Unpopular BC sales tax deal upheld by court

Fri Sep 17, 2010 6:12pm EDT
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VANCOUVER (Reuters) - British Columbia's unpopular agreement to merge its provincial sales tax with Canada's federal goods and services tax was legal, a judge ruled on Friday.

The ruling rejected claims by opponents of the harmonized sales tax (HST) that the provincial government failed to get needed legislative approval to make the surprise deal with Ottawa last year.

The province merged its 7 percent provincial sales tax with the federal 5 percent tax, creating a new 12 percent HST that took effect in July and generally follows Ottawa's rules on exemptions.

Supporters say the new system will keep companies competitive with rivals in other provinces, such as Ontario, that have adopted an HST with Ottawa.

But opponents say it shifts more of the tax burden to consumers and small businesses, and the debate has gutted the popularity of British Columbia Premier Gordon Campbell and his center-right Liberal Party.

Voters will decide whether to repeal the tax in a referendum scheduled for next year.

In upholding the tax agreement's constitutionality, British Columbia Supreme Court Justice Robert Bauman said he was not passing judgment on the HST's merits.

"That burden of proof is for others to bear and the electorate to test," he wrote.

Campbell faces a party leadership review in November. He says he plans to stay on, but there have been calls from some Liberal supporters for him to step down.

(Reporting by Allan Dowd;editing by Rob Wilson)