PST ON LEGAL FEES CREATES AN UNLEVEL PLAYING FIELD (2004 – Revised 2006)

In 1992, the provincial government introduced a 7% provincial sales tax on legal fees.

Legal fees are the only professional fees that are subject to the provincial sales tax which is both discriminatory and unfair. The tax directly impacts the cost of doing business in BC for small and large businesses, and affects their competitiveness against similar businesses in other jurisdictions. In addition, BC law firms do not compete on a level playing field with others law firms outside of our province, putting them at a distinct competitive disadvantage.

The PST on legal fees is also an unnecessary additional cost for British Columbians seeking access to our justice system and is inconsistent with creating a competitive, accessible and equitable environment for BC businesses.

The unfair and discriminatory nature of the tax has been recognized by the the B.C. Court of Appeal which struck down the provincial government's tax on legal services, saying it is unconstitutional.

In a landmark 3-2 decision, the Court endorsed and expanded a B.C. Supreme Court judgment that struck down the 1993 tithe, only insofar as it pertained to poor people.

The Chamber, in partnership with the Canadian Bar Association released a study by noted economist Dr. Rosalyn Kunin. The study cites the tax as a penalty on doing businesses in B.C. and a drag on the province’s economic competitiveness.

The study found that the PST on legal services is “regressive” and “inefficient”, and that the revenue the Province gains from collecting the tax is coming at a price to the B.C. economy.

The Chamber believes that fundamentally this tax is taxing enterprise in B.C. Such things as investment, new business registrations, intellectual property protection, and property transactions involve legal services. Taxing these services, especially when competing jurisdictions such as Alberta and Ontario levy no such tax, puts B.C. at a distinct competitive disadvantage.

As tax policy goes, this is not the way to make us more competitive.

The Chamber acknowledges That the Provincial Government must maintain tight financial and fiscal controls and applauds the government’s commitment to fiscal responsibility. The Chamber also recognizes that projected budget surpluses are limited, but the Chamber believes that the $115 million in revenue collected through this tax would be offset by an increased level of investment should the tax be repealed.

As such the Chamber directs the government to place the removal of this unfair and discriminatory tax as a priority for the use of budget surpluses.

THE CHAMBER RECOMMENDS

That the Provincial Government amend the Social Services Tax Act to remove the 7% PST on legal fees in BC