In a decision that could cost the city as much as $10-million this year, the Ontario Superior Court has ruled Toronto's contentious new sign tax doesn't apply to thousands of billboards lawfully erected before April, 2010.
The ruling, which wipes out virtually all the revenue the municipal government hoped to collect with the tax, is likely to touch off a battle over whether council should try to preserve a tax Mayor Rob Ford opposed as a councillor.
Council has final say on whether the city will appeal.
"We have to appeal this," said former budget chief Shelley Carroll, an advocate of the tax, which was originally envisioned as a money-raiser for the arts.
"If there's $10-million in fighting this, I can't imagine why they would vote against it."
Mr. Ford was one of 12 councillors who voted against taxing so-called third-party billboards in late 2009.
Most of the dozen opponents are now part of the mayor's inner circle, including budget chief Mike Del Grande, who wants to hear from the city's lawyers before deciding how he'll vote on appealing.
"You've got to be a fool not to worry about the money," he said. "There's $774-[million]to fill [in 2012]and it's got to be filled one way or another. All revenue sources are important. But as much as they're important, they also need to be fair and justified."
In a 51-page decision handed down Thursday, Mr. Justice Michael A. Penny concluded that Toronto's billboard tax is legal, but that existing signs should have been grandfathered when a comprehensive new sign bylaw took effect less than a year ago.
"I conclude, therefore, that the bylaw does not apply to any sign that was lawfully erected or displayed on or before April 6, 2010," the judge wrote.
The decision was the result of challenges brought by two parties: Pattison Outdoor Advertising LP/Pattison Sign Group and the Out-of-Home-Marketing Association of Canada (OMAC), an association representing several large billboard companies, including Astral Out-of Home, CBS Outdoor, Titan Worldwide and Pattison.
Pattison Outdoor Advertising LP, which owns approximately 885 sign structures that would be subject to the bylaw, estimated it would pay $3.7-million in tax on the signs in 2011.
Pattison Sign Group owns 11 billboards along the Gardiner Expressway, for which the company expected to pay $90,000 in tax this year.
The OMAC companies, meanwhile, own about 4,000 advertising devices that may have been taxable under the bylaw, or 90 per cent of the billboards in Toronto.
"It was very important [to fight the tax]because the proposed tax level was going to cripple our industry," said Rosanne Caron, president of OMAC.
The 2011 billboard fee ranged from $1,150 to $24,000 per sign, depending on the size and type.
When council approved the levy in late 2009, the city estimated it would bring in just over $11-million in 2011, minus $1.8-million to enforce tougher billboard rules passed at the same time.
Since the vast majority of Toronto's billboards were erected before April 6, 2010, the court decision neuters the tax's revenue-generating potential.
Ms. Caron estimated OMAC's members have erected only 30 to 40 signs since the bylaw kicked in.
The ruling is a blow for arts advocates who spent years lobbying for the tax on the condition it pay for public art.
But rather than earmarking the proceeds, the city stuck to its standard practice of putting the money in general revenues.
Ms. Carroll and others had hoped the billboard tax money could eventually be used to increase the city's per-capita investment in the arts, something Mr. Ford voted for in principle last August.
Devon Ostrom, one of the co-founders of Beautiful City, the coalition of arts groups that championed the tax, is urging council to vote in favour of an appeal.
"You can hope that people do the right thing and side with the public, rather than a small cabal of sign executives, but humans are free to make their own bad decisions," he said.
City solicitor Anna Kinastowski said it's too early to say whether she'll recommend appealing Judge Penny's decision.
The mayor's office, meanwhile, said Mr. Ford is waiting for advice from city staff on next steps.