil Limited v.
The Government of Saskatchewan et al.
and I accept the definition adopted by them both in the following short
paragraph:
The dividing line between a direct and an
indirect tax is referable to and ascertainable by the ‘general tendencies of
the tax and the common understanding of men as to those tendencies. The general
tendency of a tax is the relevant criterion’.
[Page 890]
In my opinion, if the appellants were taxable in
respect of the distribution of their catalogues, the tax would not only be one
having a general tendency to be passed on, but it would in fact be passed on by
the appellant as appears from the evidence of its “General Catalogue Order
Merchandising Manager who stated:
Q. Well perhaps you could answer. Is
provincial sales tax, where payable, included in the cost of catalogues?
A. Yes.
Q. Which the department supervisors take
into consideration when setting their prices.
A. Yes, this is one of the elements of
cost, like paper and ink and setting, etc.
And again:
Q. Well is provincial sales tax, wherever
you have to pay it, included as a cost of the catalogue?
A. Yes, it is.
Q. And what would happen if there was an
increase in sales tax or a new sales tax? What does that do to the catalogue
costs?
A. Well it would be no different than any
other new cost or increased cost fact that we have charged to the individual
department, and in that respect it would have to be recovered through the
pricing.
The characteristics of a “direct tax” are
illustrated in the well-known judgment of Viscount Simon in Atlantic Smoke
Shops, Limited v. Conlon, supra, where he said at p. 563:
It is a tax which is to be paid by the last
purchaser of the article, and, since there is no question of further resale, the
tax cannot be passed on to any other person by subsequent dealing. The money
for the tax is found by the individual who finally bears the burden of it. It
is unnecessary to consider the refinement which might arise if the taxpayer who
has purchased the tobacco for his own consumption subsequently changes his mind
and in fact re-sells it. If so, he would, for one thing, require a retail
vendor’s licence. But the instance is exceptional and far-fetched, while for
the purpose of classifying the tax, it is the general tendency of the impost
which has to be considered. [The italics are my own].
This passage was adopted by Martland J., in the
course of his reasons for judgment in this Court in
[Page 891]
Cairns Construction Limited v. The Government
of Saskatchewan.
If the present statute did purport to impose a
tax on the appellant in respect of the free distribution of catalogues it could
not in any sense be regarded as a tax payable “by the last purchaser of the
article” or indeed by the last user thereof, and such a tax would not, in my
opinion, be a direct tax within the Province within the meaning of
s. 92(2) of the British North America Act.
We are dealing here exclusively with catalogues
delivered to the homes of prospective customers either by mail from Toronto or
by means of delivery within the Province and in my view if it could be said
that these catalogues so distributed are used or consumed by Simpsons-Sears in
New Brunswick, that use or consumption would be an intermediate use only,
leading to the consummation of retail sales of its products in the Province,
which sales are in turn subject to a tax payable by the purchaser if the goods
are intended for consumption in New Brunswick. These catalogues may well be
discarded by some of the recipients and consigned to the waste paper basket, in
which case they have been of no use to anyone and it is clear from the evidence
in this case that Simpsons-Sears Limited derives no benefit from them unless
and until a retail purchase is made by a recipient within the Province. In my
opinion their only final use is that made of them by those recipients who
become purchasers for consumption. But it cannot be that the recipients are
intended to be taxed as the consumers of the catalogues whether a purchase is
made or not; if this were so their individual liability to tax would depend on
whether or not the appellant had decided to send a catalogue to them. As I have
said, it is the purchase which the recipient makes from the catalogue and not
the catalogue itself which attracts the tax.
The cases of Atlantic Smoke Shops Limited v.
Conlon (supra) and Cairns Construction v. The Government
of Saskatchewan (supra), like that of the Attorney General for
British Columbia v. Kingcome Navigation Company Limited, are all
[Page 892]
sales tax cases in each of which a sale had been
made and in referring to the Atlantic Smoke Shops, Limited case, Mr. Justice
Pigeon observes:
… I fail to see how a different conclusion
could be reached with respect to another sales tax legislation so closely
similar in nature.
The distinction between those cases and the
present one is, as I have endeavoured to point out, that in each of those cases
there was a sale, whereas there is no sale of any kind involved in the
distribution of the catalogues and the statutory language does not in my
opinion convert the distributor into a final purchaser, consumer or user
required to bear the burden of the tax.
It was contended on behalf of the respondent
that even if the delivery of the catalogues did not constitute consumption by
the appellant for its own use, the distribution was nonetheless taxable as
constituting delivery of goods within the Province for the consumption of other
persons at the appellant’s expense. This contention is supported by reference
to s. 1(c) of the statute which, as I have said, defines a consumer as a
person who “utilizes or intends to utilize within the Province goods for his
own consumption, or for the consumption of any other person at his
expense;”. The argument is reinforced by reference to s. 7(2), (3) and (4)
which read:
(2) 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
… shall immediately report the matter to the Commissioner …
(3) If the goods so brought in are
primarily intended for consumption by use only, he shall pay the tax payable
with respect to their consumption at the time such goods are brought into the
Province.
(4) If the goods are primarily intended for
consumption, otherwise than by use only, he shall pay such tax at the time of
consumption.
It will be seen from the above that the
appellant is not, in my view, a consumer within the meaning of the statute but
the last quoted subsections purport to impose a tax on goods which a
person has brought or caused to be brought into the Province for the
consumption of another person at the
[Page 893]
expense of the importer, and it is contended
that even assuming that the recipients of the catalogues are to be regarded as
the ultimate users or consumers, the appellant is nonetheless taxable as a
person who has caused those goods to be brought into the Province for the use
of others at its expense. In the present case, however, the uncontradicted
evidence in my view establishes that Simpsons-Sears Limited has developed and
perfected a system to ensure that the expense involved in producing and
delivering its catalogue is reflected in the retail price charged for the goods
which it displays and is therefore borne by the ultimate consumer.
Mr. Justice Barry pointed this out in his reasons for judgment where he
said of the catalogues:
All costs of production, printing and
distribution were pro rated to various stores, outlets and departments on an
actuarial basis, and as a result, such costs would be reflected in the retail
selling price of the goods sold by the appellant.
In the same context, Chief Justice Hughes stated
that:
The department supervisors are informed of
the costs of the preparation and distribution of catalogues displaying their
merchandise since it is their responsibility to produce a profit and they have
to know the elements of cost that will be charged in computing the costs of the
merchandise.
As the ultimate consumers at or after retail
sale bear the expense of producing, printing and distributing the catalogues it
cannot, in my opinion, be said that they were brought into the Province for the
consumption of other persons at the expense of Simpsons-Sears within the
meaning of s. 1(c) and s. 7(2). The evidence does not appear to me to
support the inference that Simpsons-Sears “has picked up the check for the cost
of the catalogues” as suggested by my brother Pigeon.
The recovery of the expense of production which
is effected by the appellant is to be distinguished from the passing on of a
sales tax although both may enter into the retail price charged. What is at
issue here is the recovery of the expense of production and the evidence makes
it clear that the product in question which is never sold is paid for
[Page 894]
by the retail purchasers of the appellant’s
merchandise as the expense of producing it forms an element in the price paid
for that merchandise and is thus subject to a sales tax payable by the ultimate
consumer.
If I am correct in concluding that the word
“consumption” as defined in the statute refers to ultimate use or consumption
and that the ultimate users or consumers by whom the tax is payable in this
instance are those recipients of the catalogues who purchase the merchandise
displayed in it, then it must follow in my view that the subsections in
question have no application to the present circumstances. The catalogues are
not goods brought into the Province for the consumption of other persons at the
appellant’s expense if their “consumption” is evidenced by the ultimate
purchase of the appellant’s merchandise displayed in them; on the contrary,
such “consumption” would normally show the appellant a profit.
In the course of the argument, reference was made
to the case of R. v. Henry K. Wampole & Co. Ltd., which involved the taxing of
samples which were distributed without cost to the recipients and although the
statute in that case imposed a federal sales tax on the manufacturer and is
therefore of little assistance here, it is of interest, having regard to the
following paragraph of the judgment rendered by Anglin C.J.C. on behalf of the
majority of the Court:
If the cost or value of these goods used as
samples has already been a subject of the sales tax in this way, it would seem
to involve double taxation if they should be held liable for sales tax on their
distribution as free samples.
In this regard I share the view expressed by
Mr. Justice Barry that the present statute did not contemplate taxing the
appellant and the recipient as well.
Finally, I should advert to the fact that a
substantial number of the catalogues here in question were mailed from Toronto,
whereas the remainder were delivered to the recipients within the Prov-
[Page 895]
ince. I make no distinction
between the catalogues mailed to New Brunswick from Ontario and those given
away in New Brunswick except that in relation to the catalogues mailed, the
transaction is complete in Ontario insofar as Simpsons-Sears is concerned and
this affords an additional reason why the New Brunswick Government cannot
validly tax the goods involved therein.
It will be seen that in my opinion, in the
particular circumstances of this case, the tax sought to be imposed by the
present statute would be an indirect tax if the statutory language were such as
to reach the appellant as producer and distributor of the catalogues, but that
as there is no purchase of goods by the appellant either within or without the
Province and as Simpsons-Sears Limited is not a “consumer” of goods “not
purchased at a retail sale within the Province” within s. 5(2), there is
no provision in the statute creating a tax payable by the distributor in
respect of the free distribution of the catalogues here in question.
In seeking to determine the true meaning of the
language used in the present statute, I have been mindful of the observation of
Lord Blackburn in Oriental Bank Corporation v. Wright, when he referred to the rule “that
the intention to impose a charge on the subject must be shewn by clear and
unambiguous language” and I have also had very much in mind what was said by
Lord Thankerton in I.R.C. v. Ross and Coulter, at p. 625 where he said:
Counsel are apt to use the adjective
‘penal’ in describing the harsh consequences of a taxing provision, but if the
meaning of the provision is reasonably clear, the courts have no jurisdiction
to mitigate such harshness. On the other hand, if the provision is capable of
two alternative meanings the courts will prefer that meaning more favourable to
the subject. If the provision is so wanting in clarity that no meaning is
reasonably clear, the courts will be unable to regard it as of any effect.
If the charging sections of the present
statute are susceptible of alternative meanings, it will be seen that I prefer
that which is more favourable to the appellant.
[Page 896]
For all these reasons, I would allow this appeal
and restore the judgment rendered at trial by Barry J. The appellant is
entitled to its costs both in this Court and in the Appeal Division of the
Supreme Court of New Brunswick. There will be no costs for or against any of
the intervenants or the Minister of Justice of the Province of New Brunswick.
Appeal allowed with costs, judgment at
trial restored, MARTLAND, PIGEON, BEETZ and DE GRANDPRÉ JJ. dissenting.
Solicitors for the appellant: McKelvey,
Macaulay, Machum & Fairweather, Saint John.
Solicitor for the respondents: The
Attorney General for New Brunswick, Fredericton.
Solicitor for the Attorney General for
Alberta: William Henkel, Edmonton.
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