When this question was raised last night I was perhaps not as well briefed as I should, be, mainly because we were then dealing with the existing act whereas I had got prepared on the details of the amending bill. It is generally in connection with the changes that the department and I do our homework. First of all let me say that the details of section 79 (b) (ii) ar.e not the result of circumstances similar to those affecting the jeweler in Kingston. The question goes back to the time of Right Hon. R. B. Bennett, who was minister of finance as well as prime minister in 1934. In order to avoid the full effect of the sales tax, certain manufacturers, notably automobile manufacturers, sought to break up what was regarded as their sale price into items such as manufacture, advertising, servicing. The dealer or the retailer paid the full price, but then it was claimed by the manufacturers that the sales tax applied only to the cost of the manufacture of the car. It was because of that that this section was first spelled out so far as sales tax is concerned. Then I have found that in the schedule of the present act it is spelled out with respect to automobiles so far as the excise tax is concerned.
Let me go through each of these items and give examples. First of all there is advertising. Every national manufacturer advertises his product nationally, whether it be a car, a radio or a television set. Undoubtedly that is reflected in the actual sale price to the wholesaler or jobber of that item. I am informed that some manufacturers, such as radio manufacturers, actually specify it as being two and one-half per cent of the selling price of their goods to the wholesaler or jobber to whom they sell.
The next one is financing. This brings in the matter of cash discounts, referred to by the hon. member for Hamilton West. If the manufacturer in selling his product to the jobber or wholesaler has to finance that sale, that again is a cost to him of selling the article, a cost which is properly included in his selling price. If the buyer, however,
finances it through a finance company, that is different; it is not a cost to the manufacturer. If the manufacturer, as suggested last night by the hon. member for Hamilton West, has to turn to a finance company to finance it, then that is an operation of the manufacturer which is reflected in the selling price. So far as cash discount is concerned, I must confess that after giving that answer last night I thought it over and wondered how allowance would be made for a cash discount, since most manufacturers of course sell with the thought that purchases will be paid for in thirty, sixty or ninety days.
The customs and excise branch of the Department of National Revenue does not demand payment for sales and excise taxes collected in this month until the end of the next month. Therefore purchases made at the first of the month have sixty days to run, and those at the end of the month have thirty days to run, the average being forty-five days. Most cash sales are for ten days. You pay in ten days, or at the outside thirty days, and you get the benefit of the cash discount. Therefore the manufacturer still has in his possession the invoice of sale, and if there has been a cash discount he takes that off his selling price and the sales tax is levied on the remainder. That is an accepted practice of the trade.
assistant leaves that point, I do not wish to contradict him, but 1 can tell him that the practice of the trade is not as he says. Manufacturers always charge sales tax on the invoice price. Then if you take your cash discount afterward you save that amount; but certainly at no time do you get a rebate on the sales or excise tax that has been paid.
went over this point very carefully with the officials of the department-that credit is given in the cash discount for the amount of sales tax which might have been paid on the total price, including servicing.
point I made before, that the manufacturer does not remit his sales tax until thirty to sixty days, an average of forty-five days, afterwards. If the sale to the customer has been on the basis of a cash discount, then that is the actual invoice of the selling price by him to his customer. The fact that there 80709-237J
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was a discount is shown, and he pays eight per cent-now ten per cent-sales tax on that item.
is at the receiving end of having a price and getting a cash discount. I am now talking about the practice of the Department of National Revenue in accepting these invoices from the manufacturer. If the individual can get a discount, the manufacturer shows it on the invoice and pays his sales tax on the net selling price to the jobber or wholesaler, or, if he should sell directly, to the retailer.
The next point was servicing, and the difference between servicing and a warranty. Taking again the example of an automobile, because it is the easiest one to use, the warranty is that for the first six months or first year they will not only service the article but will replace defective parts, and, if need be, replace the whole article if it should prove to be defective. That is a warranty. Aside from that there are, as all hon. members know, servicing guarantees given on cars and other such items. An automobile manufacturer will service your car for the first
10.000 miles. It may take some people a year, some two years, and some even three years to use up the 10,000 mile service guarantee given by the automobile manufacturer, which servicing is still one of the costs included in the selling price of the manufacturer to the dealer.
matter of indifference. I know that on my car I have a 10,000 mile service guarantee. In a year I have only travelled 6,000 miles, and I still have coupons and cards from the car company from which I bought it not the dealer-assuring me of this service up to
10.000 miles. But whether it is 10,000 or 1,000, ten days or five years, it is still servicing.
The last matter is commission. Some manufacturers sell their goods through their own salesmen who are on salary, some throug salesmen on commission, and some through salesmen on a joint salary and commission basis. It has been argued that where manufacturers pay outright commission it is not a cost of manufacture. There is no doubt that it is a cost to the man who buys the car,
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because the manufacturer's cost and the commission have been added before the person purchases the car. Again so far as the interpretation of sales price in the present act is concerned, and in the schedule so far as excise tax on cars is concerned, that has been interpreted as a part of the selling price.
I think I have answered the points the hon. member raised. '
Because the manufacturer himself has salesmen. The manufacturer does not merely sell by catalogue. It may not be so in the automobile industry, but in other industries many manufacturers have their own salesmen who go to jobbers, wholesalers, department stores and chain stores to push their products. In the actual net cost to the purchaser of those goods there is induded the cost of manufacture and these other things, plus the commission paid the salesmen of the manufacturer who in the end might sell to a jobber, wholesaler, or department store, or, in the case of direct sale, to a retailer.
In that cost-and I bought through a local dealer-was included the cost of the manufacture of the car; the cost of the advertising which the company did in a national magazine and which drew their car to my attention; the cost of the warranty that if the car was defective in the first year or three months or six months-whatever it is-they would replace' the parts; and the (Mr. Sinclair.]
cost of servicing for the first 10,000 miles. I don't know what the division of costs was. All I paid was that final price, but in the price the dealer paid the manufacturer the same things were included.