Appeal Watch: Toronto’s Billboard Tax Stands

The Supreme Court of Canada (SCC) declined to hear an appeal regarding the City of Toronto’s billboard tax. The tax was enacted in 2010 and is directed at “third party signs”, fixed exterior signs that advertise goods or services not available at the premises where the sign is located. Pattison Outdoor Advertising (Pattison) and Out-of-Home Marketing Association of Canada (OMAC) challenged the tax on the basis that it imposes an indirect tax, which is prohibited under the City of Toronto Act and the Constitution Act.

Rejecting the “Indirect Tax” Argument

Under s. 267 of the City of Toronto Act, Toronto is only allowed to impose a tax if it is a direct tax. Pattison and OMAC argued that if the billboard tax is implemented, the only way they can stay in the billboard business would be by increasing advertising rates or reducing the rents paid to landowners – thereby passing the costs of the tax onto others. They argued that this makes the tax an indirect one.

The Court of Appeal agreed with the trial judge’s rejection of this argument, stating:

“[…]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.”

The Court of Appeal clarified the nature of an indirect tax, explaining that the quality of an indirect tax is that it “clings” to the unit of production or good and moves with the good through the chain of supply – an aspect that does not apply to the billboard tax.

Court of Appeal overturns Trial Decision that Tax Only Applies to New Billboards

At the trial level, the judge decided that the tax could only be imposed on new sign structures because of s.110(1) of the City of Toronto Act, which states:

110.(1)A City by-law respecting advertising devices, including signs, does not apply to an advertising device that was lawfully erected or displayed on the day the by-law comes into force if the advertising device is not substantially altered, and the maintenance and repair of the advertising device or a change in the message or contents displayed is deemed not in itself to constitute a substantial alteration. [Emphasis added]

The trial judge determined that the billboard tax was a “by-law respecting advertising devices” and thus it could not be applied to lawful billboards erected before the date the tax came into effect. This judgment limited the effectiveness of the billboard tax because few new billboard applications are made each year.

The Court of Appeal decided that the trial judge erred in this decision because they interpreted a “by-law respecting advertising devices” to mean regulatory by-laws that prescribe standards for billboards and signs. In contrast, the purpose of the billboard tax is to raise revenue for the city, rather than regulate advertising devices, and thus does not fall under s.110.

With the refusal of the SCC to hear the case, the Court of Appeal’s decision is the final word on the matter. The billboard tax will collect a levy of $1,100 to $24,000 per sign, depending on size, and will bring in an estimated $10.4 million a year for the City of Toronto.

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