Will the new Ontario finance minister hear us out?
March 1, 2001
The departure of Ernie Eves, Ontario's finance minister and Premier Mike Harris' right-hand man for the past six years, creates a new dynamic in trucking tax issues.Eves, who has a family connection t...
The departure of Ernie Eves, Ontario’s finance minister and Premier Mike Harris’ right-hand man for the past six years, creates a new dynamic in trucking tax issues.
Eves, who has a family connection to a trucking company, was meticulous in ensuring that there was not even a whiff of conflict-of-interest in terms of tax treatment of the industry.
In practical terms, that meant the trucking industry was not afforded its usual access to the finance minister, or to the pre-budget consultation process.
Instead, the Ontario Trucking Association was forced to bring its tax concerns forward through various proxies, such as the chair of the management board for the cabinet.
The appointment of Jim Flaherty as the new finance minister should mean that trucking will again enjoy the same opportunity as any industry group – the freedom to consult with the provincial taxman.
The next Ontario budget will be tabled this spring and there are a number of issues that need to be addressed. Fortunately, the Premier has signaled that he wants to see further tax cuts.
Ontario trucking companies carry a higher tax burden as a proportion of revenues than other industries. This difference reflects the taxation of business inputs.
Where manufacturing and other sectors purchase most of their business supplies and equipment tax exempt, freight transportation pays Provincial Sales Tax on virtually all business inputs.
The taxing of these inputs not only increases consumer prices, but also reduces the ability of goods and services to compete in export markets.
Presently, the Ontario trucking industry pays sales tax on all its business inputs – equipment, maintenance and repair labor, warranty repairs, and insurance.
It can be argued that under the present regimen, the more a trucking company invests in safety and maintenance in Ontario – too much through the purchase of new vehicles and parts and increased inspection and repair – the more tax a trucking company must pay. This is a penalty on safety and on the environment.
A Deloitte & Touche study, published in January 2000, compared the sales tax application to areas of significant equipment investment and business expenses in the Ontario trucking sector versus its neighboring jurisdictions – Manitoba, Quebec, Michigan, New York, Pennsylvania and Ohio.
It concluded that, “Ontario levies the highest tax load on the trucking industry. In the context of the entire trucking industry and the application of sales taxes to the infrastructure to operate, the overwhelming impact of the Ontario tax load clearly demonstrates an interjurisdictional disparity.”
Ontario remains perhaps the only Canadian province clinging to the old way of taxing business inputs.
Quebec and the Atlantic provinces harmonized their provincial sales taxes with the federal Goods and Service Tax. The major implication of this is that the trucking industry – like all other businesses – receives input tax credits on purchases.
Since 1997, all trucking companies in Quebec and the Atlantic provinces have been eligible for input tax credits on their equipment purchases and repairs. In British Columbia and Saskatchewan, soon to be followed by Manitoba, a form of recurring sales tax has been implemented. Alberta, of course, does not even impose a provincial sales tax.
Ontario carriers must absorb the higher costs of administering a series of different sales tax systems.
Most of the U.S. states do not collect sales tax on trucking equipment, parts or repairs. In total, 27 U.S. states do not apply sales tax on trucking equipment; 20 do not apply sales tax on parts; and 35 states do not apply sales tax to repairs.
Ontario is surrounded by jurisdictions that exempt all three business inputs for sales-tax application. This provides a significant tax advantage to U.S.-based carriers operating in Ontario. For example, in 1999, Michigan provided equivalent-sales tax exemptions for in-state and out-of-state purchases of motor-vehicle rolling stock by interstate carriers.
Consider as well that a Statistics Canada report indicates that carriers spent more on fuel during the first half of 2000, up an average of 50 per cent per carrier, compared with the first six months of 1999.
Provincial fuel taxes inflate the price of diesel fuel. Ontario’s fuel tax accounts for 31 per cent of the current rack price of diesel fuel.
At 14.3 cents per litre, the Ontario diesel tax is among the highest in North America and is higher than any U.S. state. The commercial diesel fuel tax rate in Ontario is 44 per cent higher today than it was a decade ago.
It will be interesting to see how the new finance minister and the new cabinet will deal with these issues. n
– David Bradley is president of the Ontario Trucking Association and chief executive officer of the Canadian Trucking Alliance.