City Hit With Two Lawsuits over Billboard Tax
Yesterday, the City of Toronto’s new Harmonized Signs By-law and Billboard Tax became official. The City celebrated this fact with a press release and the billboard industry celebrated this fact with two rather weak lawsuits filed to prevent the billboard tax from being implemented.
The Star’s David Rider has this report about the lawsuits today. Other reports are in Marketing Magazine and Digital Journal.
Below are copies of the two lawsuits. As you will see, our take is that these lawsuits have no legal merit but were merely filed in order to extend the political process into the next municipal administration, an administration which is likely to be greeted with a “settlement offer” from the industry; an offer which could potentially be used by a new administration to make a decision contrary to City Staff’s recommendations.
Out-of-Home Marketing Association vs. City of Toronto [PDF]
Pattison Outdoor Advertising vs. City of Toronto [PDF]
Pattison Outdoor’s lawsuit asks for an interlocutory injunction which would prevent the City from collecting the tax while the court case is being argued; OMAC’s lawsuit doesn’t ask for an injunction.
Here is an overview of Pattison’s suit:
Unlawful Indirect Taxation
Pattison claims that the tax is an “indirect tax” and therefore prohibited by Section 92 of the Constitution which prevents provinces and therefore municipalities from imposing indirect taxes. Pattison claims that by the the nature of its business, “the tax will be passed on to and borne by landowners and advertisers,” and therefore the tax is an indirect tax. The only legal precedent that Pattison prays in aid is Ontario Home Builders’ Association v. York Region Board of Education. Curiously, this is a case where a municipal tax was upheld by the Supreme Court; furthermore, it is a case where the court clarified why the Constitution prohibites provinces from imposing indirect taxation:
The primary, if not only, rationale now underlying the prohibition of indirect taxation imposed on the provinces by s. 92(2) of the Constitution Act, 1867 is that the direct effect of their taxation measures must be confined within their territory.
In other words, Section92 is designed to prohibit provinces from imposing taxes on other provinces. And then the Court stated that a tax should not be considered to be “indirect” simply because it is passed on to others:
This tax imposed on a landowner and collectable against the land cannot be construed as an indirect tax simply because of a tendency for the incidence of the tax to be passed on to subsequent purchasers of the property
We predict that Pattison will therefore have a difficult time making the Constitutional argument, especially if they can’t dig up another case.
Discrimination
Pattison also argues “discrimination” because the tax is not imposed on signs that are on City property. Pattison states:Â “The TPST by-law unlawfully discriminates, and favours
the City and outdoor advertising companies who contract with the City, to the detriment of their competitors. Such discrimination is not consistent with the purpose of the City of Toronto Act or the purpose of the TPST By-Law, and is unlawful.”
However, Pattison Outdoor itself contracts with the City of Toronto, including the Toronto Parking Authority and the former City of Etobicoke, and has at least 40 billboards exempt from the tax on that basis. Furthermore, Pattison is trying to have it both ways. If the tax is indeed going to be passed on to landowners, then taxing signs on City property would end up being a mere matter of the City transferring funds from one of its bank account to another and would have no impact on the competitiveness of signs on City property.
Meanwhile the Out-of-Home Marketing Association, which is represented by the same law firm that Titan Outdoor used to sue the City, has a slightly better put together lawsuit. They repeat Pattison’s arguments but make the following additional arguments.
Unlawful Tax on Revenue
OMAC claims that the tax rate “was determined, in whole or in part, based on the City’s own projection as to the revenue an Owner can generate from a particular sign… City Council’s deliberations on the TPST By-law focused on how much revenue OMAC-member companies are currently receiveing from third party signs.” The tax is therefore a tax on revenue, which is prohibited by the City of Toronto Act.
OMAC is again trying to have it both ways. It was OMAC that complained in the first place that the tax rate would be incompatible with the industry’s revenues. This in turn caused the City, in this motion, to ask OMAC for audited information. Meanwhile, it was only yesterday that OMAC’s ineffectual leader, Rosanne Caron complained that the City did not take into account the revenues that the industry earns from billboards. This from Wednesday morning’s Marketing Magazine:
Members of OMAC agreed to provide audited financial statements, and each outdoor company independently had an auditor look at the City of Toronto numbers for 2009, based on the signs that would be affected by the third-party sign tax. That information was then sent to Ernst & Young, also the City’s auditor, to have the individual audits aggregated to provide the deputy city manager with a consolidated revenue number, which Caron says is nowhere near the number the City presented last December.
“We received a letter basically saying it was insufficient information and they will not revisit the level of taxation,” said Caron. “If audited financial statements aggregated by another auditor is insufficient information, I don’t know what other proof we could provide. We keep trying to cooperate with the City and provide the information they want and they have shown no interest in working with an industry that brings a lot of money into the local economy. This [current tax] will have a devastating impact on the industry, which we’ve been saying all along, and we don’t have any other options at this point except to pursue legal action.”
Enacted for an Improper Purpose
OMAC claims that the tax is “exceptionally onerous to the point of being punitive” and was imposed “to act as a disincentive towards owning or operating a third party sign.” How exactly the City is supposed to determine a fair tax rate without asking the industry for its financial documents is not quite explained in the Notice of Application.
Violates Section 110(1) of the City of Toronto Act.
Section 110(1) of the COTA states:
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.
Literally interpreted, this Section would seem to prohibit the City from writing any by-law whatsoever that applies to legal non-conforming signs including a tax by-law. However statues like the COTA are not interpreted literally, they are interpreted broadly and purposively. The purpose of this section of the COTA is to prohibit the City from causing the removal of legal non-conforming signs; it was added to the COTA’s predecessor statutes after the Planning Act’s protections for landowners were removed for signs. We are pretty confident that the Courts will not interpret Section 110(1) in a manner that would fetter the City’s taxation powers.
It remains to be seen if Pattison will drop their lawyers and join OMAC’s suit. It’s also a little bit curious that Pattison filed a separate suit, and that OMAC didn’t apply for an interlocutory injunction.
Also curious is the fact that the industry doesn’t complain that the Third Party Sign Tax (TPST) was named after the Toronto Public Space Committee (TPSC).
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