Tax Erodes Economics of Third-Party Signage
Court of Appeal Upholds Toronto’s Levy
By Barbara Carss
Industry efforts to overturn Toronto’s billboard tax suffered a setback in Ontario’s Court of Appeal earlier this spring when the Court ruled that the tax can be applied to signs that were erected prior to City Council’s adoption of the levy in April 2010. This reverses an earlier decision and reestablishes municipal revenue-generating estimates as originally envisioned, at about $10.4 million annually.
Property owners who simply lease space for third party signs – i.e. signs that promote businesses, services or activities unrelated to the sites where they are located – won’t receive the bill directly since the tax is charged to sign owners. Nevertheless, income from hosting a billboard may drop significantly when factoring in a tax that can range from $1,150 to $24,000 per year depending on the sign’s size and format.
“Landowners should be aware that there is this new cost associated with billboard signs. In some cases, the sign companies will have a clause in the agreement that requires the tax to be passed through to the landowners,” notes Jason Squire, a lawyer with Lerners LLP, who represented Pattison Outdoor Advertising at the Court of Appeal. “The tax is quite large in comparison to the actual revenue that is earned by a typical sign so it really does change the economics of having a sign.”
The billboard tax is enabled under the City of Toronto Act, which gives the City unique powers among Ontario’s municipalities to impose certain sales and direct taxes. It is part of the trio of taxes Council approved during the tenure of the former Mayor, David Miller, along with a municipal land transfer tax and a vehicle registration tax, which has since been rescinded.
Advocates for Pattison and the Out-of-Home Marketing Association of Canada (OMAC) argued in both the lower Court and Court of Appeal proceedings that the tax amounts to an indirect tax on sign companies and is therefore beyond the City of Toronto’s powers, and unconstitutional. They also maintained that the tax is discriminatory because signs for which the City of Toronto has a revenue-sharing agreement are exempted.
Both judicial levels rejected those arguments. However, the lower Court decision narrowed the scope of taxable signs to those erected after the introduction of the billboard tax in April 2010. This would have reduced the City’s revenue to about $900,000 annually based on the current number of applicable signs.
The Court of Appeal dismissed this interpretation, noting that the City of Toronto Act provides the power to impose the tax and does not restrict the ability to tax entities that predate the taxing by-law. Meanwhile, Squire reports that sign companies were prudent in accounting for that possibility while the matter was before the Courts.
“They are certainly required to pay the tax, or have paid it, since April 2010. My understanding is that most have already set it aside or paid it under protest,” he says.
Pattison and OMAC are how seeking leave to appeal to the Supreme Court of Canada.