September 18, 1998

The issue before the Supreme Court was whether status Indian people in New Brunswick were required to pay provincial sales tax on goods purchased off a reserve for consumption on the reserve.

Justice McLachlin, writing on behalf of the majority of the Court, held that the tax exemption set out in section 87 of the Indian Act applies only to:

property physically located on a reserve at the time of taxation and,

property whose paramount location is on a reserve at the time of taxation.

Where property is temporarily moved off-reserve, a court will ask whether its Aparamount location@ is on -reserve.

The focus of the Court was whether the sales tax should be characterized based on the Apoint of sale@ or the ultimate Aparamount location@ of the taxable property. The majority of the Court opted for the point of sale approach.

The pattern of provincial sales tax statutes (e.g. New Brunswick) combines provisions imposing tax on sales with working that suggests that the tax is paid by consumers of the goods taxed. The act of purchase, not the act of consumption, triggers liability for the sales tax.

Therefore, the off-reserve purchase triggers tax, regardless of the intent or plan of the status Indian to consume or use the property on-reserve.

The court rules that the paramount location test did not apply to sales taxes on tangible goods because Aproperty has but one location - the place of sale@.

That is, at the point of sale the property could not have its paramount location elsewhere, as no pattern of use and sale keeping elsewhere could be established. According to the Court, to make taxation dependent on place of eventual use of the item purchased would make the administration of the tax uncertain and unworkable.

Where the location of the property at the time of sale and taxation is readily apparent, there simply is no need to resort to the uncertainties of the paramount location test.

The Union of New Brunswick Indians argued that the purpose of section 87 of the Indian Act was to protect Indian peoples from taxation in respect of their use of property on-reserve. Since Indian people are practically obliged to purchase most of their goods off-reserve, the Section 87 protection would be eroded by a rigorous point of sale test.

The majority of the Court viewed this argument as taking section 87 far beyond the Williams and Mitchell decision, which held among other things, that the purpose of section 87 was to prevent Indian property on Indian reserves from being eroded by taxation or seizure.

The interpretation proposed by the Union of New Brunswick Indians would protect any property wherever situated, rather than property situated on reserve land only.

The Court was critical of the view that a paramount location exemption would be uniformly beneficial to First Nation people. Those who lived off-reserve would presumably have to pay tax on purchases made on and off the reserve because the Aparamount location@ of the goods would be off-reserve.

That is, Indian people who lived and consumed their property off-reserve would always be subject to taxation, while those living on-reserve would be immune.

In contrast, the Apoint of sale@ test would allow those living off-reserve to purchase goods tax-free on-reserve, regardless of where the goods were to be used.

Thus, there would be an incentive for Indian people to establish their own retail outlets on reserve, thereby increasing economic activity and employment. This business activity could then be taxed by First Nations under the Indian Act to create an independent financial base.

The majority decision of the Supreme Court may be criticized on at least a couple of grounds:

First, the decision reflects a narrow and technical approach to the interpretation of section 87 of the Indian Act. This is in contrast to the broad and liberal approach mandated by cases such as Nowegijik and Sparrow.

Second, the decision is unsympathetic to the cross-country reality that many, if not most, reserves do not have a large and varied retail sector. This means that people are obliged to purchase goods off-reserve and give up their section 87 tax exemption.

In addition, it should be pointed out that First Nations citizens generally do not receive their fair share of benefits from provincial programming.

Therefore, there is an element of unfairness in subjecting First Nations people to the full burden of provincial taxes.

Finally, the decision misses the policy consideration of acknowledging that Indian people should have a meaningful choice with respect to the location and use of personal property, i.e., on or off-reserve.

Where an Indian person wishes to remain within the Aprotected@ area, that person should be free from seizure and taxation dictated by Canadian governments and third parties.

However, under Tomah, even First Nation citizens who choose to live on-reserve will be forced to participate in the provincial sales tax system.

The Court applied a cookie-cutter approach to the section 87 sales tax issue and failed to deal with the fact that First Nations in different parts of Canada take on many different realities.

Ontario Justice Ian Binnie does not agree with the majority=s position. He sees section 87 as including off-reserve purchases.

His position is that it is the time of use, that creates the responsibility to pay tax. If the time of use is located on-reserve, then those items purchased off-reserve should also be tax exempt.

Therefore, he believes that the paramount location test is most appropriate since some Indian people must leave the reserve in order to buy necessary items.

Although Justice Binnie=s view is positive, Indian people believe that a total comprehensive tax exemption system is more just.

Section 87 of the Indian Act is therefore, only a partial reflection of such a tax exempt status.

However, even though Justice Binnie=s view is favourable, his judgement is still restrictive. He is agreeing to tax free status on goods purchased off-reserve but only if the ultimate location of useis a reserve.

In this sense, Justice Binnie is also overlooking an important policy consideration where Indian people should have a truly meaningful choice as to where to locate and use their personal property.