Provincial Sales Tax

Source: 1999 Ontario Pre-Budget Submission, February, 1999

Tax Fairness as Important as Tax Reduction -- Repeal Regressive Sales Taxation Practise

The issue is of provincial sales tax application to include additional business inputs relative to the trucking industry is of significant interest to the Ontario trucking industry and in turn to the competitiveness of the Ontario economy overall. The cost of transportation as a percentage of the delivered price of major export products is significant, and as such, an important factor in determining the competitiveness of Ontario's exports. Domestic motor carriers incur a higher tax burden as a proportion of revenues than other Canadian industries. The major differential reflects the taxation of trucking business inputs. The Ontario trucking industry pays the Ontario provincial sales tax on virtually all of its business inputs, while other sectors (e.g., manufacturing) do not. These taxes, as committee members will know, are not profit-sensitive and are, therefore, enormously regressive. Moreover, rather than seeing these discriminatory taxation measures reversed, in recent years the trucking industry has additional measures to contend with.

Taxing Insurance, Warranty Repairs and Maintenance Labour

For example, in its 1993 budget, the former government embarked upon one of the biggest and most discriminatory tax grabs from the Ontario transportation sector ever. In one fell swoop, Ontario motor carriers were hit with a new 5% sales tax on vehicle insurance premiums and the extension of the 8% provincial retail sales tax to warranty repairs. This is double taxation. The cost of warranty repairs is already included in the price of a vehicle, which is subject to taxation. This was in addition to the long-standing but inexplicable application of the provincial retail sales tax to maintenance and repair labour - one of the few examples of provincial taxation of a service.

Tories Opposed Imposition of Discriminatory Taxes

At the time the sales tax application extension was announced and implemented, members of the current government rallied against these unfair tax measures and were understanding and supportive of OTA's position. Furthermore, taxation and tax policy in Ontario was a central theme in the 1995-election campaign. While the trucking industry commends the government on its efforts to reduce personal taxation levels, it is disappointed that an opportunity has not been taken to right the wrongs the wrongs that have been visited upon the industry in the past. OTA encourages the government to use the opportunity provided by the upcoming provincial budget to address the issue tax fairness. Tax reduction, while welcome, on its own will not alleviate discriminatory practices and competitiveness concerns.

The Drive Clean Tax Windfall

Moreover, rather that correct tax policy which is clearly unfair, the government is poised to receive another windfall from sales taxes on warranty and non-warranty repairs. The Minister of the Environment has announced that he will commence introduction of the Drive Clean mandatory periodic vehicle emissions testing this spring. Random roadside testing is already underway. The expressed intent of this program is to improve the maintenance of all road vehicles and to force vehicles with excessive emissions to be repaired. The Minister of the Environment has promised that it would NOT be a tax grab. However, this will be the reality ... unless the tax on vehicle repairs is removed.

The More Invested in Truck Safety, the More Tax Paid

Failure to address this inequity, with respect to the Ontario sales tax system sends inappropriate signals to the marketplace when it comes to investing in safety and the environment. The more a trucking company invests in safety and maintenance in Ontario -- through the purchase of new vehicles and parts; increased inspection and repair; or the purchase of more insurance coverage -- the more tax a company must pay, regardless of whether it is generating a sufficient profit or not.

As mentioned through out, for the Ontario trucking industry, which competes with motor carriers across North America, this is a competitiveness issue. Most US border states do not collect sales tax on interstate trucks and parts. Recently, Michigan introduced an exemption from sales tax for the rolling stock and parts of interstate for-hire carriers retroactive to 1992. In all, over 20 states -- also include New York, Pennsylvania and Ohio -- do not charge sales tax on trucks. Over 30 states exempt repair labour from sales tax. This provides a significant tax advantage to US-based carriers operating into and out of Ontario. In recent years, Quebec and the Atlantic provinces have harmonized their provincial sales taxes with the federal Goods and Service Tax (GST). In those provinces, the trucking industry receives input tax credits on the purchase of equipment, parts, repair labour, etc.

Recommendation - The government of Ontario should establish a special government/industry stakeholder committee to begin serious discussion regarding policy development with the objective of repealing the discriminatory and regressive sales taxes on vehicle insurance, warranty repairs and maintenance and repair labour. This process should begin with the 1999 Ontario budget.