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Judge reserves decision in case of Halifax craft brewer challenging 'unconstitutional tax'

Lawyer for Unfiltered Brewing and the Nova Scotia Liquor Corporation made their arguments in Nova Scotia Supreme Court on Tuesday.

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A Nova Scotia Supreme Court judge reserved his decision Tuesday in the case of a Halifax craft brewer’s legal challenge of what it argues is an unconstitutional tax.

Justice Glen McDougall heard arguments in Nova Scotia Supreme Court Tuesday from lawyer Richard Norman, representing Unfiltered Brewing, and Edward Gores and Debra Brown, Nova Scotia Department of Justice Lawyers representing the Nova Scotia Liquor Corporation (NSLC) and the Attorney General of Nova Scotia.

Norman argued the NSLC’s Retail Sales Mark-up Allocation (RSMA) is unconstitutional because it’s a tax, and the corporation doesn’t have the legal authority from the province to charge taxes.

Gores and Brown argued the RSMA is not a tax, but rather a proprietary levy or regulatory fee paid by Unfiltered Brewing for the privilege of selling its beer at its own storefront.

The RSMA is currently a 50-cent per litre fee charged to craft brewers who sell, sample or give away their beer outside of NSLC locations, including at bars or restaurants. The provincial government announced in December 2016 that the fee would change in April 2017 to five per cent of a brewer’s wholesale price, bringing it in line with the fee charged to craft distillers and wineries – a long time request from the industry, which argued it had been paying twice as much. The province expected the RSMA to bring in about $1.2 million in revenue this fiscal year.

Unfiltered Brewing has been in business since 2015, and Norman said earlier this year the company had forked over $35,000 in RSMA payments to the NSLC. The legal challenge seeks to recoup that money and have the RSMA declared invalid on the basis that it’s unconstitutional.

In court Tuesday, Norman argued that because Unfiltered Brewing has no choice but to pay the fee, and the revenue from it goes into the provincial treasury, it’s a tax. What makes it unconstitutional, he said, is that the provincial government has never expressly legislated taxation powers for the NSLC.

Gores and Brown argued Unfiltered Brewing applied for and signed permits for manufacturing and selling beer, and agreed to pay the RSMA as one of the conditions of the permits. That agreement, they argued, means the fee is not a tax.

Gores also asked if McDougall rules in favour of Unfiltered Brewing, he suspend any declaration of invalidity for six months to give the government time to draft a new law, arguing the loss of revenue “could have a harmful impact on the province’s ability to maintain a balanced budget and level some services and funding.”

Norman argued against that, and said in an interview after the hearing Unfiltered Brewing – and any other brewer who feels they shouldn’t have paid the tax – should be paid right away.

“Why wait? If the money has been taken unconstitutionally then I think it should be refunded right away,” he said.

Gores and Brown, along with representatives from the NSLC, declined to comment on the case.

Norman said he expects McDougall's decision to come within six months.

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