08/29/2013 11:12 EDT | Updated 10/29/2013 05:12 EDT

B.C. court denies appeal of tax penalty from former owner of The Brick

VANCOUVER - The former owner of a Canadian furniture retail giant has lost its appeal of a B.C. government order to pay more than $200,000 in penalties associated with The Brick's so-called buy now, pay later program.

The program allows customers to defer the payment of purchases for up to 18 months by signing up for a store card. While customers do not have to pay interest on their purchases, they were charged a service fee to arrange card financing.

A Finance Ministry audit in 2000 found that Quinco Financial, then owner of The Brick, had failed to collect nearly $170,000 in provincial taxes on the service fees, between March 1, 1996 and October 21, 2000. It imposed a penalty of $209,000 which was equivalent to the unpaid taxes plus interest owed.

Quinco Financial paid the penalty but appealed the assessment in 2002, arguing that the service fee is separate from the purchase price and, therefore, exempt from taxes.

B.C. Supreme Court Justice Keith Bracken ruled against Quinco Financial, saying the service fee is a charge directly related to the sale of store items.

The ruling, released on Tuesday, denied Quinco a refund.

The Brick is now a wholly owned subsidiary of Leon's Furniture Ltd. (TSX:LNF), which announced last year it was purchasing the furniture retailer for $700 million. The deal closed in March 2013.

Leon's operates stores under The Brick, United Furniture Warehouse, The Brick Mattress Store and Urban Brick banners.

Note to readers: This is a corrected story. An earlier version did not specify that Quinco Financial is a former owner of the Brick.