TEI comments on British Columbia provincial sales tax issues.

• Position: Tax Executives Institute

On August 26, 2014, TEI submitted a letter to the British Columbia Ministry of Finance suggesting various amendments to the Provincial Sales Tax Act, the Motor Fuel Tax Act, and associated regulations. The proposed amendments would streamline administration for businesses and the Ministry and address a number of policy issues. The Institute's letter builds on earlier comments made to the Ministry in letters and meetings with Ministry officials. The letter was prepared under the aegis of TEI's Canadian Commodity Tax Committee, whose chair is Richard Taylor of Rogers Communications Inc. Contributing substantially to the development of TEI's comments were David A. Card of Spectra Energy Corporation, Brian A. Moul of BC Hydro & 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.

Earlier this year several members of Tax Executives Institutes ("TEI" or "the Institute") Canadian Commodity Tax Committee met with staff in the Consumer Taxation Programs Branch to discuss administrative aspects of the Provincial Sales Tax ("PST") and Motor Fuel Tax ("MFT") systems. Through this meeting, we learned that changes to the Provincial Sales Tax Act ("PSTA"), Motor Fuel Tax Act ("MFTA"), and the Regulations are generally handled through the provincial budget process that begins in September each year.

To provide input into the annual budget process, this letter summarizes our comments on various provisions in the PSTA, MFTA, Regulations, and the administrative guides issued by the Ministry of Finance (the "Ministry"). Our comments are not listed in order of importance and most of them have been included in previous written correspondence from TEI and discussed with Ministry staff. TEI 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 Institutes approximately 7,000 professionals manage the tax affairs of over 3,000 of the leading companies across all industry sectors in North and South 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.

1. 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, however, 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. Similarly, under subsection 199(1) of the PSTA, an assessment may be imposed on a purchaser who "has not paid the taxes the person is liable to pay."

   We understand the Director only intends to make assessments under subsection 203(1.1) of the PSTA if a vendor has granted an exemption when the declaration or PST number provided by the purchaser includes clearly false information. There is concern among vendors, however, that the Minister may broadly interpret subsection 203(1.1), rather than assessing purchasers under subsection 199(1). This would force vendors to remit the unpaid tax to the Ministry and seek reimbursement from purchasers. Locating and collecting from these purchasers can be difficult and may result in no recovery by the vendor of the tax.

   To ensure subsection 203(1.1) is applied only in cases where the vendor should have known the purchaser did not qualify for a claimed exemption or exception, TEI suggests that subsection 203(1.1) of the PSTA be amended to make clear that an assessment can only be made against the vendor if there is no opportunity for the Minister to assess the purchaser under subsection 199(1) of the PSTA, or if there is evidence that the vendor relied on information that was clearly false.

2. Partnership as a Person for PST Purposes

   For PST purposes, partnerships are not treated as a separate person but as if the partners each own fractional interests in all of the partnership's property. This makes PST compliance more difficult for taxpayers participating in partnerships. This treatment also conflicts with the Excise Tax Act, under which a partnership is treated as a separate person for purposes of, among other things, allowing tax-free transactions within a closely related group and the ability to sell/purchase a partnership interest without triggering a tax liability.

   Other jurisdictions such as Ontario (prior to adopting the HST), Saskatchewan, Manitoba, and certain states in the United States treat a partnership as...