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HomeMy WebLinkAboutFND-010-04 ~ . C:!fJl-!lJgron REPORT FINANCE DEPARTMENT Date: GENERAL PURPOSE AND ADMINISTRATION COMMITTEE /1 f)1 'oX' LI Resolution #: (-:1~rr'Y'x:.I/C I MONDAY, APRIL 19,2004 Meeting: Report #: FND-010-04 File#: By-law #: Subject: PROVINCIAL SALES TAX Recommendations: It is respectfully recommended that the General Purpose and Administration Committee recommend to Council the following: 1. THAT Report FND-010-04 be received; 2. THAT Council endorse the resolution of the Council of the Regional Municipality of Durham that the Provincial Government give consideration to a zero-rate (tax- free) Provincial Sales Tax for municipal purchases of goods and services; 3. THAT the Province of Ontario be requested to dedicate a portion of the Provincial fuel tax to help improve roads and transit infrastructure in the Province; and 4. THAT a copy of this resolution be forwarded to the City of Sarnia, the Ministers of Finance and Municipal Affairs, the local MPP and the Association of Municipalities of Ontario. /? , ') ~ (? , tl.:;t.~ Reviewed by=--..../ . . '----' , Franklin Wu, Chief Administrative Officer. NT/hjl ~ 1301 REPORT NO.: FND-010-04 PAGE 2 BACKGROUND AND COMMENT: 1.0 At the Council meeting of March 1, 2004, Clarington Council referred correspondence received from the City of Sarnia to the Director of Finance/Treasurer. The correspondence indicated that the Council of the City of Sarnia passed the following resolution on January 26, 2004: "THAT Sarnia City Council supports the efforts being made by the Mayors of some of the larger Canadian cities to realize full municipal rebates of the GST, and a 5 cent per litre share of the Federal Gas Tax; and That a similar position be adopted by other municipalities with respect to PST; and That the City of Sarnia believes that a percentage of the revenues realized by the 8 percent PST, and 7 percent GST, imposed on goods and/or services in the various municipalities within the Province of Ontario, and collected and remitted by the organizations and businesses within said Province, be negotiated between representatives of all governments, and that the agreed upon figure be remitted by the organizations and businesses directly to the municipality based upon the time schedules now implemented; and THAT this motion be forwarded to the usual municipalities, to AMO, to our local MP and MPP, and to the Mayor of Toronto." 2.0 At the Region of Durham Finance and Administration Committee of Wednesday, February 25, 2004, the Committee approved Report 2004-F-15 (Attachment A), requesting the Province to exempt municipalities from paying PST on municipal purchases of goods and services. This would provide municipalities with much needed assistance in reducing expenses in the same manner as the Federal government has announced the elimination of the GST for municipalities. 3.0 As the two resolutions deal with essentially the same issues, they are dealt with together in this report. 4.0 The City of Sarnia appears to be proposing, in addition to a full rebate of the PST, a share of the revenues generated from PST and GST from organizations within their municipality. They further suggest that this be remitted directly to the Municipality by the affected businesses and organizations. 5.0 From a practical perspective, municipalities do not have the mechanisms in place to enforce collection or audit the value of amounts remitted. There would, as a minimum requirement, be staffing and expertise developed, as well as an interface to the Ministry of Finance. This could be a costly exercise that may not 1302 REPORT NO.: FND-010-04 PAGE 3 be feasible for many smaller municipalities. It would also represent a duplication of effort. Municipalities collect property taxes on behalf of the upper tier municipalities and school boards and remit the amounts to them for exactly this reason. 6.0 There is a more compelling case for requests to receive a share of gasoline tax as there is a direct correlation to the costs of construction and maintenance and repair of roads. Even in this case, it would be recommended that the upper levels of government continue to be the collection agent, with remittances to the municipalities based upon an agreed upon formula. 7.0 As mentioned in the attached report, a PST rebate is an efficient means of generating revenue for municipalities that is tied to the amount of purchases a municipality makes in a given year. The Association of Municipalities of Ontario estimates that municipalities in Ontario would save approximately $180 million if the PST exemption was adopted. CONCLUSION: 8.0 While savings from a PST exemption may not be equivalent to the savings anticipated from the GST exemption, it would still provide much needed assistance to municipalities in either reduced costs or making available financing for infrastructure needs. It is therefore recommended that Council endorse the request by the Region of Durham that the Provincial Government give consideration to a zero-rate (tax-free) PST for municipal purchases of goods and services. 9.0 It is also recommended that Council formally request that the Province of Ontario give consideration to AMO's request to dedicate a portion of the provincial fuel tax to help improve roads and transit infrastructure in the Province. Attachments: Attachment A - Region of Durham Report 2004-F-15 ~ 1303 REPORT NO.: FND-010-04 PAGE 4 Copies to: City of Sarnia Margaret Watson, City Clerk P.O. Box 3018 255 North Christina Street Sarnia, Ontario N7T 7N2 Hon. Greg Sorbara Minister of Finance Frost Bldg. South ih floor, 7 Queen's Park Crescent Toronto, Ontario M7A 1Y7 Hon. John Gerretsen Minister of Municipal Affairs and Housing 1 ih Floor, 777 Bay Street Toronto, Ontario M5G 2C8 John O'Toole, MPP 75 King Street East Bowmanville, Ontario L 1 C 1 N4 Association of Municipalities of Ontario 393 University Avenue Suite 1701 Toronto, Ontario M5G 1 E6 CORPORATION OF THE MUNICIPALITY OF CLARINGTON 40 TEMPERANCE STREET, BOW MANVILLE, ONTARIO L 1 C 3A6 T (905)623-3379 F (905)623-4169 ~ 1304 - Attachment A The Regional Municipality of Durham Report to: Finance and AdministratiL..._ ~ From: R.J. Clapp, Commissioner of Finance Report No.: 2004-F-15 Date: February 25, 2004 SUBJECT: REQUEST FOR PROVINCIAL SALES TAX (PST) RELIEF ON REGIONAL PURCHASES OF GOODS AND SERVICES RECOMMENDATIONS: The Finance and Administration Committee recommend to Regional Council that: 1. The Provincial Government give consideration to a zero-rate (tax-free) Provincial Sales Tax for municipal purchases of goods and services, thereby providing municipalities with much needed assistance in reducing expenses in the same manner as the Federal government has announced the elimination of the GST for municipalities. 2. A copy of this report be forwarded to the Ministers of Finance and Municipal Affairs, the local MPP's representing Durham Region and the Association of Municipalities of Ontario. 1.0 INTRODUCTION . On February 2, 2004 the Federal Government's Speech from the Throne indicated that the Government of Canada would provide all municipalities with full relief from the portion of the Goods and Services Tax (GST) that they currently pay. According to the Speech, this measure will provide municipalities with approximately $7 billion in GST rebates over the next decade. The GST rebates .for municipalities began to accurnulate on February 1, 2004. . Just as the Federal Government has recently provided Canadian municipalities with full exemption of the GST for the purchase of goods and services, municipalities are requesting that the Province of Ontario act in kind and provide a zero-rate Provincial Sales Tax (PST) for municipalities. Such taxation relief would provide municipalities with a much needed assistance through reduced expenditures. 2.0 BACKGROUND . The Retail Sales Tax Act (the Act) imposes a general sales tax of 8% on the retail price of most goods and services sold to final consumers. The Act also levies sales tax at variable rates between 4% (for example, on automobile insurance) and 12% (on alcoholic beverages). 1305 90 REPORT #2004-F-15 2. . Provincial receipts from PST for the 2001-2002 fiscal year totalled approximately $14 billion and represents approximately 20% of the Province's total revenue. . Currently, municipalities in Ontario must pay PST, for which they receive no rebate at all. In 2002, a Special Report commissioned by TD Economics estimated that all Ontario municipalities pay approximately $275 million in the PST to the Government of Ontario. The GT A share is estimated to be around $150 million. 3.0 STRUCTURE AND APPLICABILITY OF THE PST . The PST is imposed on the sale, or on the gross receipts from the sale, of a wide range of commodities and, sometimes, of services. The main difference between the PST and GST is the manner in which the taxes are collected. While the GST is collected at every stage of the production process of a particular good or service, the PST is collected at the retail stage and no input tax credits are issued. . Currently, the PST applies to a host of municipal goods and services which are eligible under the Act, including but not limited to the purchase of capital for construction work, office supplies and fleet vehicles. . The Region estimated that approximately $3.2 million was spent on PST for related municipal purchases in 2003. 4.0 THE CASE FOR PST RELIEF ON MUNICIPAL PURCHASES . A PST rebate on municipal purchases represents a reduction of costs for municipalities. A PST rebate represents a quick, efficient means of generating revenue for municipalities and the amount of relief provided to municipalities is strictly related to the amount of eligible purchases a municipality makes in a given year. . In most cases, the applicability of the PST to municipal purchases represents an additional cost to the taxpayer, since the tax burden is almost always shifted to and borne by the taxpayer. In essence, this raises the issue of double taxation. For example, it does not make sense that municipal tax dollars used to purchase a police vehicle be increased to send sales tax dollars from one level of government to another. By exempting the PST at the municipal level, greater equity to the taxpayer would be achieved. The Association of Municipalities of Ontario (AMO) estimates that municipalities in Ontario would be permitted to retain approximately $180 million in collected property tax dollars (there would also be a benefit in reduced costs funded by other municipal sources of revenue (e.g. user revenue)). 130691 REPORT #2004-F-15 . During the 2004 Speech from the Throne, the Federal Government announced that it would forgive the GST on municipal purchases of goods and services, effective February 1, 2004. If the Province were to also consider providing taxation relief via a zero-rate PST for municipalities in addition to Federal GST exemption, AMO estimates that a combined $330 million in property taxes would be retained by our communities. 5.0 CONCLUSION . The Region endorses the recommendations outlined in AMO's 2004 Pre-Budget Submission and would welcome a commitment from the Provincial Government to provide the municipality with PST relief. A PST rebate for the Region represents an estimated minimum amount of $3 million a year in reduced costs, depending on the amount of purchases made by the Region in a given year. Combined relief from the GST and PST would avoid the issue of double taxation, which is incurred on the purchases of goods and services at the municipal level. ~ ~-<:.., ~p. R.J. Clapp, CA Commissioner of Finance Recommended for Presentation to Committee G.H. Cubitt, M.S.w. Chief Administrative Officer dlk\2004reports\pst report 1307 92 3.