Direct or indirect tax

Out-Of-Home v. Toronto (City), 2012 ONCA 212 today cites John Stuart Mill as an authority for the definition of indirect or direct tax!

The Court writes:

[11]       In my view, the application judge correctly rejected this submission. The courts have consistently adopted John Stuart Mill's classic distinction between a direct and an indirect tax in his 1848 treatise, Principles of Political Economy, Book V, c. III at p. 371:

A direct tax is one which is demanded from the very persons who it is intended or desired should pay it. Indirect taxes are those which are demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another: such as the excise or customs.

[12]       See, for example, Canadian Industrial Gas & Oil Ltd. v. Government of Saskatchewan et al., [1978] 2 S.C.R. 545 at p. 581.

[13]       It is well-established in the case law, however, that the legal definition of an indirect tax is not to be determined on the basis of pure economics or on the basis of the particular financial circumstances of the parties affected by the tax. The reason is obvious: if the argument of Pattison and OMAC were accepted, virtually every tax would be an indirect tax. Every business that bears a tax will treat the tax as a cost that must be factored into the price charged for its products. This natural tendency of every taxpayer cannot, and does not, automatically make the tax an indirect tax.

[14]       One of the most frequently cited and helpful definitions of an indirect tax is that articulated by Rand J. in Canadian Pacific Railway Co. v. Saskatchewan (Attorney General), [1952] 2 S.C.R. 231 at pp. 251-52:

If the tax is related or relatable, 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.

[15]       I agree with Toronto's argument that the third party sign tax simply does not fit this definition. The tax is not tied to the price of, or the revenue from, the advertising. It is a flat annual tax imposed on the sign owner. It is not a tax on the commodity sold by the sign owner, and it is not imposed on, rated, or rateable to, a unit of the commodity or its price. It is not imposed on a commodity in the course of production or marketing and therefore it cannot "cling" as a burden to the unit or transaction as it is presented to the market. The fact that the tax is triggered by the presence of Sign Copy and that the amount of tax is determined by a classification system based on size, type and physical properties does not make it a tax on a unit of sale or production. In the application judge's words, at para. 108:

[T]he tax is levied on any device which displays a message advertising goods or services at a location other than where the device is located. To be sure, the "device," to be taxable, must display a "message." But that does not change the nature of the tax itself, which is a tax on the "device." The tax does not vary with the volume or nature of the advertising copy displayed.

[16]       The appellants place considerable emphasis on the point that the nature of a tax is to be assessed according to its "general tendency". They say that because, as a matter of business economics, they must pass on the burden of the tax, its "general tendency" is to be an indirect tax. However, as the application judge correctly held, that argument has been consistently rejected in the case law: see Canadian Pacific Railway Co. v. Saskatchewan (Attorney General) [1952] 2 S.C.R. 231; New Brunswick (Minister of Finance) v. Simpson-Sears Ltd. [1982] 1 S.C.R. 144, at p. 161-3; G. V. La Forest, The Allocation of Taxing Power Under the Canadian Constitution, 2nd ed. (Toronto: Canadian Tax Foundation, 1981), at p. 83; Peter Hogg, Constitutional Law of Canada, 5th ed., looseleaf, (Toronto: Carswell, 2010), at ch. 31.2.