McDonald’s Restaurants of Canada Ltd. is taking the B.C. government to court over a provincial sales tax (PST) assessment that penalized the fast-food giant for not collecting PST on toys sold as part of kids’ Happy Meals.
In two petitions filed in BC Supreme Court on May 16, McDonald’s and a subsidiary, 3267114 Nova Scotia Co., claim British Columbia’s Ministry of Finance wrongfully assessed the value of toys sold with Happy Meals as being the same as “single toy sales.” The assessment period is between 2013 and 2016, and after the companies’ appeals of the assessments were denied by the finance minister in February 2018, the companies are now appealing in court.
While food and beverage products are exempt from PST, toys are considered “taxable tangible personal property,” the petitions state. But meal deals of several items, such as Happy Meals, carry a discount of between 43% and 50% “less than the total amount that would have been paid for the same group of items if purchased in individual transaction.”
McDonald’s claims a “small percentage” of customers want to buy toys without an accompanying meal.
“McDonald’s did not advertise or promote single toy sales in any manner,” the petitions state. “If a customer asked the employee at the customer order counter or at the drive-thru about purchasing a toy in an individual transaction McDonald’s accommodated the request through a single toy sale.” In those cases, the company claims it collected and remitted tax on the “single toy price,” but when sold along with a Happy Meal, the company calculated the toy’s “fair market value” at a discount.
However, the minister’s assessment rejected the difference in value between toys sold alone versus those sold with discounted meal deals.
“McDonald’s determined the Happy Meal toy [fair market value] on an annual basis utilizing a team of competent professional employees who calculated the amount in a manner that was wholly consistent with well-established fair market value principals and methodology,” the petitions state. “McDonald’s was accordingly duly diligent in determining the Happy Meal Toy [fair market value] and in collecting and remitting the tax on Happy Meal Group Sale Transaction, and the Assessment must therefore be set aside.”
The petitions’ factual bases have not been tested in court, and the B.C. government had not responded to the petitions by press time.
