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Whitehorse fought the federal government over an unpaid $137,000 GST bill for employee bonuses. (CBC)

It's officially the end of the line for the City of Whitehorse's battle against the GST.

The city took its fight over a $137,000 tax bill from the federal government all the way to the Supreme Court of Canada, but the country's top court says it won't hear the case.

That means Whitehorse will have to pay its tax bill.

Ordinarily, the city would also be on the hook for court costs and legal fees for both sides. But that's not the case here because the city's case was being fought through an agent.  A company known as "Fairtax" takes on court cases for municipalities.

Had the city won the case, Fairtax would have taken a percentage of the refund.  But Fairtax funded the entire court battle at no cost to the city.  

Employees bonuses at issue

The case centred on travel bonus payments to city employees. Under tax rules, the federal government charged the City of Whitehorse seven per cent GST on all the money it paid in travel bonuses for employees.

The city argued it shouldn't have to pay tax on those funds because the bonus money went directly to the workers and the city didn't get any service or benefit from the expenditure.  But, federal government lawyers argued successfully that the city did get a benefit and was getting a service because those bonuses made it easier for the city to attract and retain workers. 

Three judges from the lower federal tax court agreed.  Now that the Supreme court has refused to hear the case, the lower court's ruling stands and the City has to pay its tax bill.