TEI comments on British Columbia provincial sales tax.

• Position: Tax Executives Institute

On February 12, 2014, TEI filed a letter urging the British Columbia Ministry of Finance to address issues that would improve the administrability of the provincial sales tax (PST) system, including requesting additional guidance identifying products and services as nontaxable or exempt, and relief from the tax for export sales. The letter was prepared under the aegis of TEI's Canadian Commodity Tax Committee, whose chair is Robert J. Smith of McKesson Canada. Contributing substantially to the development of TEI's comments were Dwaine Arnason of Shell Canada Ltd., David A. Card of Spectra Energy Corporation, Brian A. Moul of BC FHydro & Power Authority, and Michael J. Willis of Lafarge Canada Inc. Daniel B. De Jong of the Institute's legal staff coordinated the development of the Institute's comments.

The transition back to the Provincial Sales Tax continues to challenge businesses with operations in British Columbia. Many areas of the law still need additional guidance and clarification. This letter comments on various provisions in the Provincial Sales Tax Act (PSTA), the Regulations, and the administrative guides issued by the Ministry of Finance (hereinafter the Ministry). Addressing the issues identified by members of Tax Executives Institute (TEI) will improve the administrability of the provincial sales tax (PST) system. We have limited our focus to issues that are administrative in nature, which should have little or no impact on provincial revenue. TEI also welcomes the opportunity to meet with Ministry staff to discuss these matters further.

TEI is the preeminent association of in-house tax professionals worldwide. The Institute's approximately 7,000 professionals manage the tax affairs of over 3,000 of the leading companies across all industry sectors in North America, Europe, and Asia. Canadians constitute approximately fifteen percent of TEI's membership, with our Canadian members belonging to chapters in Vancouver, Calgary, Montreal, and Toronto (which is TEI's largest chapter). These TEI members contend daily with the planning and compliance aspects of Canada's business tax laws. Many of our non-Canadian members work for companies with substantial activities in British Columbia and Canada generally. The comments set forth in this letter reflect the views of the Institute as a whole, but more particularly those of our Canadian constituency.

Assessments for Invalid PST Exemption / Exception Requests

The PSTA generally places the responsibility to collect PST on the vendor. In cases where the purchaser provides a PST registration number, declaration form, exemption certificate, or proof of status as a farmer, Indian, agency of the Federal Government, or some other exempt person, the vendor is not required to collect the PST. The PSTA and the Regulations identify the documentation or records that must be kept on file by the vendor to support the non-collection of PST. There is no requirement to verify the PST number or validate the declaration on the exemption certificate or its equivalent.

Under subsection 203(1.1) of the PSTA, an assessment may be imposed on a vendor if the director determines the vendor "had reason to believe" the purchaser does not qualify for an exemption or exception. The Ministry has provided no guidance on what duties this provision places on vendors to verify the use of an exemption or exception from the PST. This uncertainty creates significant risk for, and places undue administrative burdens on, vendors, who are often not familiar with the purchaser's business operations, legal status, or how the purchaser intends to use the property or services. Even the on-line enquiry tool provided by the Ministry to validate PST numbers does not include any assistance for determining whether the vendor is claiming an exemption or exception.

Alternatively, the PSTA allows vendors to charge PST at the time of sale, and later refund the PST if the purchaser provides the correct documentation. This pay and refund process only works when the purchaser voluntarily produces the documentation or PST number at a later date after the tax is paid. The resulting delay between payment and ultimate refund of the PST causes many purchasers to acquire the property or services from a vendor that does not require payment of the PST at the time of purchase. This approach favors those vendors willing to take on more risk related to their PST obligations. The requirement to validate PST numbers and/or exemption certificates unnecessarily burdens vendors already tasked with collecting the PST and creates significant uncertainty about the scope of a vendor's due diligence obligations.

Vendors would benefit from guidance on what factors the director will use to determine when a vendor has "reason to believe" a purchaser was not eligible for an exemption or exception from PST. Additional certainty can be achieved by amending subsection 203(1.1) of the PSTA to provide that an assessment will only be issued against the vendor if there is no ability to assess the purchaser and there is evidence of bad faith by the vendor.

Products and Services that are Nontaxable or Exempt

Vendors often erroneously charge PST on sales of property or services that are not taxable, such as intangible personal property, intellectual property, professional services (other than legal services), real property rentals, etc. When this occurs, the purchaser must often prepare a lengthy technical explanation to persuade the vendor to refund the PST or adjust its invoice. In other words, the purchaser must prove a negative. In contrast, when a vendor charges PST on an exempt...