A couple of times this column has dealt with the operation of the Gunn food processing plant in Harriston and its successor, Maple Leaf Foods.
That plant was the longest lived of Harriston’s industries, and a local pioneer in the production of ice cream, which began there in the summer of 1918, a sideline to the eggs and meat being processed at the plant.
During and after the First World War, Gunn’s Limited undertook an aggressive policy of expansion. It soon had plants in a half dozen locations in southern Ontario.
By then the Toronto stock yards on St. Clair Avenue handled the bulk of livestock transactions in the province, and Gunn established an office there. It immediately began to function as the head office of the firm, and office functions soon were moved there.
The city of Toronto levied taxes on head office functions, based on the volume of business done. That assessment increased rapidly during the inflation following World War I. In January of 1923, in view of the onerous tax burden in Toronto, Gunn officially moved their head office to Harriston.
George Hurst, an official at the city’s tax office, believed the move was done merely to evade paying taxes in Toronto, and that the head office functions continued to be performed on St. Clair Avenue, rather than in Harriston. He placed a business assessment of $100,000 on Gunn’s Limited.
The additional tax represented a huge burden to Gunn’s. Despite its expansion, the firm was not consistently profitable. Intense competition, unstable livestock prices, and uncertain markets were major factors in squeezing the profit margin. In some years Gunn’s recorded a loss on operations. The extra taxes demanded by Toronto would likely doom the firm to failure.
Naturally, Gunn’s appealed the assessment, and the matter came up at a court of revision session on June 2, 1926. Hurst argued strongly that the move of the head office to Harriston was a sham, and that the head office continued to operate from St. Clair Avenue.
“The real question,” argued Hurst, “was whether the company, by passing a resolution and company bylaw, is sufficient under the assessment act, is sufficient to have their assessment in this municipality cancelled.”
He stated that the move was done simply to evade the tax.
G.W. Adams, a lawyer representing Gunn’s, argued the head office was moved to Harriston because the firm had a large operation there, and being the head office “added to the prestige of the branch.”
Under questioning, Adams admitted the firm continued to operate largely from the Toronto location. The top officials were there, and even the meetings of directors were there.
The Harriston location had copies of minutes and other documents as required by law. He was adamant that Gunn’s was in full compliance with all laws and tax regulations of the province of Ontario.
Hurst then examined J.K. Ingram, secretary treasurer of Gunn’s. He admitted directors met in Toronto, and that they seldom visited the Harriston location. The books and records of the firm were all in Toronto, with only copies at the Harriston location.
If the firm were to be sued, he stated, the papers would need to be served at Harriston, not Toronto.
Judge Drayton, who presided over the session, handed down a ruling that the transfer of Gunn’s head office was not legitimate, and that the firm was liable for the business tax levied by the City of Toronto.
The ruling caused much distress amongst Gunn’s managers. The firm had enjoyed satisfactory financial results in 1925, but cost pressures were again mounting, and the company was facing massive losses in 1926.
The additional tax payment would likely doom the company. J.K. Ingram, on behalf of the company, filed an appeal against Drayton’s decision. The deadline for appeals was the first of August. Judge Tytler heard the case, and he ruled against the city, declaring that Gunn’s actions were fully compatible with the law.
That ruling made George Hurst of the Toronto assessment office furious. He filed an appeal of the Judge Tytler’s ruling. At that time such tax appeals were heard by the Ontario Railway and Municipal Board. The Gunn case was scheduled for late December of 1926.
Commissioner Ellis heard the appeal on Dec. 20, 1926. J.K. Ingram asserted that all the books and documents required under the Ontario Companies Act are held in Harriston.
Toronto’s lawyer, Henry Johnson, asked whether they were the originals.
“No, the originals are in Toronto,” replied Ingram.
“Where do you do your banking,” asked Johnson.
“Dominion Bank, Toronto.”
The exchange continued along this line for some time, during which Johnson established that Gunn’s was undoubtedly being run and managed from Toronto.
The questions embarrassed Gunn’s and its lawyer, and caused Commissioner Ellis to squirm in his seat. Gunn’s was certainly exploiting a loophole in the law, and there was nothing Ellis could do about it.
In the end, Johnson’s efforts were fruitless. In sustaining the appeal by Gunn’s Limited, Ellis noted “there might be evasion, but if that is the case the only remedy is further legislation.” Under the law as it was written, Ellis had no choice but to sustain the appeal of the $100,000 business assessment against Gunn’s Limited.
Johnson was furious at the ruling, but Commissioner Ellis declared that he ruled strictly on legalities under the law as it was written. Henry Johnson hinted that there was a sweetheart deal between the Town of Harriston and Gunn’s Limited, and that the firm’s tax assessment was much less than should be the case. Sarcastically, he asked what the firm would do should Harriston decide to levy a business tax themselves.
Though they won the tax appeal, it turned out to be a terrible year for Gunn’s Limited. The company posted an immense loss that year. They took several measures to make the loss seem less. In particular, the treasurer wrote down the book value of goodwill from $12,000 to $1. By then Gunn’s was already seeking a remedy in the form of a sale of the firm’s facilities. Luckily, the most obvious buyer was already knocking at the door.
In 1927 R.S. McLean and his associates acquired Gunn’s Limited, along with several other firms in the food industry, and combined them into Canada Packers. Under that name the Harriston plant continued in operation for most of the 20th century, but that is a story that has already been told in this column.
For its part, the province of Ontario modified the rules for the municipal taxation of companies.
Companies operating from several locations were becoming common in the 1920s, and it was obvious that such firms would be delighted to play one municipality against another to secure the most favourable tax rates.
But that is a long and complicated story, perhaps to be told here at another time