Link to Property Assessment Appeal Board Decision Dated February 14, Link to Property Assessment Appeal Board Decision Dated December 14, 2000

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Edwin Hodges
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1 The following version is for informational purposes only, for the official version see: for Stated Cases see also: for Property Assessment Appeal Board Decisions SC 440 AA17 v Enertek Link to Property Assessment Appeal Board Decision Dated February 14, 2000 Link to Property Assessment Appeal Board Decision Dated December 14, 2000 ASSESSOR OF AREA 17 - PENTICTON v. ENERTEK PRODUCTS INTERNATIONAL INC. Supreme Court of British Columbia (L000827) Vancouver Registry Before the HONOURABLE MADAM JUSTICE GILL J.H. Shevchuk for the Appellant D.P. MacDonald for the Respondent Vancouver, September 22, 2000 Classification of Major Industrial Improvements Insulation Manufacturing Plant The Property Assessment Appeal Board determined that the classification of the subject property should be split between Class 4 Major Industry and Class 5 Light Industry. It arrived at this conclusion based upon the Board s determination of the actual use of the subject property. The Assessor argued that the Board erred for two reasons. First, classification under Class 4 Major Industry depends upon the purpose for which improvements are designed and built not the actual use of the improvements. Second, the wording of B.C. Regulation 438/81, the Prescribed Classes of Property Regulation section 5 precluded property being classified both as Class 4 and Class 5. HELD: The Board erred in determining classification within Class 4 by referring only to actual use. B.C. Regulation 438/81, section 5 is not to be interpreted in the manner suggested by the Assessor. Reasons for Judgment October 2, 2000 The Assessor of Area 17 Penticton appeals by way of Stated Case from a decision of the Property Assessment Appeal Board dated February 14, At issue is the classification of the Respondent s manufacturing facility located in Grand Forks, the Board having determined that the land and improvements should be split classified Class 4/Class 5 based on the extent to which the improvements in question serve the manufacture of insulation and the extent to which they serve other processes. Three questions have been posed for the opinion of the Court. page 1

2 1. Did the Property Assessment Appeal Board err in law by misinterpreting the definition of "industrial improvement" set out in section 20(1) of the Assessment Act, R.S.B.C. 1996, c Did the Property Assessment Appeal Board err in law by not giving effect to the wording of section 5(a) of B.C. Regulation 438/81 Prescribed Classes of Property Regulation when it determined that split classification between Class 4 Major Industry and Class 5 Light Industry was appropriate for the subject property? 3. Did the Property Assessment Appeal Board err in law by adopting an unreasonable view of the evidence or, alternatively, by acting without any evidence when it ordered that the subject property should receive a split property classification between Class 4 Major Industry and Class 5 Light Industry pursuant to B.C. Regulation 438/81 Prescribed Classes of Property Regulations? During argument, counsel for the Appellant agreed that the third question need not be answered. The Respondent manufactures fibre which is bonded into products sold primarily for insulation applications, but also, after the introduction of a wetting agent, for use in a horticultural application as a growing medium. The Respondent s facility was originally built in 1979 when Pacific Enercon Inc. commended construction of a 62,000 square foot manufacturing facility for the production of insulation from a supply of slag, a bi-product of copper smelting. In 1980, the facility commenced production of fibre, referred to as loose wool. It was marketed as Energlass Wool and sold as an insulation product that could be poured, blown or baled. In 1987 and 1988, Bradford Enercon, the then owner, constructed approximately 107,000 square feet of additional buildings, a 3,400 square foot raw material storage building and a 4,000 square foot electric smelter building. Approximately, $20,000,000 was spent on new equipment which permitted the production of bonded products. In 1997, the City of Grand Forks purchased the land and buildings. The Respondent leased the land and buildings from the City, purchased the equipment from Bradford Enercon and commenced operations in the fall of In December, 1997, the Ministry of the Environment issued a permit allowing Enertek to produce fibre and in April, 1998, it received a permit for the production of bonded products. By 1999, the plant was fully operational. By revenue, approximately 70 percent of production was sold for insulation applications and 30 percent for use in horticultural applications. Approximately 4,000 square feet of the 171,000 square foot facility is directly dedicated to the production of fibre. Another 6,000 to 7,000 square feet is directly dedicated to binding and sizing. Storage space, packaging, loading and storing equipment, electrical and mechanical systems, and offices and administration space, all of which serve both the production of fibre and the processing of fibre to bonded products, are housed in the balance of the space. Only one machine in the facility is exclusively dedicated to wetting the product for horticultural use, but the plant could be devoted exclusively to the manufacture of the horticultural product without extensive retooling or redesign. B.C. Reg. 438/81 sets out nine prescribed classes of property. Classes 4 and 5 are major industry and light industry, respectively. The definitions of Class 4 and Class 5 properties are as follows: Class 4 major industry 4. Class 4 property shall include only the property referred to in section 20(3) of the Act, that is to say, (a) land used in conjunction with the operation of industrial improvements, and page 2

3 (b) industrial improvements. Class 5 light industry 5. Class 5 property shall include only land or improvements, or both, used or held for the purpose of extracting, processing, manufacturing or transporting of products, and for the storage of these products as an ancillary to or in conjunction with such extraction, processing, manufacture or transportation, but does not include those lands or improvements, or both, (a) included in class 2 or 4, (a.1) used or held for the purposes of, or for purposes ancillary to, the business of transportation by railway, (b) used principally as an outlet for the sale of a finished product to a purchaser for purposes of his own consumption or use and not for resale in either the form in which it was purchased or any other form, and (c) used for extracting, processing, manufacturing or storage of food, non-alcohol beverages or water. Section 20(3) of the Assessment Act, which is referred to in respect of Class 4, describes a class of properties consisting of land used in conjunction with the operation of industrial improvements. The definition of "industrial improvement" in s. 20(1) is thus relevant. It is defined to mean "an improvement that is part of a plant, whether or not the plant can be operated as a going concern or is temporarily or permanently unprofitable, if the plant is designed and built for the purpose of one or more of the following". The manufacturing of insulation is one of the delineated purposes. Horticulture is not included. Section 10 of the Regulations deals with properties which fall into two or more classes. It provides: Where a property falls into 2 or more prescribed classes, the assessor shall determine the share of the actual value of the property attributable to each class and assess the property according to the proportion each share constitutes of the total actual value. The Board concluded that when considering the words "designed and built" in s. 20 of the Assessment Act, what matters is the present design and construction of the plant. The question becomes: for what purpose is the plant currently designed and built. The Board found that this must be determined on the basis of objective criteria. In its reasons, the Board stated that what the plant actually manufactures is far more instructive as to the purpose for which the plant is designed and built than is a theoretical consideration of the plant s capability. The actual output of the plant was considered. Since 70 percent of sales were of products for insulation applications and 30 percent for horticultural application, it was concluded that the plant had a dual output and a dual purpose and that the land and improvements should be split classified Class 4/Class 5. To the extent improvements did not serve the Class 4 process, being the manufacture of insulation, they were not industrial improvements within the meaning of s. 20(1) of the Act. I turn now to the first issue on this appeal, which relates to the interpretation of "industrial improvement". The argument of the Appellant is that the Board erred in focussing on actual use. The test cannot be the actual use of the property which, as the Appellant described it, may be nothing more than a whim of the occupiers. Rather, it is what a plant is designed and built for that page 3

4 is important for classification purposes. It is acknowledged that a plant which has been classified in Class 4 on the basis it was designed and built for the purpose of manufacturing insulation may not always be classified as such. Additions or modifications may lead to the conclusion that a plant is now designed and built for a purpose other than the manufacture of insulation. But the focus must remain the purpose for which the plant is designed and built and only if there is no indicia of the purpose for which a plant is designed and built should reference be made to actual use. The Appellant s argument flows from the following passage in the Board s reasons: However, in the Board s view, since classification in general is to be based on actual use, what the plant actually manufactures is far more instructive as to the purpose for which the plant is designed and built, than is a theoretical consideration of the plant s capability. A consideration of the actual output of the plant in fact proves capability and, if one assumes an intent to maximize profit by efficient design and tooling, also proves purpose. In 1998, 70% of the plant s sales were accounted for by products for insulation applications, and 30% by products for horticultural applications. How should that dual output, dual purpose, affect classification? It was argued that the error was in the conclusion that actual output proves purpose. A plant s use and the purpose for which it is designed and built may be one and the same. But conversely, a plant may be being used for a purpose for which it is not designed or built. "Industrial improvement" is not defined by reference to whether a plant is actually used for one of the delineated activities. The question is whether it is designed and built for the purpose of one of the delineated activities. To that extent, I agree with the Appellant s submission. I do not, however, agree that whether a plant is capable of or manufactures products other than insulation is irrelevant, nor do I agree that evidence of actual use is irrelevant. The Board found that this facility was originally built for the production of insulation and in 1987 and 1988, the then owner constructed additional space and installed equipment which permitted production of the bonded products which are now produced. In the present case, therefore, it can be said that the output of the plant reflects the purpose for which it is designed and built. The more difficult case would be a situation where a plant has not undergone modifications, but is now devoted to an actual use which is not within Class 4. Nevertheless, the definition of "industrial improvement" does not state "if the plant is actually used for the purpose of one or more of the following". In my view, to read it in that fashion would be an error. During argument, counsel for the Respondent agreed that present or actual use cannot be the sole consideration but said that it was not the sole consideration in the present case. The case stated for the court includes the following: The Board found that what the plant actually manufactures, its actual output, informs the purpose for which the plant is designed and built. Although I reach this conclusion with some hesitation, it would appear that the Board made its determination based solely on actual use. In my view, it erred in that respect. To that extent, question 1 is answered affirmatively. Turning to the second question, the argument of the Appellant flows from s. 5 of the Regulations and specifically, the words "but does not include those lands or improvements, or both, included in Class 2 or 4". The Appellant contends that in the circumstances of this case, s. 5 precludes a page 4

5 split classification between Classes 4 and 5. As there is only one plant, it must be concluded that all land and improvements fall within Class 4. Section 10 of the Regulations refers to a "property" which falls into two or more classes. The Assessment Act defines "property" to include land and improvements. Section 10 thus recognizes that property, or land and improvements, may fall into two or more classes. If so, the Assessor must determine the actual value attributable to each and assess the property accordingly. The question in regards to s. 10 is whether a property falls into two or more prescribed classes. One plant may be designed and built in part for the purpose of the manufacture of insulation, but the land or improvements may also be used for manufacturing products not within Class 4. For the purposes of valuation, the absence of what the Appellant describes as a separation may be problematic, but the issue here is classification. I do not agree with the argument of the Appellant that a split classification between classes 4 and 5 is precluded, nor do I agree that Assessor of Area 21 Nelson/Trail v. Cominco Ltd., [1996] B.C. Stated Case 384 (B.C.C.A.) supports that position. The second question is answered in the negative. If the parties are unable to agree on the issue of costs, further submissions may be made. page 5

CBR CEMENT CANADA LIMITED ASSESSOR OF AREA 01 CAPITAL & CITY OF COLWOOD. Supreme Court of British Columbia (A980594) Vancouver Registry

CBR CEMENT CANADA LIMITED ASSESSOR OF AREA 01 CAPITAL & CITY OF COLWOOD. Supreme Court of British Columbia (A980594) Vancouver Registry The following version is for informational purposes only, for the official version see: http://www.courts.gov.bc.ca/ for Stated Cases see also: http://www.assessmentappeal.bc.ca/ for PAAB Decisions SC