The provincial Supreme Court of Appeal says tax assessment legislation affecting certain commercial buildings in the city is "vague and inherently discriminatory."
The decision came in an appeal launched by the city's largest breweries, Labatt Brewing Co. Ltd. and Molson Breweries Ltd., of their assessments, beginning in 2008. The assessments saw the value of their properties skyrocket.
The higher assessments stemmed from new assessment legislation enacted by the province in 2006 that allowed the designation "special purpose property" to deal with hard to assess properties.
Under the previous legislation, the St. John's Assessment Act, Labatt's plant on Leslie Street in St. John's was assessed at $993,000, while Molson's across town on Circular Road was valued at $602,363.
In 2008, using the new legislation, the city assessed Labatt at $6,531,800 and Molson, $5,566,500.
The conundrum stems from certain commercial buildings that don't have much market value because they were constructed for a narrow purpose.
As the old real estate saying goes, "the value is in the land."
When it comes to determining property taxes for such operations, the task is difficult and the intent of the "special purpose property" designation was to allow the assessment based on rebuild value.
Both national brewery corporations acquired their buildings from original operators, who located the facilities on what was then the outskirts of the city to take advantage of hills and local streams for gravity-fed production. The structures were built on several different levels - a "unique design" without much resale value, the beer giants argue.
The Court of Appeal deemed the case the latest skirmish in an ongoing battle over assessment, with the beer companies arguing there isn't a level playing field - and that some commercial enterprises that should fall into the same special purpose category were still being assessed the old way.
That argument had no success when the breweries originally appealed their assessments to the city's review commissioner, who didn't see any inequity.
The battle isn't over yet.
Lawyer Michael Crosbie of McInnes Cooper, whose areas of expertise include municipal law and real estate, represented the breweries.
"For Labatt and Molson, the city got these new legislative provisions that the province passed provincewide and then applied them a certain way. The complaint was the way they applied them was inappropriate," Crosbie told The Telegram.
"The Court of Appeal's ruling is that Labatt and Molson were right to complain about how these things were applied. In that sense, Labatt and Molson are pleased with the ruling ... all they are looking for, per se, is fair treatment."
The breweries and the city are reviewing the decision and will have to go back to the commissioner for another hearing.
"It's too early to discuss in any way what that means," Crosbie said.
"We may be able to agree on this yet. We haven't had any of those discussions."
The breweries have been paying their higher tax bills ever since the new assessments were done, as it has taken awhile for the case to wind its way through the courts.
Crosbie said it's a similar process to other tax disputes and he's comfortable with going back to the commissioner, based on the appeal decision.
While the outcome can't be predicted, the decision could either revise the breweries' tax bills or have implications for other commercial operations that are being assessed at lower values.
It could even lead to an amendment to the provincial legislation.
The Court of Appeal said the city's attempt to use the legislation to solve the assessment dilemma caused "discrimination in the municipal taxation sense" and the root cause is the "vague and inherently discriminatory language" in the legislation.
"On these appeals I am satisfied that the appellants have established that the city's assessor assessed their properties in an arbitrary, inequitable and discriminatory manner by the exclusion of a significant number of properties which the city's representatives, during the hearing before the commissioner, acknowledged would or could fit the (special purpose property) definition," Justice Michael Harrington wrote in the decision, which was agreed to by Justices Malcolm Rowe and Charles White.
"Such discriminatory classifications could be avoided in the future with greater clarity in the definition of "special purpose property."
The city assessment of "special purpose property" not only applied to the two breweries, but also to a third brewery, a soft drink bottling plant, a baked goods factory and a dairy/ice cream products plant.
Crosbie argued there were many other commercial operations in the same situation still being assessed at lower levels.
"The problem became the choice of definition (of special purpose buildings) gave headaches to people as to what was included and not included," Crosbie said.
"It is impossible to know what is likely to transpire and who this effects or doesn't effect and that was part of the concern in the first instance which was applied to Labatt and Molson and some others."
The court awarded Molson and Labatt its legal costs to be paid by the city.
The city said it couldn't comment until it reviewed the decision.