Regina Saskatchewan - Canadian Pacific Railway (CP) is suing the Saskatchewan government for $341 million, arguing it doesn't have to pay provincial taxes due to a 141-year-old contract.
 
In opening arguments this week at Regina Court of Queen's Bench, lawyers for Canadian Pacific (CP) said a clause in that contract, later incorporated into legislation, exempts the corporation from income, sales, fuel, and capital taxes associated with its historic main line, forever.
 
Yet it has paid taxes on the main line for a century, and is seeking to recover hundreds of millions of dollars of what it calls unconstitutional taxes going back to 2002.
 
The province countered that CP gave up the exemption decades ago.
 
Its lawyers argued the case is of "considerable importance" to the provincial government.
 
Finance Minister Donna Harpauer said losing the case would be "significant" for the provincial budget.
 
But it's also about fairness with other rail operators, and for all Saskatchewan people.
 
"It's unfair to the taxpayers of the province, because then they have to bear the brunt..." she said in an interview on Tuesday.
 
"CP would no longer be contributing to the benefits that Saskatchewan people pay their taxes for."
 
The 1880 contract between CP and the federal government was incorporated into the 1881 CPR Act, which states the Canadian Pacific Railway and its stations, buildings, yards, workshops, rolling stock, and property required for constructing and working the railway, as well as the company's capital stock, "shall be forever free from taxation" by the federal government, any province, or any municipality.
 
The Saskatchewan Act, which established Saskatchewan in 1905, provides that the province must exercise its powers subject to that clause in the CPR Act.
 
The exemption only applies to the historic main line, which crosses through Regina, Moose Jaw, and Swift Current on its way from Ontario to British Columbia.
 
CP launched a roughly similar lawsuit against the federal government.
 
The Federal Court found in Ottawa's favour on most points, though it agreed that CP was exempt from a now eliminated tax on its capital stock.
 
The company is appealing the decision to the Supreme Court.
 
But CP lawyer Michael Barrack argued the two cases are different in key respects, and the Federal Court decision does not bind the Saskatchewan Court of Queen's Bench, which began hearing on Monday what is expected to be a weeks-long case overflowing with historical detail on issues foundational to the province.
 
"This is a unique case," said Barrack.
 
He said the tax exemption was an "extraordinary inducement" to persuade CP to build the historic mainline from Ontario to B.C. in the first place.
 
He said the contract and the CPR Act lay out "a broad and perpetual exemption from taxation."
 
Although CP agreed in 1966 to voluntarily forgo the exemption from municipal taxation, he said it never did likewise for provincial taxes.
 
The fact that it later paid them doesn't affect its rights, according to Barrack, who said the company can recover taxes that were levied unconstitutionally.
 
Saskatchewan's lawyer, Tom Irvine, called the case "unusual."
 
But he said the Federal Court decision should carry great weight in deciding it in the provincial government's favour.
 
Irvine argued there is evidence CP agreed decades ago to rescind the key clause exempting it from taxation in exchange for modernizing railway legislation.
 
He said it must mean something that the company has paid those taxes in "such a consistent pattern over the course of a century."
 
But even if the exemption still exists, he refused to admit it was anywhere near as broad as Barrack had argued.
 
In his view, it covers the physical structure of the rail line, not the company itself.
 
"It's a list of specific properties of the railway that are exempt from taxation, it's not the company that is exempt from taxation," he said.
 
"That distinction between the railway and the company is crucial."
 
Irvine said the clause, even if still in force, might exempt CP from paying capital taxes on the historic main line.
 
But it has no bearing on income taxes on the company's profits, nor does it mention taxes on the fuel used in CP trains.
 
If there is a sales tax exemption, Irvine said it would be very narrow.
 
Yet Irvine noted that CP is seeking a huge sum of money, $248 million in fuel taxes alone, as well as $49 million in sales taxes, $40 million in income taxes, and $4 million in corporation capital taxes.
 
"That is a considerable amount of money that would be taken out of the provincial revenue," said Irvine.
 
He argued that CP executives in the 19th century were well aware of income taxes and customs duties on coal, for instance, yet they didn't bother to ensure they were mentioned in the exemption.
 
But Barrack came armed with a Powerpoint slide dissecting the words in the exemption clause.
 
In his view, words like "rolling stock" suggest that exemption was always designed to cover the activities of the company, not just its physical infrastructure.
 
"There are words in the exemption that apply to all the taxes," Barrack said.
 
Fuel, for instance, is "other property" and necessary for running rolling stock.
 
While Barrack argued that the exemption clause was central to the contract, and CP's agreement to build an "impossible railway" across Canada, Irvine disagreed.
 
He said a cash subsidy and land grant were far more important.
 
CP is seeking both a declaration of its rights from the court, as well as an order to recover the tax dollars collected.
 
Harpauer expressed confidence the province has a strong case and will prevail, especially given the Federal Court decision.
 
"We're going to fight it in court to the very end," she said.
 
Arthur White-Crummey.