Minister of Finance of New Brunswick et al. v. Simpsons-Sears Ltd., [1982] 1 SCR 144

Supreme Court of Canada

Minister of Finance of New Brunswick et al. v. Simpsons-Sears Ltd., [1982] 1 S.C.R. 144

Date: 1982-01-26

The Minister of Finance of the Province of New Brunswick and the Minister of Justice of the Province of New Brunswick Appellants;

and

Simpsons-Sears Limited Respondent;

and

The Attorney General of Canada, the Attorney General for Ontario, the Attorney General of Quebec, the Attorney General of Nova Scotia, the Attorney General of Manitoba, the Attorney General of British Columbia, the Attorney General of Prince Edward Island, the Attorney General for Saskatchewan, the Attorney General for Alberta Interveners.

File No.: 16209.

1981: December 14; 1982: January 26.

Present: Laskin C.J. and Martland, Ritchie, Dickson, Beetz, Estey, McIntyre, Chouinard and Lamer JJ.

ON APPEAL FROM THE COURT OF APPEAL OF NEW BRUNSWICK

Constitutional law—Taxation—Provincial sales tax—Free distribution of catalogues—Ultimate consumer for tax purposes—Social Services and Education Tax Act, R.S.N.B. 1973, c. S-10, ss. 4, 5, 7, 8, 11.2—British North America Act, 1867, s. 92(2).

Appellants taxed respondent company for free distribution of catalogues to its customers in New Brunswick from 1975 to 1977, relying on the 1978 amendment of the Social Services and Education Tax Act which covered those years retrospectively. In an earlier case this Court ruled against the taxation imposed by the Act prior to amendment. Respondent successfully contended before the Court of Appeal that it was not the ultimate consumer, and as such the taxation was indirect. The issue raised under the applicable legislation is whether the taxation of the company in respect of the free distribution of its catalogues in New Brunswick is “Direct Taxation within the Province”.

Held: The appeal should be allowed.

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The company fell within the terms of the amended Act, so far as construction and application were concerned, and those amendments made this Court’s earlier judgment that the tax was not valid inapplicable here. That the company carried on business in the province and distributed the catalogues for promotional purposes within the province established a valid tax base within the province subject to the tax being direct.

The tax was direct. It took no account of what ultimately happened to the catalogues and was unrelated to any purchases made from them. Further, there was no traceable way in which the tax could be passed on. Indeed, the tax was not related or relateable to any unit of a commodity or its price; no commodity was involved. The possibility of the company recouping the tax in its overall pricing structure was no ground for classifying the tax as indirect.

Atlantic Smoke Shops, Ltd. v. Conlon, [1943] A.C. 550; Attorney General of Newfoundland v. Avalon Telephone Co. Ltd. (1962), 33 D.L.R. (2d) 402; Franklin Enterprises Ltd. v. Province of Nova Scotia (1981), 45 N.S.R. (2d) 604; Brewers and Maltsters’ Association of Ontario v. Attorney General for Ontario, [1897] A.C. 231; R. v. Caledonian Collieries, Limited, [1928] A.C. 358; Charlottetown v. Foundation Maritime Ltd., [1932] S.C.R. 589; Bank of Toronto v. Lambe (1887), 12 App. Cas. 575; C.P.R. v. Attorney General for the Province of Saskatchewan, [1952] 2 S.C.R. 231, referred to.

APPEAL from a decision of the New Brunswick Court of Appeal (1980), 113 D.L.R. (3d) 36, 30 N.B.R. (2d) 151, 70 A.P.R. 151, dismissing an appeal from a judgment of Stratton J. holding that the taxation imposed on the respondent in respect of catalogues distributed free in the province was indirect. Appeal allowed.

Richard C. Speight and Alan Reid, for the appellants.

R.M. Sedgewick, Q.C., E. Neil McKelvey, Q.C., and E.G. Nazzer, for the respondent.

Blenus Wright, Q.C., and Elizabeth Goldberg, for the intervener the Attorney General for Ontario.

Jean-K. Samson and Jean-François Jobin, for the intervener the Attorney General of Quebec.

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Reinhold M. Endres and James G. Spurr, for the intervener the Attorney General of Nova Scotia.

D.D. Blevins and T.G. Hague, for the intervener the Attorney General of Manitoba.

Donald L. Clancy, for the intervener the Attorney General of British Columbia.

Ralph Thompson, for the intervener the Attorney General of Prince Edward Island.

William Henkel, Q.C., and Nolan D. Steed, for the intervener the Attorney General for Alberta.

W.N. Lawton, Q.C., for the intervener the Attorney General for Saskatchewan.

T.B. Smith, Q.C., for the intervener the Attorney General of Canada.

The judgment of the Court was delivered by

THE CHIEF JUSTICE—The question in this appeal is whether the Legislature of New Brunswick, in amending its Social Services and Education Tax Act, R.S.N.B. 1973, c. S-10, by 1978 (N.B.), c. 55 has overcome the frailties in the Act which precluded it from lawfully taxing the respondent company in respect of the free distribution of catalogues to persons in the province. This Court decided, by a majority judgment reported in [1978] 2 S.C.R. 869, that the taxation could not be supported under the Act as it stood before the 1978 amendments. That judgment related to catalogues distributed in 1972. The present appeal relates to catalogues distributed in 1975, 1976 and 1977. The amendments in 1978 covered those years retroactively, but nothing turns on this feature of the case.

As in the former case, the catalogues were either shipped in bulk from Ontario and distributed in New Brunswick by the respondent (which carries on business in that province as well as elsewhere in Canada) to customers and prospective customers or were mailed from Ontario directly to individual customers in New Brunswick whose names are made known by the company’s New Brunswick offices. The issue raised under the applicable legislation is whether the taxation of the company in

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respect of the free distribution of its catalogues in New Brunswick is “Direct Taxation within the Province” under s. 92(2) of the British North America Act, 1867. Stratton J. of the New Brunswick Queen’s Bench held that the taxation was indirect and this conclusion was affirmed in a majority judgment of the Court of Appeal, Limerick J.A. dissenting.

Following the judgments in the New Brunswick Courts, and leave to appeal here having been given, the following constitutional question was fixed for determination:

Are the provisions of The Social Services and Education Tax Act, R.S.N.B., 1973, Chapter S-10 under which a promotional distributor is taxed in respect of the provision of goods by way of promotional distribution, intra vires the legislature of New Brunswick in respect of:

(a) catalogues brought into the Province by the Respondent and distributed in the Province to the Respondent’s customers and prospective customers, without charge?

(b) catalogues mailed from outside the Province directly to the Respondent’s customers in the Province, without charge?

In the earlier case which came to this Court under the legislation as it stood before the 1978 amendments, Barry J. held that the company was not properly taxable but his judgment was set aside by the Court of Appeal. This Court, in turn, restored the judgment of Barry J., and it is clear from the reasons of Stratton J. and of the Court of Appeal in the present case that they relied heavily on this Court’s earlier judgment in the matter in finding in favour of the company. I turn therefore to consider that judgment and the state of the legislation to which it was directed before dealing with the amendments made in 1978.

The majority judgment delivered by Ritchie J. turned on the construction and application of the Act before it was amended. I wrote concurring reasons on construction, but did not join in Ritchie J.’s further opinion that if he were wrong in construction of the Act then, in any event, it imposed

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an indirect tax. His reasons on both construction and constitutionality were supported by Judson, Spence and Dickson JJ. Since there was a dissent by Pigeon J., in which Martland, Beetz and de Grandpré JJ. joined, (a dissent turning largely on the construction and application of the taxing statute and implicitly recognizing its constitutionality) it is obvious that it was only on the question of construction and application that there was a majority judgment of this Court.

The central point taken by the majority was that under the relevant legislation it was the ultimate consumer who was taxed either as a result of consumption of goods after a retail sale in the province or as by use of the goods within the province. The charging section of the Act, s. 4, was in these terms:

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.

“Consumer” and “consumption” were defined in s. 1(b) and (c) 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;…

Ritchie J. also brought into account s. 5(1) and s. 7(1) which were, respectively, as follows:

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.

…

7. (1) In case of a retail sale within the Province, the tax shall be payable by the purchaser at the time of the

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purchase on the whole amount of the purchase price. [The italics are those of Ritchie J.]

He then assessed the thrust of the statute in respect of a retail sale within the province in these words (at p. 887):

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 [paid?] as the case may be at the time of the purchase on the whole amount of the purchase price. [The italics are those of Ritchie J.]

And there is the further passage (at p. 888):

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.

Finally, on construction and application, he considered the effect of s. 5(2), imposing a tax in respect of the consumption of goods not purchased at a retail sale in the province. This provision was in these words:

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

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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.

He dealt with this provision as follows:

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 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.

The dissenting reasons of Pigeon J. rejected what he said was the main submission of the company, namely, that the actual users of the catalogues, the ultimate consumers intended to be taxed were the persons to whom the catalogues were given by the company. In his view, the case turned mainly on the application of s. 7(2) and (3) of the Act. These provisions were as follows:

7.(1)…

(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

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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.

The learned Justice, after quoting the foregoing subsections, said this (at p. 881):

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”.

He dealt, further, with two other objections by the company to its taxability; first, that the tax was not meant to be a gift tax and that since the recipients of the catalogues were liable to tax a construction involving double taxation should be avoided. He rejected the gift tax contention by asserting that the free distribution of samples or other advertising material should be considered a business expenditure. Having regard to s. 11(gg) of the Act, the Legislature intended to tax catalogues and the free distribution thereof was a “use” under the Act. As to the double taxation argument, he assimilated the recipients of catalogues to guests at a banquet, the host being the person who bears any tax; and he added (at p. 882) that “the tax collector’s claim [was not] to be defeated by the objection that the guests are legally liable for the tax and nothing exempts them”. To hold otherwise would deprive the words of the statute “or for consumption of another person at his expense” of any meaning, and this would be contrary to what the Privy Council held under a similar provision in Atlantic Smoke Shops, Ltd. v. Conlon, [1943] A.C. 550, at pp. 566-67. In any event, Pigeon J. concluded, double taxation was not unconstitutional.

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The Amendments in 1978

The 1978 amendments to the Social Services and Education Tax Act left the charging section, s. 4, unchanged. However, significant changes were made in the definition provisions which added definitions of “promotional distribution” and “promotional distributor”, a new definition of “purchaser” and a new definition of “sale”. The added and new definitions read as follows:

“promotional distribution” means the provision by any person to others of any goods other than the provision thereof that is prescribed by the Minister to be excluded from the application of this paragraph that is, in the opinion of the Minister, provided for anyone or any of the following:

(a) to describe, or to promote or encourage, the purchase, consumption or use of, any goods, wares, services or property of any kind,

(b) to furnish to any person any directory, listing or compilation of persons, places, prices, services, commodities, places of business or users of any service, or

(c) for any function, use or purpose prescribed by regulation to be promotional distribution;

“promotional distributor” means any person who is a resident of, or carries on business in the Province and who, by way of promotional distribution, provides or causes to be provided to any person in the Province any goods the full fair value of which is not specifically charged to, and required to be paid by, the person to whom such goods are provided;

“purchaser” means a consumer who acquires goods at a retail sale within the Province and includes also a promotional distributor to the extent that the full fair value of any goods provided by way of promotional distribution exceeds any payment specifically made therefor by the person to whom such goods are so provided;

“sale” includes

(a) exchange, barter, sale on credit, conditional sale, sale where the price is payable by instalments, transfer of title conditional or otherwise, and any other contract whereby for a consideration a person delivers goods to another

(b) a transfer of possession, conditional or otherwise, or a lease or a rental, determined by the Commissioner to be in lieu of a transfer of title, exchange or barter, and

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(c) the provision by way of promotional distribution of any goods

Also significant was the revised definition of “consumption” and “use”, now reading as follows:

“consumption” and “use” includes the provision by way of promotional distribution of any goods and the incorporation into any structure, building or fixture, of goods including those manufactured by the consumer or further processed or otherwise improved by him;

Substantive changes included a substituted s. 5(2) and (3), a re-enactment of s. 8(1) and an amended s. 8(2) and a new s. 11.2. These provisions are, respectively, in these terms:

5(2) Every person who consumes within the Province goods acquired by him for resale, or who consumes within the Province goods manufactured, processed, or purchased by him within or without the Province shall, for the purpose of this Act, be conclusively deemed to have purchased that property at a retail sale in the Province.

5(3) Where the Commissioner deems 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 such goods for such purpose shall be as so determined by him.

…

8(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.

8(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 them and for the purposes of applying the tax under this Act such goods are deemed to have been purchased at a retail sale within the Province.

…

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11.2 A person in the Province to whom any goods are provided by way of promotional distribution is, with respect to the consumption or use thereof, exempt from the tax imposed by this Act on the amount by which the full fair value thereof exceed any payment that is made by him solely and specifically for the receipt by him of the goods so provided and that is not referrable to the purchase, consumption or use by him of any other property, right or service.

Effect of the Amendments on Construction and Application

In my opinion, the new definition of “promotional distribution” and of “promotional distributor” and the substituted definition of “purchaser” and of “consumption” and “use” bring the company under the charging s. 4 and the recipient within the new s. 11.2 in respect of their free distribution of catalogues in the province.

It was pointed out by counsel for the respondent company that not all of the 1978 amendments were given retroactive effect (i.e. to January 1, 1975) to catch the catalogue distribution involved in the present appeal. Thus, although the definitions of “promotional distribution”, of “promotional distributor” and of “consumption” and “use” were made retroactive and so too the new s. 11.2, no such effect was given to the redefinition of “sale” or to the re-enacted s. 5(2) and (3) and s. 8(1) and (2); these last-mentioned provisions came into force on June 28, 1978 and hence did not embrace the catalogues for 1975, 1976 and 1977 which are the subject of this appeal. Of the provisions not given retroactive force, the only material one is the definition of “sale” which includes in its meaning “the provision by way of promotional distribution of any goods”.

On this footing, counsel for the company contended that the judgment of this Court in the earlier case still governed and that the company was not taxable because it was not the ultimate consumer. Counsel also emphasized that the definition of “consumer” also remained unchanged. This, however, is of no assistance to the company here when “consumption” mentioned in the definition of “consumer” has been given an enlarged

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meaning as of January 1, 1975, to include the provision of goods by way of promotional distribution. (This, of course, is also one of the new meanings of “sale”.)

However, the fact that the redefinition of “sale” did not become effective until 1978 does not alter the application of the charging s. 4 to the present case. That section does not speak of “sale” but rather of “consumption” of goods in the province, and thus brings into operation the extended definition of “consumption” that I have already mentioned.

The foregoing notwithstanding, it was the further submission of the company that the tax remained a consumption tax or that, at the most, the amended statute imposed a hybrid form of consumption tax which still made it necessary to determine who was the ultimate consumer. If, as was contended, the company was not the ultimate consumer, then necessarily the tax must be judged indirect.

I shall come to this last submission shortly but for the moment I simply emphasize that so far as the construction and application of the amended Act are concerned, the company is within its terms. It is no longer possible to say that the Act is geared only to a retail sale and that it does not permit converting a distributor into a consumer.

I should add that involved in the company’s submissions on the construction and application of the Act was the reading into the charging section of the words in respect of or upon a retail sale in the province. This view appears to have been based on the definition “purchaser” and on the fact that the definition of “sale” had remained unchanged until June 28, 1978. Although such a construction was justified as the Act stood before it was amended, with effect as of January 1, 1975, the amendments respecting “purchaser”, “consumption” and “use” militate against the attempt to limit the charging section to retail sales. The words “retail sale” do not appear in s. 4 and “purchaser” and “consumption” and “use”, as of January 1, 1975, include a promotional distributor and pro-

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motional distribution. The charging section is, accordingly, much broader than it was previously and goes beyond retail sales, although they too are caught by reason of the definition provisions in the Act.

The matter is, indeed, beyond challenge so far as the construction and application of the amended Act is concerned. The pivotal question is rather whether the Act as amended imposes direct taxation within the province. In short, unlike the earlier case, the present one turns directly upon the constitutional issue posed for determination.

The Constitutional Issue

There is no constitutional infirmity in so far as the Act, in some of its provisions, vests the authorized Minister with power to determine the fair value of goods subject to taxation. I referred in my concurring reasons in the earlier case to evasion of constitutional limitations by a ‘bootstrap’ exercise, and the only provision of the present Act which raises this possibility is clause (c) of the definition of “promotional distribution”. This clause does not, however, come into play in the present case, and it will be enough to consider its import when a regulation is promulgated directed to a prescription of promotional distribution, not otherwise specified in the Act.

Before turning to the competing contentions of the parties on constitutionality, I wish to refer to the judgments in the New Brunswick Courts. Stratton J., at first instance, dwelt on company evidence that a provincial tax on its catalogues (the learned Justice used the words “sales tax”) would be considered as part of the cost added to and included in the cost of merchandise to the consumer. The following passages from his reasons are relevant to his conclusion that the tax is indirect:

I am satisfied and find upon the evidence which was adduced at the trial of this action that the company is the producer and distributor of the catalogues sought to

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be taxed but is not the final purchaser, consumer or user of them. Its use or consumption is intermediate only, nor does it derive any benefit from the catalogues unless and until a retail purchase is made by a recipient within the Province. The final or ultimate use of the catalogues is that made by the recipients who become purchasers for consumption of the goods displayed therein who would pay the Social Services and Education Tax on the price of the goods purchased by them.

I am also satisfied and find that the Act, prior to its amendment, did not contemplate a tax on catalogues produced in another Province and distributed without charge to persons within this Province. I am equally satisfied that the Minister cannot, by altering the definitions contained in the Act as it has sought to do by the amending Act, convert an indirect tax into a direct one.

…

In this present action, I am satisfied and find that the tax here sought to be imposed on the company as a promotional distributor of goods used by the company for the purpose of developing sales and earning profits, is a tax having a general tendency to be passed on by the company to the purchasers of its merchandise by way of an increase in the retail price of such merchandise and that it is the ultimate consumer who will bear the increase. I therefore conclude and hold that, in its true nature and effect, the tax here sought to be levied upon the company constitutes indirect taxation and is beyond the legislative jurisdiction of the Province to impose.

The New Brunswick Court of Appeal in its majority reasons gave what appears to me to be a reluctant affirmation. Hughes C.J.N.B. concluded, as I did above in these reasons, that the words of the applicable amendments to the Act were sufficient to impose the tax in respect of the distribution of catalogues, but he drew back on the question whether the tax was direct. The two concluding paragraphs of his reasons were as follows:

As I see the situation there appears to be a tendency on the part of the Courts to classify all taxes on businesses as indirect, unless the tax falls within some category which has traditionally been considered as direct.

The learned trial Judge decided that the tax being questioned in the instant case is one having a general tendency to be passed on and held it to be an indirect

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tax, and hence ultra vires the Legislature to impose. Although that conclusion is debatable I am not convinced that it is wrong in view of the more recent decisions of the Supreme Court.

Limerick J.A., in dissent, took a favourable view of the reasons of Chief Justice Hughes in the earlier case, those reasons being (unlike those in the present case) adverse to the company’s position. He said this, inter alia:

A tax which is imposed on a retailer and is absorbed by it as a cost of operation and is passed on only as an unidentified ingredient in the cost of the goods sold is not thereby an indirect tax. If it were so all taxes imposed on retailers such as Income Tax, real estate taxes, taxes on personal property used and totally consumed in the retailer’s business such as taxes on paper, accounting books, pencils, building supplies, etc. would also be indirect taxes.

…

As the tax on catalogues cannot be passed on to subsequent consumers of the catalogues and can only be recouped by an increase in the price of goods sold or by an increase in volume of business with or without an increase in price, which increase in volume is brought about by the free distribution of the Catalogues, the tax must be considered direct, as the manner of recoupment, if made, can only be accomplished in a manner and form entirely unrelated to the form and nature of the tax as imposed.

The tax is on the value of the catalogues. I find when recouped it would be apportioned as between users of the catalogues on the basis of the value and nature of the goods purchased even though the use of the catalogues by each purchaser was on one occasion only or on the same number of occasions. The tax on the value of the catalogues would be passed on as a levy on the value of the goods purchased and not passed on as attached to the catalogues or in the same form as originally imposed.

In effect this Court in the earlier case found that the tax if applicable to a distribution of catalogues was a direct tax. That part of this Court’s decision was not rejected by the Supreme Court of Canada and was not dealt with by a majority of that Court. We should not now reverse our own judgment in that respect unless we are convinced that we were clearly wrong in coming to that conclusion in the earlier appeal. I am not so convinced.

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He concluded by asserting that it was not inevitable that the tax would be passed on to purchasers of goods illustrated in the catalogues. A variety of factors entered into the pricing of goods, including supply and demand and competition. Accordingly, the tax was not indirect.

In this Court, the contentions of the appellants, the Minister of Finance and Minister of Justice of New Brunswick, were supported by the Attorneys General of eight other provinces, all but Newfoundland having intervened. The Attorney General of Canada supported the company on alternate grounds, contending, first, that the amended Act did not reach the distribution of catalogues, whether mailed from Ontario to individual customers or prospective customers or distributed to them in the province; and, second, if the amended Act did reach them, it imposed an indirect tax. I need deal here only with the alternate constitutional issue raised by the Attorney General of Canada, having already rejected the construction point in what has gone before in these reasons.

Before dealing with the question whether the tax imposed is direct, I wish to mention a company submission that the tax, at least in respect of the mailings from Ontario to individuals in New Brunswick, is not a tax within the province. Having regard to the definition of “promotional distribution” and “promotional distributor”, as carried into the definition of “consumption” and, in turn, into the charging s. 4, the submission is untenable. The company carries on business in the province and, by way of promotional distribution, has caused the catalogues to be provided to persons in the province. These facts, all prescribed by the Act, are sufficient to establish a valid tax basis within the province if the tax imposed is direct.

On this score, it was submitted by the appellant that on the facts and in light of the amended statute, the company was the consumer of the catalogues, coming within the definition of “consumer” and, by extension thereunder, within the charging s. 4. The tax, therefore, in respect of the

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distribution of catalogues in the province was a direct tax payable by the company as the consumer and, indeed, as the ultimate consumer. The purported fortification of this conclusion by s. 11.2 would not of itself turn a tax otherwise indirect into a direct tax but it does assist as a statutory determination of ultimate consumption when, under s. 11.2, a person who receives a catalogue free of charge is declared to be exempt from tax in respect of the catalogue. The larger, and more critical question, is whether this assists in determining whether the tax is direct or indirect.

I am in agreement with the contention of the appellant that Hughes C.J.N.B. went too far in his assertion that there was a tendency on the part of the courts to classify all taxes on businesses as indirect, unless the tax falls within some category traditionally considered as direct. Income taxes and land taxes are, of course, the prime examples of taxes traditionally classified as direct but there are other examples of taxes payable in respect of business operations that have been treated as direct. Attorney General of Newfoundland v. Avalon Telephone Co. Ltd. (1962), 33 D.L.R. (2d) 402, provides one example and the recent judgment of Cowan C.J.T.D. of the Nova Scotia Supreme Court in Franklin Enterprises Ltd. v. Province of Nova Scotia (1981), 45 N.S.R. (2d) 604, provides another. This last-mentioned case is relevant because there a hotel enterprise was held to be validly taxable in respect of its purchase for use in its hotel of tangible personalty such as beds, bedspreads, linens, towels, soap, matches and tissue paper. Again, as was pointed out by the appellant, if, as in Brewers and Maltsters’ Association of Ontario v. Attorney General for Ontario, [1897] A.C. 231, the Province of New Brunswick had imposed a licence fee in respect of the free distribution of catalogues, it would be difficult indeed to contend that an indirect tax had been imposed, especially when the fee had no relation to the quantity of goods.

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It would be a more apt illustration than that used by Chief Justice Hughes to say that taxes in respect of commodities or commercial transactions at the retail or production level have been generally classified as indirect, as, for example, in R. v. Caledonian Collieries, Limited, [1928] A.C. 358, and in Charlottetown v. Foundation Maritime Ltd., [1932] S.C.R. 589. The respondent company has invoked this line of cases, not as being directly applicable on their facts but as expressing the principle that where the general tendency of a tax is that it will be passed on and hence paid by someone other than the person upon whom it is initially imposed, it will be regarded as an indirect tax.

This assertion was related by the company to a submission to which I referred earlier, namely, that the tax was a consumption tax or at best a hybrid form of tax and that it remained necessary to determine who was the ultimate consumer. This contention has validity in a case such as Caledonian Collieries where the Court was concerned with a sale situation. Here there is no question of a sale, and consumption, in its literal meaning, does not come into the picture save in its artificial meaning as reflected in its extended definition. In that respect, it is only the company that can be regarded as the ultimate consumer for tax purposes.

There is no doubt, on the evidence, and on ordinary economic considerations which are obvious enough to justify a Court in taking judicial notice of them, that the company would seek, if it could, to include the cost to it of its catalogues and the tax payable on their free distribution in its expense of doing business, and thus seek to pass this expense on to its customers. However, economic considerations are not invariable touchstones of legal incidence. Although the tests of direct and indirect taxation have, almost from the beginning of Canadian federalism, been based on Mill’s Political Economy, they have necessarily been placed in a legal setting and have been applied as providing a legal definition and not an economic one. There is a passage in Bank of Toronto v. Lambe (1887), 12 App. Cas. 575, at p. 583, which is an appropriate reference here,

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although it deals with a different type of tax. The passage is as follows:

…the tax now in question is demanded directly of the bank apparently for the reasonable purpose of getting contributions for provincial purposes from those who are making profits by provincial business. It is not a tax on any commodity which the bank deals in and can sell at an enhanced price to its customers. It is not a tax on its profits, nor on its several transactions. It is a direct lump sum, to be assessed by simple reference to its paid-up capital and its places of business. It may possibly happen that in the intricacies of mercantile dealings the bank may find a way to recoup itself out of the pockets of its Quebec customers. But the way must be an obscure and circuitous one, the amount of recoupment cannot bear any direct relation to the amount of tax paid, and if the bank does manage it, the result will not improbably disappoint the intention and desire of the Quebec Government. For these reasons their Lordships hold the tax to be direct taxation within class 2 of sect. 92 of the Federation Act.

The “general tendency” argument, found, for example, in the Caledonian Collieries case, is not one that establishes a principle outside of the context in which it was used in that case. Where, as in the present case, the tax imposed in respect of the free distribution of catalogues takes no account of what ultimately happens to the catalogues, whether they are used or discarded, and is unrelated to any purchases made from the catalogues, it is manifest to me that the tax is so diffused in its impact that it cannot be said that there is any clearly traceable way in which the tax can be passed on.

Moreover, to borrow a phrase from the reasons of Rand J. in C.P.R. v. Attorney General for Saskatchewan, [1952] 2 S.C.R. 231, at p. 251, the tax in the present case is not “related or relateable” to any unit of a commodity or its price; indeed, no commodity is involved.

The fact that the company may, competitive and other factors permitting, recoup the tax in its overall pricing structure, is no ground for classifying it as an indirect tax. The tax, indeed, is paid in respect of a dead-end dealing—one that is over when the catalogues are distributed—and there is

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no way in which it can be assigned to recipients of the catalogues. Moreover, the fact that the tax is a cost of carrying on business does not mean that it is not exacted from the very person who it is intended and expected would pay it.

This is sufficient to dispose of the appeal which I would allow and, accordingly, declare that the amended Act is, in respect of the matters put in issue here, intra vires. The appellant is entitled to costs throughout. There will be no costs to or against the interveners.

Appeal allowed with costs.

Solicitor for the appellants: Richard C. Speight, Fredericton.

Solicitors for the respondent: McKelvey, Macanlay & Machum, Saint John, (N.B.).

Solicitor for the intervener the Attorney General for Ontario: A. Rendall Dick, Toronto.

Solicitors for the intervener the Attorney General of Quebec: Jean-K Samson & Jean-François Jobin, Quebec (Sainte-Foy).

Solicitor for the intervener the Attorney General of Nova Scotia: Gordon F. Coles, Halifax.

Solicitor for the intervener the Attorney General of Manitoba: Gordon E. Pilkey, Winnipeg.

Solicitor for the intervener the Attorney General of British Columbia: Richard H. Vogel, Victoria.

Solicitor for the intervener the Attorney General of Prince Edward Island: Arthur J. Currie, Charlottetown.

Solicitor for the intervener the Attorney General for Alberta: William Henkel, Edmonton.

Solicitor for the intervener the Attorney General for Saskatchewan: Richard F. Gosse, Regina.

Solicitor for the intervener the Attorney General of Canada: Roger Tassé, Ottawa.