WINNIPEG, Man. –It’s a classic David and Goliath story.
David is Larry Babins, a chartered accountant leading the fight to get fuel tax rebates for trucking companies running into the States. Goliath is Revenue Canada. And Israel Alexander Ludwig is the Manitoba-based transportation lawyer who believes Babins and the trucking companies can win.
“It all started in the late 80s, when my partner and I realized there was a loophole in the tax law,” says Babins, executive vice-president of Permicom Permit Services, a fully-owned subsidiary of Comdata Holdings Corporation, best known to the trucking industry as a fuel card company and based in Nashville, Tenn.
At the time, Babins and his partner Paul St. Pierre (now Permicom president) were running an accounting firm servicing the trucking industry.
“I was doing my reading and came across an article on excise tax refunds and how to apply for them. The article cited a couple of cases, one of which took place in 1880.A ship left Liverpool (England) with coal in its hull (for fuel) and was eligible for a refund on the tax on the coal it used after it left England. I thought ‘Why not use this for trucking?'”
The logic was that if manufacturers in Canada could get refunds on the excise tax they paid for items destined for consumption outside Canada, then so should the truckers.
After all, some of the fuel they were paying tax on was being consumed outside Canada too.
The realization led to the accountants applying for the rebates on behalf of a hundred and some trucking customers, explained Babins.
Little did they know they’d fired the first shot in a battle with Revenue Canada that continues to this day.
But even back in the early 90s, it came as no surprise to the accountants that Revenue Canada didn’t want to cough up the cash.
So Babins and his partner decided to see if there was a way to make Revenue Canada pay.
“First we talked to our clients to see if they were willing to take on Revenue Canada over this and most of them were,” says Babins. “Then it was a matter of finding a lawyer, or someone to partner with on the case. We tried to partner with CN, who were doing something similar, but they ended up going on their own.”
The accountants were rapidly running out of options.
“We’d already consulted some of our friends who were lawyers, but we needed someone who was willing to take the case on spec’ or at least at low cost,” explains Babins. “That’s when we met Israel. He was willing to take the case on spec’.”
Enter Israel Alexander Ludwig, transportation lawyer extraordinaire.
“I looked into the background on excise tax law and found that it was old, pre-war even,” says Ludwig, a lawyer with Duboff, Edwards, Haight & Schacter, located in Winnipeg, Man. “Originally, it was a tax covering the manufacture of all commercial goods. If the goods were exported for consumption, the manufacturer got a refund.”
Ludwig figured it was reasonable to infer that the same exportrelated rebates being offered to manufacturers in Canada were due to trucking companies using fuel to carry those same goods out of the country.
“The way the law was written in Canada at the time allowed for the tax rebate for all items that were consumed outside of the country. That could include a tax rebate on the fuel being carried out in the tanks of trucks and consumed outside of Canada,” he explains.
Tracking the amount of fuel consumed outside the country was no problem.
“All the trucking companies had to do was keep track of their kilometres.”
Ludwig took the case in 1998. By that time, Babins and his partner had filed hundreds of fuel tax rebate applications on behalf of over 100 trucking companies.
“We had to keep filing the applications continuously, even though we weren’t getting the refund,” explains Babins. “That’s because we were only allowed to apply for rebates retroactively to two years. So if we let the applications lapse, we would have lost the rebates going back to 1991.”
So Ludwig, Babins and 117 trucking companies took their cases to court. It didn’t take long to realize that trying all 117 cases would take much more time to try than anyone had.
“Basically we agreed with Revenue Canada to test one case (Bison Transport’s) and then use that case to make the decision on all the others,” says Ludwig.
$12 million victory
In 2001, a federal judge ruled against the truckers. But after Ludwig and the truckers appealed, two out of three judges accepted their argument, and agreed the tax law allowed for a rebate on excise taxes paid for fuel consumed outside the country. Revenue Canada appealed to the Supreme Court, but the decision stuck.
In 2003, Canadian trucking companies represented by Ludwig got approximately $12 million back in tax refunds owed since 1990.
“But they refused to give back the refunds owing to owner/operators,” says Ludwig. “They said the owner/operators should have applied for the refunds on their own.”
That was bad news for the owner/operators who’d worked for the trucking companies who’d made the refund applications on their behalves, as by 2003 Revenue Canada had rewritten excise tax law to close the loophole allowing for the tax refund on fuel consumed outside Canada.
And so Round Two of the fight between Team Babins and Revenue Canada began. If Team Babins wins, then owner/operators will be getting their refunds back via the trucking companies they worked for at the time the refund applications were made.
“What we have to do now is establish that the trucking companies did in fact have the right to apply for the refunds on behalf of their owner/operators,” says Ludwig.
As trucking companies do so already with regards to other fuel tax rebates, this shouldn’t be too hard, according to Ludwig.
To this end, Nolan Transport and Warehousing of Ontario has already been identified as the new test case for the courts.
If this test case wins, then owner/operators who worked for Nolan Transport during the period the refund applications were made should be getting some fuel tax money back.
So should the owner/operators who worked for the other 117 trucking companies who made applications for refunds.
“That could come to about $14.5 million,” says Babins, who’ll only be seeing about $200,000 of that money in fees (divide that over 19 years!)
Still, even if Team Babins does win, owner/operators won’t see their money anytime soon.
“It could be as late as 2009 before Revenue Canada gets through processing all the refunds,” says Babins.
Distribution of the money will work as follows: trucking companies will get cheques for the money owed to their owner/operators and the companies will be responsible for distributing it to owner/operators.
“What we’ll probably do is put ads in the trade magazines to announce the refund and owner/operators who worked for companies who applied for the refund will be asked to contact these companies or a central number in order to get their money,” explains Ludwig.
In the meantime, owner/operators who are owed refunds will just have to cross their fingers and hope for the best.
“We have a good case,” says Ludwig. “I should think the decision would be obvious.”
Nolan Transport general manager Jim Peacock, for his part, is looking forward to playing Santa.
“These refunds should have been made years ago,” says Peacock. “I have no idea whether we’ll win, but if we do, we have the lists of our owner/operators and their addresses ready.”