Nova Scotia has reluctantly paid $53.4 million to cover an HST bill that Canada Revenue Agency says is owed on revenue generated from video lottery terminals (VLT) on First Nations in the province.

Through its agent, the Atlantic Lottery Corporation, Nova Scotia is appealing the assessment in the Tax Court of Canada. The province argues it has no control over revenues from VLTs on First Nations and that bets made there are not placed with the Atlantic Lottery Corporation.

Since paying an initial $29.6-million assessment in 2013, the province has voluntarily paid another $23.8 million in monthly remittances pending the outcome of its tax court appeal. The appeal was filed in November 2016.

"Anything that impacts on the revenues of the province in one way or the other is a big deal," says Nova Scotia Finance Minister Karen Casey. "If it takes away from revenues, then you have to decide how to continue the services and supports. What are your priorities if that source of revenue is gone?"

In late 2013, CRA notified Nova Scotia it had levied an HST assessment on video-lottery revenues from First Nations in the province. The initial assessment was for 2009 to 2013.

VLTs lucrative

There are more than 500 VLTs on First Nations across Nova Scotia generating about $40 million a year.

The machines are supplied and maintained by the Atlantic Lottery Corporation, which collects a rental fee from the band. The bands keep all of the revenues generated by the VLTs.

Finance Minister Karen Casey said anything that affects the revenues of the province in one way or another is a big deal. (CBC)

The arrangement has been enshrined in individual band gaming agreements that, in some cases, date back to the mid-1990s.

Over time, these agreements have became a cash cow for the Mi'kmaq, growing from $10 million in 1997 to $49 million by 2009. The latest figures from 2013 show the numbers dropped to $38 million.

Why CRA is involved

Earlier this month, CRA filed its response to the tax court appeal.

The agency argues the province may have handed over VLT proceeds to First Nations to support community and economic development, but the machines and revenue are controlled by the province.

"All revenue generated from authorized VLTs belonged to the province, who agreed to permit the Indian bands to retain the revenue," the agency rebuttal states.

What happens if Nova Scotia loses

Casey won't say if the province will ask First Nations to pay the federal portion of the HST if it loses the tax court appeal.

"We'll await the results of the court case," she said.

Nova Scotia Progressive Conservative finance critic Tim Houston said the band gaming agreements should be renegotiated if the federal government prevails.

Tory finance critic Tim Houston said the band gaming agreements should be renegotiated if the federal government prevails. (CBC)

"It's hard to believe taxpayers would be on the hook," Houston said. "Does the province pay the tax or do the bands where the VLTs are pay the tax? Those are serious questions, and the numbers are so big the questions can't be ignored."

Officials tight-lipped

The Assembly of Nova Scotia Mi'kmaq Chiefs declined to discuss the case, saying it's a dispute between Ottawa and Nova Scotia.

The Atlantic Lottery Corporation and the Nova Scotia Provincial Lotteries and Casino Corporation, which is responsible for gaming in the province, also declined to comment, citing the ongoing court case.

Additionally, through a statement, CRA turned down an interview request on the dispute.

"As this matter is before the courts, and by virtue of the confidentiality provisions of the Excise Tax Act, the CRA cannot comment on details of this case," said spokesperson Kenya Dames.

"Section 295 of the Excise Tax Act prohibits the CRA from disclosing or discussing confidential taxpayer information, including that of a provincial gaming authority and a province."