Overview
Canadians have an obsession with Costco, using the store to buy everything from toilet paper to an entire Serrano ham to a $17,000 engagement ring. So it is no wonder that there was some recent media attention when Costco started to sell gold bullion, with Global News reporting that the 1-oz, 24 carat gold bars currently retailing for $2,679.99 are “flying off [the] shelves.”
Further below in the Global News article, there is this little snippet: "Manitoba customers, it seems, are out of luck, as the listing says they are not available for purchase there."
Why is Costco’s bullion banished in Manitoba, and why are Manitoba customers who prefer investments that can be buried in a coffee tin “out of luck”? This provides a great opportunity for a short lesson in municipal law.
There is no ban on bullion in Manitoba. While the provincial government regulates scrap metal dealers through The Scrap Metal Act, section 7 of that Act specifically exempts bullion, whether freshly pressed or sold on the secondary market. Selling bullion in Manitoba is perfectly legal. In fact, it is exempt from provincial sales tax under clause 3(1)(t.2) of The Retail Sales Tax Act as long as it is at least 99.5% pure. Most of the chartered banks allow their Manitoba customers to buy bullion and to store it in safety deposit boxes.
In this case, the issue is not provincial law but rather municipal law. Municipalities derive their powers from provincial statute, in Manitoba’s case The Municipal Act. Section 232 of that Act sets out the spheres of jurisdiction in which a municipality may regulate by by-law. This includes the following: (a) the safety, health, protection and well-being of people, and the safety and protection of property; (b) people, activities and things in, on or near a public place or a place open to the public, including parks, municipal roads, recreation centres, restaurants, facilities, retail stores, malls, and private clubs and facilities that are exempt from municipal taxation. Under those powers, municipalities can regulate retail sales, including specific business types.
In 2001, the Supreme Court of Canada confirmed that more than one level of government can regulate the same issue. Spraytech v. Hudson involved a challenge by a lawn care company against a municipal pesticide ban, even though the products used were legal under federal pesticide legislation. The court ruled that such duplicate rule-making does not create a conflict unless there is an “impossibility of dual compliance.” This means that both provincial legislation and municipal by-laws can regulate metal dealers.
All of Manitoba’s Costco locations are located within the City of Winnipeg. Enter the City of Winnipeg’s Community Safety Business Licensing By-Law. Division 9 of Part 3 of that by-law requires any business dealing in “precious metals” within the City of Winnipeg to hold a municipal precious metal dealer licence. The by-law’s definition of “precious metals” includes gold bullion as well as used jewelry, but not new jewelry. This means a retailer like Costco does not require a municipal precious metal dealer licence to sell engagement rings in any price range, but does require such a licence to sell gold bars intended for investment purposes.
The rules surrounding precious metal dealers were created to limit the purchase and sale of stolen merchandise within Winnipeg. This means there are record-keeping requirements for each purchase and sale and regular reporting obligations that create additional compliance costs that do not exist for other product lines.
It seems that Costco evaluated the compliance costs related to this municipal licensing requirement and decided that it was not worth the effort to sell bullion in Manitoba.
Fillmore Riley’s Municipal Law team can assist you will all municipal regulatory compliance matters.