2020 British Columbia budget update – Provincial sales tax changes
TAX ALERT |
On February 18, 2020, British Columbia’s Finance Minister Carole James delivered the province’s 2020 budget. In the coming weeks, RSM will publish a comprehensive summary of all of the tax changes delivered in that budget. This tax alert summarizes only the British Columbia (BC) provincial sales tax (PST) changes presented in the budget, particularly the major change and policy expansion around registration of remote sellers.
Expansion of PST registration requirements for non-residents of British Columbia
Effective July 1, 2020, Canadian and foreign (i.e. non-residents of Canada) sellers of taxable software and telecommunication services (including several digital goods) will be required to register for PST if their specified BC revenues exceed $10,000. Canadian sellers of goods that exceed this threshold will also be required to register and administer BC PST. As legislation has not yet been tabled, it is unclear what would qualify as “specified” BC revenues. In addition, any Canadian-resident person selling vaping products to consumers in BC, will be required to register and collect BC PST.
As consumers continue to purchase goods and services online from persons without a physical presence in the taxing jurisdiction, we have been seeing more requirements globally for companies to register for sales or value-added taxes in jurisdictions in which they do not have a physical presence or other nexus requirements sufficient to require registration and administration of these consumption taxes.
Most recently in the United States, the Supreme Court’s 2018 decision in South Dakota v. Wayfair, Inc opened the door to states requiring sales tax collection from sellers without a physical presence or other nexus requirements in the state.
Closer to home, the Province of Quebec introduced similar rules for Quebec sales tax registration, affecting remote sellers of various goods, digital goods and services starting in 2019. The Province of Quebec expected that this change would bring in an additional $28 million in 2019. However, as of August 31, 2019, the change had already brought in an additional $38 million in government revenues.
The Province of Saskatchewan also has required registration of non-resident vendors selling to consumers in Saskatchewan since April 1, 2017. While the Quebec changes mostly impact remote sellers selling to unregistered persons such as consumers (i.e. business-to-consumer), the Saskatchewan PST registration requirement impacts all persons who sell to end-users (business-to-business or business-to-consumer). We expect that the BC PST changes will mirror Saskatchewan in this respect, rather than Quebec.
As businesses continue to move online and sell to places where they have no physical presence, we expect that more jurisdictions in Canada and across the world will impose similar rules to ensure that sales and value-added taxes are collected.
Elimination of exemption for certain beverages
Existing section 139 of the of the BC Provincial Sales Tax Act exempts most “food products for human consumption” from BC PST. Effective July 1, 2020, this exemption will not apply to carbonated beverages containing sugar, natural sweeteners, or artificial sweeteners. Additionally, PST will apply to all beverages that are dispensed through soda fountains, soda guns or similar equipment, or vending machines. Vending machines that are dedicated to dispensing beverages other than sweetened carbonated beverages (e.g., coffee or water vending machines) will not be impacted by this change.
While taxes on sweetened or carbonated drinks have been imposed in several jurisdictions across the globe, the Province of BC is the first jurisdiction in Canada to specifically target such beverages. According to the budget documents, the province intends to have PST apply to all beverages dispensed from a vending machine that also dispenses sweetened beverages. Based on this, for example, PST should apply to all beverages dispensed from a vending machine that dispenses water and also dispenses soft drinks.
The purpose of this change is to encourage decreased consumption of sweetened beverages. The province expects that the deterrence effect of this change will be most prevalent among frequent consumers of sweetened beverages.
Sellers of these beverages will need to ensure they review the rules and make the necessary changes to their systems before July 1, 2020.
Expansion of exemptions for pollution control and waste management machinery and equipment
Existing sections 99 and 100 of the Provincial Sales Tax Exemption and Refund Regulation made under the BC Provincial Sales Tax Act exempt certain machinery and equipment purchased or leased by qualifying persons in BC for use in pollution control or waste management from BC PST. The exemption previously only applied if the machinery or equipment was acquired for use substantially at:
- the qualifying part of a manufacturing site, processing plant, refinery or mine site,
- a well site, or
- a tailings pond related to mining of minerals.
Effective February 19, 2020, the restriction regarding the location at which the machinery or equipment must be used to qualify for the exemption has been removed.
In order to qualify for this exemption, the person acquiring the equipment or machinery must be a manufacturer, an oil or gas producer, a mine operator or certain qualifying persons who provide services to manufacturers, oil and gas producers, or mine operators. Persons in BC who operate such businesses should review their purchases going forward to ensure they take advantage of the expanded exemption. The prescribed exemption certificate (FIN492) will still need to be issued by the purchaser and retained by the vendor. The province’s PST bulletins have recently been updated to reflect these changes to the location criteria.
Refund for PST paid on materials of real property contractors working outside of BC
Effective February 19, 2020, real property contractors may apply for a refund of BC PST paid on goods if they perform value-added work to the goods in BC and then install those goods into real property outside BC. It is expected that this will clarify an existing provision introduced in 2015 that previously required a sales tax to be paid in the jurisdiction of installation.
Please watch for our more complete update on other BC budget matters as well as RSM’s coverage of the federal and provincial budgets, in the coming weeks, and subscribe to receiving budget updates here.