Decision and Order
IN THE MATTER OF AN APPEAL PURSUANT TO S. 50 OF THE ASSESSMENT ACT
CONCERNING:
AND
Assessor Of Area #19 - Kelowna
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Appeal Nos.: |
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Refer to as: |
Tolko v. Area 19 (2010 PAABBC 20091989) |
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Date of Decision: |
February 19, 2010 |
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Properties: |
19-23-723-13007.500, Bear Creek, Central Okanagan Rural 19-23-723-14534.000, Westside Road, Central Okanagan Rural 19-23-723-15390.000, Central Okanagan Rural 19-23-723-15573.000, Central Okanagan Rural |
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Heard: |
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Submissions: |
From the Appellant dated October 2 & November 27, 2009 |
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From the Respondent dated November 9 & December 24, 2009 |
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Board Panel: |
Simmi K. Sandhu, Panel Chair |
INTRODUCTION
[1] The properties under appeal are four lots on the west side of Okanagan Lake leased by the Appellant, Tolko Industries Ltd. (“Tolko”) for log sorting and storage. Raw logs are sorted and stored on these properties prior to being moved to Tolko’s sawmill located on the other side of the lake (the “Sawmill”). Three of the lots have no improvements, while one has some minor improvements used in the log sorting.
[2] The only issue in the appeal is the determination of the appropriate classification of the properties. The Assessor has assessed the land as class 4-Major Industry while Tolko says that the appropriate classification is class 5-Light Industry.
PRELIMINARY ISSUE
[3] The appeal is being determined by way of written submissions. The Assessor had objected to Tolko’s reply submissions of November 27, 2009 on the basis that it contained new evidence on the source of the logs used in the Tolko sawmill. On December 7, 2009, I allowed Tolko’s reply submissions, however, I ordered that the Assessor could produce submissions to respond to the submissions pertaining to the source of the logs used in Tolko’s sawmill.
[4] On December 24, 2009, the Assessor produced that response, however, Tolko objects to a large portion of the Assessor’s response on the basis that they essentially re-ague the Assessor’s case and do not respond to the question of the source of the logs used in the sawmill.
[5] Tolko is correct that the Assessor’s December 24, 2009 submissions go well beyond the question of the source of the logs used in the Sawmill and essentially, re-argue the Assessor’s case.
[6] My December 7, 2009 Order was clear that the Assessor was limited to responding only to the question of the source of the logs used in the Tolko sawmill. I indicated that the Assessor was restricted to this question only and that this was not an opportunity to provide evidence or submissions on any other issue. However, the Assessor has done just that and reargues the correct interpretation of the case law and the appropriate legal test for determining classification that the Board should take, submissions originally made in the Assessor’s November 9, 2009 submissions.
[7] If the Assessor wanted to provide further submissions on anything else or to respond on any other issue, the Assessor did not advise the Board or Tolko of this intention prior to my decision being made on December 7, 2009.
[8] Therefore, paragraphs 1 to 11 and paragraphs 14 and 15 of the December 24, 2009 submissions of the Assessor are not proper reply submissions and I will disregard these paragraphs in making my determination.
EVIDENCE & ANALYSIS ON CLASSIFICATION
Use of the Properties:
[9] On the properties, raw logs are transported by logging truck and logging road from the forest to the weigh scale at Bear Creek Road and then to the log sort. The truck drops the load of logs and the logs are sorted into species, size, type and quality, and they are then bundled and dumped into the lake. The bundles are placed into pockets that are combined to form a boom. The boom is stored near the log sort until needed at the Sawmill and when they are, they are taken by tugboat across the lake.
Classification of the Land:
[10] Tolko says that the appropriate classification for the properties is Class 5 under section 5(b) of the Prescribed Classes of Property Regulation, B.C. Reg. 438/81 (the “Regulation”) which provides for properties “…used or held for the purpose of extracting, processing, manufacturing or transportation of products….”.
[11] On the other hand, the Assessor says that the appropriate classification is class 4 under section 4 of the Regulation which includes property “that is…(a) land used in conjunction with the operation of industrial improvements, (b) industrial improvements.”
[12] There is no dispute that the Sawmill is an “industrial improvement” within the meaning of the Assessment Act. The Assessor submits that, as of October 31, 2008, the properties are “land used in conjunction with the operation” of the Tolko Sawmill and therefore, qualifies for Class 4. Tolko disagrees.
[13] The Assessor argues that in order to determine this issue, the correct legal test to apply is set out in Norske Skog v. Assessor of Area #06 (2004, SC 476, BCSC), namely whether the use of the land is functionally and operationally integrated with the operation of the plant and that physical proximity of the land to the plant is a factor, but not the paramount factor, in making this determination.
[14] In applying this test, the Assessor argues that, as the Sawmill could not operate without the logs, the logs used by the Sawmill come from these properties, and the properties are not used for any purpose other than to supply the Sawmill with logs, then the test is met despite the fact that the properties are located approximately three kilometers from the Sawmill.
[15] Tolko, however, says that the Norske Skog, supra test is the wrong legal test as that decision concerned whether an improvement was “part of a” plant and therefore, an industrial improvement. The correct legal test, according to Tolko, in determining whether land is “used in conjunction with industrial improvements” is set out in Assessor Area #06 v. Quinsam Coal (2002 BCCA 68), in which the location of the lands within the plant site was an important factor. Applying that test, Tolko says that the log sorts are not adjacent or within the Sawmill site and are not accessed directly from or through the Sawmill site.
[16] In the alternative, Tolko says that if the integration test of Norske Skog, supra, is applied, there is no integration. There is no physical integration because there is no physical connection between the improvements at the log sort and the Sawmill (Norske Skog v. Assessor of Area No. 6 (PAABBC 20030456)). The subject properties are not within or adjacent to the Sawmill site, but are located across the lake with no roads or other physical connections, and Tolko says that the log sorts are simply independent in every sense from the Sawmill. In addition, Tolko submits that there is insufficient functional or operational integration between the log sorts and the Sawmill. The log sort improvements are operated independently from the Sawmill improvements. The log sort improvements are not involved in the processing of logs, which the Sawmill does. The Sawmill could, did and does bring in logs from other sources than the log sorts. Tolko says that 50 to 55% of the Sawmill logs come from sources other than the subject properties and that the Sawmill could and would operate independently of the log sorts if necessary. Similarly, the log sorts are not restricted from being used to provide logs overland or by water to other users other than the Sawmill. Exclusivity of use of the log sort by the Sawmill is a function of demand and not design of the log sort.
[17] The Assessor says that it is irrelevant if there were other sources of logs in 2008 for the Sawmill or that Tolko could have used the log sorts to supply another user. Rather, what is relevant is the actual use of the properties in 2008, which was that they were used solely in relation to the Sawmill.
DECISION
[18] Section 4 of the Regulation provides that class 4 property includes only:
(a) land used in conjunction with the operation of industrial improvements, and,
(b) industrial improvements.”
[19] To determine what is an “industrial improvement” under the legislation, one must look to the definition of “industrial improvement” in section 20(1) of the Assessment Act, which refers to an improvement that is “part of a” plant.
[20] Both parties made submissions regarding the physical, functional and operational integration test referred to in both Norske Skog decisions, and Quinsam Coal, supra. Both parties made submissions on whether the properties under appeal are physically, functionally and operationally integrated with the Sawmill. However, a reading of both decisions makes it clear that, in those decisions, the test was used to determine whether an improvement is “part of a” plant. The question of whether an improvement is “part of a” plant is not the issue before me when determining the appropriate classification of the land. Rather, the issue is whether the properties, largely vacant land, are “used in conjunction with the operation” of industrial improvements, located at the Sawmill. This is a very different issue and I decline to broaden the application of the physical, functional and operational integration test to section 4(a) of the Regulation.
[21] Neither party referred me to binding authority that provides guidance for the interpretation of section 4(a) of the Regulation, namely what is meant by “land used in conjunction with the operation of industrial improvements”.
[22] In interpreting the Act and regulations, the prevailing and oft-quoted principle of statutory interpretation applies, namely that “words of an Act are to be read in their entire context and in their grammatical and ordinary sense, harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.” (Bell Express Vu Ltd. V. R. (2002) SCC 42).
[23] There is no dispute that the Sawmill, classified as class 4, is an “industrial improvement”.
Section 4(a) references the use of these particular lands. There is no dispute on what the properties are “used for”, namely to receive raw logs and to sort and store them until ready to be sent to the Sawmill across the lake. Whether the lands could be used for another user or whether the Sawmill receives logs from other sources is not determinative nor is there a requirement that the properties be exclusively used for the Sawmill or vice versa. The words of section 4(a) do not contain that requirement, but rather speaks of what the land is “used for”.
[24] Are the log sorts “used in conjunction with the operation of the” Sawmill? I find that they are, although the properties are not located within the Sawmill or plant but are located nearby. The evidence is that the log sorts send the logs to the Sawmill to be used in the operation of the Sawmill. Again, a clear reading of section 4(a) does not contain a requirement that the land must be “essential or necessary to the operation of” the Sawmill or that it can only be capable of use with the Sawmill (see Norske Skog Canada Ltd. v. Assessor of Area #04 (2002 PAABBC 20017170). This is confirmed by reference to the definition of “in conjunction with”, namely “together with [O.F.]” (see The New Lexicon Webster’s Dictionary, Encyclopaedic Edition, 1988 Edition). Therefore, the land only needs to be used together with the operation of an industrial improvement for it to come within the provisions of section 4(a) of the Regulation, which the subject lands do. Therefore, the lands should be classified as class 4.
[25] Tolko says that the properties should be classified as class 5 pursuant to section 5(b), namely land or improvements, or both, “used or held for the purpose of extracting, processing, manufacturing or transporting of products.” Tolko argues that the activity on the properties amount to “processing” as the logs are sorted in the same way that sorting of grain is considered processing. Also, the log sorts are a continuation of the logging roads where the logs are taken off the trucks. Tolko argues that the logs sorts are not sufficiently physically, functionally and operationally integrated with the Sawmill.
[26] I cannot find on the limited evidence before me that the sorting and storage of the raw logs amounts to “processing”, “manufacturing” or the “transportation” of a “product”. According to Assessor of Area #12 v.Kebet Holdings (1987) S.C. 237 (BCSC), it is the business of the occupier that dictates the purpose for which the premise are used or held under section 5 of the Regulation. I have limited evidence on the business of Tolko. However, whether or not the lands are used for these purposes or not, section 5(d) precludes class 5 for the properties on the basis that class 5 does not include lands or improvements or both “included in class 2 or 4.” As the lands fall under class 4, I find that section 5 of the Regulation is not applicable. Similarly, section 6 of the Regulation precludes class 6 for the properties as class 6 properties include those not included in Classes 1 to 5.
Classification of the Improvements:
[27] One of the properties (roll no. 19-723-14534.000) contain minimal improvements, which improvements are classified as class 5 for the 2009 assessment roll, however, the Assessor seeks to change that to class 4 on the basis that the classification of the improvements must be consistent with the classification of the land. In order for those improvements to qualify for class 4, they must be included in section 4(b) of the Regulation as section 4(a) only refers to “lands”.
[28] Section 4(b) requires that the improvements be “industrial improvements” within the meaning of section 20(1) of the Act. Section 20(1) sets out the definition of what is an “industrial improvement”, namely an improvement that is “part of a plant…if the plant is designed and built for” an enumerated purpose. There is no dispute that the “plant” in this instance is the Sawmill which is designed and built for an enumerated purpose.
[29] The question is whether the improvements on the property in question is “part of” the Sawmill as required by the definition. In making this determination, the physical, functional and operation integration test is applied. The improvements in question are:
[30] In the Agreed Statement of Facts before me dated August 11, 2009, the parties agree that the only issue is the classification of the land. However, in its submissions, Tolko generally says that these improvements are not sufficiently physically, functionally and operationally integrated with the operation of the Sawmill, nor are they used in “conjunction with the operation” of any improvements. The Assessor makes little submissions on these specific improvements other than to say that their classification should be consistent with the land.
[31] I have little evidence before me on the function of these improvements other than what is stated above. In applying the physical, functional and operational integration test, the question is whether and to what extent the log sorts directly serve the processes of the Sawmill (see Norske Canada v. Area #06 2003 PAABBC 20028565). There is little to no physical connection between the Sawmill and the improved property in question as they are located almost three kilometers from the Sawmill. I have no evidence of any roads that connect the two sites. There is a tugboat that takes the raw logs from the subject property to the Sawmill, but I have no evidence on how often that occurs. Regarding the operational integration, the log sorts are used solely in connection with the Sawmill in that all of the raw logs that are on the properties go to the Sawmill. Whether or not the log sorts have the potential to serve another user is not determinative because the evidence is that they do not in actuality. I have little other evidence on the operations of the log sorts or the Sawmill. As for the functional integration, I have limited evidence on whether these specific improvements are functionally integrated with the Sawmill, in particular in regards to the degree to which their function serves the purpose and processes of the plant, i.e. the Sawmill (see Norske Skog, supra). However, to the extent that log sort improvements are used for the delivery of raw materials or logs required for the processing of raw logs, the only reasonable conclusion is that they directly serve that process and are functionally integrated with the Sawmill. (see Norske Skog, supra).
[32] I am mindful of the limited evidence before me regarding the improvements. However, given that the lands are properly classified as class 4, it seems to be inconsistent to classify these minimal improvements differently.
[33] Therefore, I find that there is sufficient, if not complete, integration with the Sawmill to qualify the improvements for class 4.
ORDER
[34] The Board confirms the decision of the 2009 Property Assessment Review Panel with respect to the classification of the land for all folios as class 4 and orders the assessor to amend the roll for folio 19-723-14534.000 to change the classification of the improvements to class 4. The parties shall provide to the Board with a recommendation with respect to the value of the improvements as class 4 within three weeks of the date of this decision. If the parties are unable to agree on the value of the improvements in class 4 the Board retains jurisdiction to determine that issue.