Date: 19980624
Docket: T-572-93
BETWEEN:
047438 N. B. INC., a body corporate,
doing business under the name of
BILL WEST REG'D.
Plaintiff
- and -
HER MAJESTY THE QUEEN
Defendant
REASONS FOR JUDGMENT
CULLEN J.:
[1] The plaintiff brings this appeal under section 82.1 of the Excise Tax Act, R.S.C. 1985, c. E-15, against a decision of the Minister dated November 27, 1991. That decision confirmed that the plaintiff's video lottery terminals ("VLTs"), imported in December 1990 and intended for use in the New Brunswick video lottery, were "coin- operated games or amusement devices" and subject to tax pursuant to section 23 and section 2 of Schedule I of the Excise Tax Act.
Background
[2] The video lottery scheme was commenced in New Brunswick in December 1990 by the enactment of the New Brunswick Video Lottery Scheme Regulations - Lotteries Act, Reg. 90-142 ("Regulations"). Under the Regulations, the Atlantic Lottery Corporation ("Corporation") was given the mandate to manage and conduct the computer supported lottery, and to operate a central computer system. The Corporation has four shareholders, being the lottery commissions of each of the four Atlantic provinces.
[3] In New Brunswick, VLTs are privately owned, installed, serviced, maintained and repaired in return for a specified percentage of the net proceeds of that VLT. The remainder is distributed between the siteholder and the New Brunswick Lotteries Commission. VLT owners must be approved under the Regulations as members of the New Brunswick Coin-Operated Machines Association (NBCOMA) in order to offer their devices to the Corporation for use. The specifications for devices used in the lottery are determined by the Corporation, and all devices must be delivered directly to, inspected and approved by the Corporation prior to installation and use. Once approved, the owner proceeds to install the terminal at an approved site, and install phone lines to connect between the Corporation's central computer and the site.
[4] The Regulations specify the essential characteristics of a video gaming device that may be used by the Corporation in section 6:
| 6 A video gaming device used in a video lottery scheme shall have the following characteristics:
(a) it shall divide all money it accepts into credits denominated in twenty-five cent, ten cent or five cent values;
(b) it shall accept a wager of one credit;
(c) it shall not expose a player to the risk of losing at any one time credits of a total value exceeding two dollars and fifty cents;
(d) it shall permit a player at any time to withdraw for payment or reimbursement any accumulated or unused credits;
(e) it shall dispense to a player who withdraws credits a ticket showing the state of the account as between the player and the Corporation;
(f) it shall not award a price exceeding five hundred dollars in value for any one game;
(g) it shall not pay prizes in cash; and
(h) it shall be programmed to award as prizes not less than eighty per cent, and not more than ninety per cent, of the money it accepts. |
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6 Un appareil de jeu vidéo utilisé dans le cadre d'un système de loterie vidéo doit avoir les caractéristiques suivantes:
a) il doit diviser l'argent qu'il accepte en crédits de vingt-cinq cents, de dix cents ou de cinq cents;
b) il ne peut accepter de mises de plus d'un crédit;
c) il ne peut exposer un joueur au risque de perdre en une seule fois des crédits dépassant une valeur de deux dollars et cinquante cents;
d) il doit permettre à un joueur à tout moment de retirer pour fins de paiement ou de remboursement les crédits accumulés ou inutilisés;
e) il doit dispenser à un joueur qui retire des crédits un billet indiquant l'état de compte entre le joueur et la Société;
f) il ne peut accorder de prix dépassant cinq cent dollars pour chaque jeux;
g) il ne peut verser de prix comptant; et
h) il doit être programmé pour accorder des prix représentant au moins quatre-vingts pour cent et au plus quatre-vingt-dix pour cent de l'argent qu'il accepte. |
The Corporation imposes more detailed specifications under particular "requests for proposals" issued for the benefit of VLT manufacturers so as to ensure compatibility with the Corporation's scheme.
[5] If an owner's device meets these requirements of the Regulations, he or she may offer it to the Corporation for use in the lottery, and the Corporation may enter into an agreement with an owner if the conditions found in section 7(2) of the Regulations are also met:
| 7(2) If the Corporation is satisfied that the video gaming device
(a) only plays games of a type approved by the Commission,
(b) has the characteristics described in section 6, (c) has come to the owner from a manufacturer, and through distributors if any
(i) who are on an approved list established by the Corporation, or
(ii) who the Corporation is otherwise satisfied are reputable,
(d) is capable of integration with the system used by the Corporation to operate a video lottery scheme, and
(e) is otherwise suitable for use by the Corporation to operate a video lottery scheme,
the Corporation may, subject to subsection (5), enter an agreement with the owner for the use of that device in a video lottery scheme. |
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7(2) La Société peut, sous réserve du paragraphe (5), conclure un accord avec le propriétaire d'un appareil de pari vidéo pour l'utilisation de cet appareil dans le cadre d'un système de loterie vidéo, si elle est convaincue que l'appareil de jeu vidéo
a) ne joue que des jeux appartenant aux types approuvés par la Commission,
b) possède les caractéristiques décrites à l'article 6,
c) est parvenu au propriétaire d'un fabricant et par l'entremise de distributeurs s'il y a lieu,
(i) qui sont inscrits sur une liste approuvée établie par la Société, ou
(ii) dont la Société est de toute autre manière convaincue de la bonne réputation,
d) possède la capacité d'être intégré au système utilisé par la Société dans le cadre d'un système de loterie vidéo, et
e) est de toute autre manière convenable pour être utilisé dans une loterie vidéo. |
[6] Mr. William West became an incorporating member of the NBCOMA, which was formed in 1990 under the direction of the provincial government. Mr. West incorporated the plaintiff corporation, Bill West Reg'd, for the purpose of participating in the new video lottery scheme by purchasing and offering video gaming devices to the Corporation for use in the lottery.
[7] In November and December of 1990, Bill West Reg'd agreed to purchase 100 Model 8720A VLTs from an American manufacturer approved by the Corporation. The VLTs were shipped in three shipments in December 1990, first arriving in Canada in St. Stephen, New Brunswick. The plaintiff, through its agent, customs brokers A.E. Horne & Son Ltd., was required to pay 10 percent excise tax totalling $51, 950.00, pursuant to section 23 and section 2 of Schedule I of the Act:
| 23.(1) Subject to subsections (6) to (8.3) and 23.2(6), whenever goods mentioned in Schedules I and II are imported into Canada or manufactured or produced in Canada and delivered to a purchaser thereof, there shall be imposed, levied and collected, in addition to any other duty or tax that may be payable under this or any other Act or law, an excise tax in respect of those goods at the applicable rate set out in the applicable section in whichever of those Schedules is applicable, computed, where that rate is specified as a percentage, on the duty paid value or the sale price, as the case may be.
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23. (1) Sous réserve des paragraphes (6) à (8.3) et 23.2(6), lorsque les marchandises énumérées aux annexes I et II sont importées au Canada, ou y sont fabriquées ou produites, puis livrées à leur acheteur, il est imposé, prélevé et perçu, outre les autres droits et taxes exigibles en vertu de la présente loi ou de toute autre loi, une taxe d'accise sur ces marchandises, suivant le taux applicable figurant à l'article concerné de l'annexe pertinente, calculée, lorsqu'il est précisé qu'il s'agit d'un pourcentage, d'après la valeur à l'acquitté ou le prix de vente, selon le cas. |
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...
Schedule I
...
2. Coin, disc or token operated games or amusement devices of all kinds, ten percent. |
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...
Annexe I
...
2. Articles de jeu ou d'amusement de toutes sortes, à pièces de monnaie, disques ou jetons, dix pour cent.
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[8] The plaintiff objected to the levy from the outset, contending that VLTs are not games or amusement devices, but electronic data processing equipment for automated lottery tickets. He filed an application for refund on May 21, 1992 which was rejected, and that decision was confirmed finally in a Notice of Decision of the Minister dated November 27, 1991, which reads, in part, as follows:
Your objection is disallowed and the determination is confirmed.
Your representation is that the essential role of the video lottery terminals is to provide gambling opportunities and to record gambling transactions. You also further represent that the essential role of the goods is determinative of their classification. Because of the foregoing you contend that they are not games or amusement devices and should not be so classified under section 2 of Schedule I of the Excise Tax Act.
You also state that the video lottery terminals are primarily electronic data processing equipment and as no other more specific classification exists they should be so classified.
Section 2 of Schedule I of the Excise Tax Act levies an excise tax of 10% on coin, disc or token operated games or amusement devices of all kinds.
All of the video lottery terminals in question are coin-operated in that they require quarters or "loonies" for the participant to play. They play a variety of gambling games such as poker, keno, slot-machine type games, etc.
Games are defined as tests of skill or chance conducted according to predetermined rules. Gambling is defined as playing games of chance for money, especially high stakes.
Based on the foregoing definitions and facts, the video lottery terminals are coin-operated games. The fact that electronic components are used instead of mechanical ones represents only a change in form and not a change in purpose, which is to play games of chance.
Accordingly, your objection is disallowed and the determination is confirmed.
Plaintiff's Argument:
[9] The plaintiff contends that the tax was improperly applied; that the VLTs are not coin-operated games devices but computer terminals, comprised of electronic components, that function to vend a lottery product formerly only available in paper format, and to record the transactions. Specifically, it was argued that the VLTs consist primarily of electrical components that: accept wagers from lottery participants; generate combinations of numbers or symbols on a random basis to a random number generator; recognize winning combinations and award credits as prizes; perform accounting functions of the transactions and their value; print winning tickets; store records of transactions and print audit records; communicate with a central control computer uploading transaction data.
Analysis:
[10] The issue before this Court is one of statutory interpretation, specifically to determine whether VLTs, when properly characterized, are subject to tax under the Excise Tax Act as "coin...operated games or amusement devices of all kinds." The question is to be determined in two stages; first to interpret the statutory provision and second to determine whether the evidence establishes that the VLTs fall within the scope of the provision.
i) Statutory Construction
[11] It is a well established principle that taxation statutes are to be interpreted according to the normal rules of interpretation as they apply to any other legislative enactments; see Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536. This implies that words are to be given their ordinary meaning, in context and in harmony with the scheme and object of the enactment and with a view to its legislative intent.
[12] The words contained in the phrase "coin...operated game or amusement devices of all kinds" are not defined in the Act. In determining the ordinary meaning, reference may be had to dictionary definitions. These are set out below:
game:
"amusement, fun, sport...a diversion of the nature of a contest, played according to rules, and decided by superior skill, strength, or good fortune" (Shorter Oxford Dictionary, 1973)
"a contrivance which has as its object to furnish sport, recreation or amusement" (Black's Law Dictionary (6th ed., 1991))
amusement:
"a pastime, play, game, etc." (Shorter Oxford Dictionary)
device:
"an invention or contrivance; any result of design, as in the phrase 'gambling device,' which means a machine or contrivance of any kind for the playing of unlawful game of chance or hazard" (Black's Law Dictionary)
Further insight into the meaning of these words can be derived from related words and their meanings. For ease of reference, these are also set out:
game of chance:
"a game in which chance rather than skill determines the outcome" (Black's Law Dictionary)
gambling:
"to play games of chance for money; to stake money on some chance...to speculate recklessly." (Shorter Oxford Dictionary)
gambling device:
"tangible means, instrument, contrivance or thing with or by which money may be lost or won, as distinguished from the game itself. A machine, implement, or contrivance of any kind for the playing of an unlawful game of chance or hazard" (Black's Law Dictionary)
lottery:
"an arrangement for the distribution of prizes by chance among persons purchasing tickets...something that comes by lot or fortune" (Shorter Oxford Dictionary)
"a game of chance, or a distribution of money or prizes by chance, without the application of choice or skill" (Mozley and Whiteley's, Law Dictionary (8th ed., 1970)
"a chance for a prize for a price...Essential elements of a lottery are consideration, prize and chance and any scheme or device by which a person for a consideration is permitted to receive a prize or nothing as may be determined predominant by chance" (Black's Law Dictionary).
The Criminal Code, R.S.C. 1985, C-46, Part VII, which creates gambling offences and exceptions for provincially legislated schemes, defines "game" as a "game of chance or mixed skill and chance."
[13] Thus, generally defined, "games" are any kind of contest, played according to rules, that may involve skill or merely chance. Games of chance are a basic component of gambling and lottery schemes. Thus the term "games" includes, but is not limited to, gambling and lottery schemes involving games of chance.
[14] The word "amusement" on its own has a very broad meaning, but it can be seen that the provision limits its meaning. The word "amusement" follows the word "games" and a conjunction is placed between them; the word "device" applies to both "amusement" and "games". If one applies the principle of ejusdem generis, it implies that devices of the same class as "games devices" are contemplated.
[15] Finally, the words "of all kinds" must also be read in context. The term modifies "games", "amusement" and "devices". While they do not expand the class beyond devices used for games or amusement, neither do they restrict the broad meaning of the word "device".
[16] Having considered the ordinary meaning of the statutory words, it is instructive to also note that the meaning of gaming or amusement devices has been judicially considered, and a purposive interpretation has been applied in various contexts. In Laphkas v. The King, [1942] S.C.R. 84, the Court refused to give a narrow reading to a provision in the penal statue making illegal any automatic or slot machine used for any purpose other than vending merchandise or services. The Court held that it was not in keeping with the spirit and intent of the law, that being to penalize devices having gaming as their purpose, to apply the provision to purely amusement-vending devices such as pinball machines or musical recording.
[17] A narrow interpretation was also not permitted in a context of regulated importation. In Liebman v. The King, [1948], Ex.C.R. 161, there was a prohibition on the importation of slot machines, and the Court refused to find that importation of slot machines piece-by-piece, rather than assembled, fell outside the prohibition. The Court held at page 168:
...While it is not permissible that the Court should extend the prohibitions of the Act beyond its express terms to things not covered by them, it is imperative that the terms should be read as applying to the things that are essentially or substantially within the prohibition.
[underlining added]
[18] The Court also held that the fact that all parts but the housing cabinet were imported did not affect the fact that the imported goods were substantially within the prohibition. At pages 169-170, it was stated:
Can the fact that the cabinets were not imported have the effect of taking the importations of all the other parts out of the prohibitions of the Act? The answer, according to the principles referred to, depends on whether the imported parts were essentially or substantially goods whose importation was prohibited by the Act...The question...is one of fact...
In my view, the importations of the parts without the cabinets must be regarded as if the machines had been imported in an assembled condition without the cabinets. How would the imported goods have then been described?...The answer is that they could not have been properly described otherwise [than as coin-operated amusement devices]. The fact that the addition of the wooden cabinets would be required for their sale does not determine the matter. If we were to suppose that the importation of motor cars was prohibited could it be said that motor cars less the tires or less the bumpers could lawfully be imported?...I see no basic difference in the present case. The goods imported by Liebman were substantially coin-operated amusement devices within the meaning of tariff item ex 466...
[19] From the foregoing, it is clear that the provision at issue herein is not directed at a specific mischief such as gambling, as was the case in Laphkas. The provision is not of a penal nature. The purpose of the provision is for the taxation of certain devices that are coin-operated and used for games or amusement. There is no express wording nor legislative purpose which would restrict a reading of the statute in any way other than to apply to things that are essentially or substantially within the scope of the provision. It follows that devices used for specific types of games, those being games of chance employed for purposes of gambling or participation in lottery schemes, will be within the provision.
ii) Characterization of the VLTs:
[20] In support of the plaintiff's argument that VLTs are not coin-operated games devices, but computer terminals used for electronic data processing that allow individuals to participate in the lottery and record transactions, evidence was adduced before this Court describing the construction and functions of the Model 8720A terminals. It is not necessary to refer to it in technical detail as the applicant has failed to persuade this Court, for the reasons that follow, that the VLTs do not fall within the broad scope of the provision in section 2 of Schedule I of the Excise Tax Act.
[21] The evidence showed that without the deposit of a coin or coins, a VLT cannot be activated. Once activated, a player may engage in one of several betting games. The coins deposited are reflected in a credit balance, with which a player may make wagers. The rules of the game are displayed on the screen. The player may proceed to place bets and may play until he or she chooses to quit the game or has no more credits. At lease one game, Blackjack, engages the player in a game against the VLT, or the "Dealer". In the Poker and Joker Poker games, the VLT is constructed so that it can, if so enabled, assist the player by making strategic recommendations. The results of the game are recorded on a cash receipt, and the player may retrieve the winnings, if any, from the siteholder. The proceeds of the VLT are calculated net of winnings.
[22] Each VLT is equipped with a logic board assembly consisting of a logic board, a back-up memory board, and a communication board. The computer chips necessary to play the games are housed in the VLT. The VLT also keeps a record of games and accounting data (bets, credits, wins, etc.). The system is configured so as to operate without on-line connection to the Corporation's central computer, but its accounting and transaction recordings are monitored regularly, and the VLT and may be disabled by the Corporation's central computer.
[23] While there is no doubt that the VLTs are linked with a main computer, the plaintiff has failed to overcome the fact that a VLT on its own remains essentially a device that allows patrons to play games or gamble by engaging the VLT. This remains so regardless of all of the functions performed by the terminal ancillary to the function of in addition to providing games of chance to the player. It matters not that the games are managed by a remote computer and Corporation. The auditing, memory, printing, reporting, and similar functions are, in any event, incidental to the nature of the games of chance being played. If the games were not part of a gambling scheme the incidental functions would be superfluous. Moreover, the applicant has not established that there is any inconsistency with a device that can account for the proceeds of its games or gambling, in addition to engaging a player to play.
[24] This finding is supported by the Regulations. That legislation defines "video lottery scheme" as an authorized lottery scheme utilizing "video gaming devices". The employment of video gaming devices for the scheme is contingent upon approval by the Corporation. Finally, the VLTs are constructed so as to play games but also to be adaptable to the host computer system for the purposes of use in the lottery. The manufacturer's operator's manual for the VLTs at issue which was introduced in evidence describes the terminals as gaming devices, and they are designed to operate off-line. It states that there is no difference between the operation of a terminal that is on-line and one that is not, except that at the end of a game, the off-line terminal will dispense a void cash ticket. Cleary, devices that are not approved for use as VLTs by the Corporation simply operate as gaming devices.
[25] The plaintiff's argument that the VLTs are not within the provision because they are electronic data processing devices and operated from a central computer is one that seeks to place form over substance. It matters not whether the operation of the device is mechanical or electrical; nor that it is monitored or controlled remotely. These characteristics are not such that they take the devices out of the ordinary meaning and the substance of the words of the legislation. The provision properly construed cannot be limited to exclude electronic devices or computers that merely facilitate games to be played thereon. This is the essence of these devices. The ancillary functions simply enable the games played on the terminal to be incorporated into the larger lottery scheme. In an analogy to the case of Liebman, supra, the device is no less a games device, just because it also performs the accounting and auditing functions related to the administration of the gaming scheme.
[26] It is necessary to mention the jurisprudence which was cited to this Court by the plaintiff, which is primarily derived from the Tariff Board. Even if those decisions were binding on this Court, they would not assist the plaintiff in this case. They simply illustrate the rule of statutory interpretation that specific provisions prevail over general, and in this case, I have concluded that the specific provision of section 2 of Schedule I applies to the VLTs at issue. The cases are briefly described:
[27] In Atlas Automatics Inc. et al. v. Deputy M.N.R. et al. (1983) 5 C.E.R. 110 (Tariff Board), coin-operated billiard tables and soccer tables were not considered coin-operated amusement devices because they were more appropriately categorized under "billiard tables" and "game tables". In Appeal No. 1907 Reference re Certain Electronic Apparatus, (1983) 5 C.E.R. 151 (Tariff Board), computer games were more within a category of electronic data processing apparatus than "toys" because their data processing capacity was not limited to playing games and there was no other more specific category. In Par T Golf (Alberta) Ltd. v. Deputy M.N.R. (1987), 14 C.E.R. 261 (Tariff Board), a micro computer simulating a golf-game, activated from another control centre, was essentially electronic processing equipment because there was no other specification. This item was not coin-operated. In Deputy M.N.R. v. GTE Sylvania Canada Limited (1985), 10 C.E.R. 200 (F.C.A.), goods that had already been altered and incorporated into a completed product were no longer in their category as a primary product.
[28] This case is distinguishable. It is clear that there is a specific classification that matches the characteristics of these goods. The VLTs are coin-operated, they are used to play games - they permit game playing whether on-line with the main computer or not. Even if comprised of electronic components, the VLTs are within "devices of all kinds". The fact that the devices perform additional ancillary functions related to the administration of the games as part of a lottery scheme does alter the essential character of the VLTs as devices that are used to play games. Thus they fall within the scope of the provision.
Conclusion:
[29] For the reasons above, the plaintiff's case is dismissed.
OTTAWA, ONTARIO B. Cullen
June 24, 1998. J.F.C.C.
FEDERAL COURT OF CANADA TRIAL DIVISION
NAMES OF SOLICITORS AND SOLICITORS ON THE RECORD
COURT FILE NO.: T-572-93
STYLE OF CAUSE: 047438 N.B. INC., a body corporate, doing business under the name of BILL WEST REG'D. v. HER MAJESTY THE QUEEN
PLACE OF HEARING: Fredericton, New Brunswick
DATE OF HEARING: June 1, 1998 June 2, 1998
REASONS FOR JUDGMENT OF THE HONOURABLE MR. JUSTICE CULLEN
DATED: June 24, 1998
APPEARANCES:
Mr. Joseph E. Weir FOR PLAINTIFF
Mr. Jonathan Tarlton FOR DEFENDANT
SOLICITORS OF RECORD:
Mr. Joseph E. Weir FOR PLAINTIFF Moncton, New Brunswick
Mr. George Thomson FOR DEFENDANT Deputy Attorney General of Canada
Ottawa, Ontario