Getting a tax break when you try to put up greener, more energy-efficient buildings isn’t as easy as the government suggested when it first introduced the idea.
It sounded straightforward. Installing insulated panels was declared a worthy endeavour because they conserve energy. That contributes to lowering emissions and making buildings green. So to encourage their use, the Finance Ministry removed the sales tax from such products in 2013.
A year later, a B.C. firm applied for a refund of the $156,000 in sales tax it had paid while buying insulated metal panels from another B.C. firm for use on projects.
The tax office refused the request. The company appealed to the minister’s office. After some dickering, the ministry knocked several thousand dollars off the tax bill, but basically upheld the original decision. So the firm, Thermo Design Insulation Ltd., went to court.
The case led to a verdict last month that is a marvel of deep thinking applied to construction. It delves into the profound differences between “insulation material” and “prefabricated components that contain insulation.”
Justice Gordon Weatherill’s account of the arguments is like reading ancient sages philosophizing over the B.C. building code.
If insulating material is sandwiched between two metal sheets, does that new entity lose the property of being insulating material? When does an insulated wall panel stop being an insulated wall panel, and become a wall?
The government’s explanation of that mysterious transformation is what sent the company to court.
A deputy wrote to them with a Kafkaesque pronouncement: “Even though an insulated metal panel has an insulated core inside, it is not insulation; this is the case even if it does provide some insulating benefits. It is a wall.”
It’s letters like that one that make people want to hire lawyers. Which is what Thermo Design did.
The resulting arguments centred on the specific wording of the tax regulation. It said if thermal insulation material such as a blanket, roll or panel is designed primarily to prevent heat loss, then it’s exempt from sales tax.
But the break doesn’t apply to “any other material incorporated into or attached to a building and serving a structural or decorative function.”
After offering the tax break, the government decided that insulated metal panels are just building components that happen to contain insulation. And “they aren’t designed primarily to prevent heat loss, although prevention of heat loss is an important function of the insulated metal panels.”
And because the panels come in different finishes and colours, the government said they serve a decorative function, which also voids the exemption.
But Weatherill delivered his own philosophical treatise on construction materials and concluded: “The mere fact that two different materials are put together does not mean they lose their character as material.”
He also tackled the angels-on-the-head-of-a-pin argument related to when an insulated metal wall panel turns into a wall. The government conceded the panels are designed to prevent heat loss, but insisted their primary function is to be a wall.
The verdict flipped that argument: “The fact that insulated metal panels are designed to interlock together to form a wall is the very reason they are so effective at preventing heat loss.”
He decided the fact they can serve as walls doesn’t detract from their being designed primarily to prevent heat loss.
There was also a lot of pondering of whether they were structural, which would have voided the exemption as well. He found the B.C. legislature has demonstrated a grasp of the common meaning of structural in other regulations. The panels aren’t load-bearing and don’t contribute to strength or stability, so they aren’t structural.
As for the decorative angle, Weatherill said if the government’s interpretation was correct, “purchasers of hideous-looking panels would benefit from the exemption but purchasers of esthetically pleasing panels would not.
“It’s inconceivable that the legislature intended to encourage energy conservation by exempting only unsightly products.”
He sided with the company and ruled it’s entitled to a $140,000 refund.
The government has served notice it intends to appeal.
Taxpayers who are funding this semantic expedition are encouraged to keep tracking this case after July. It’ll be easier then, because marijuana will be legal.
