TEI Proposes Changes to British Columbia's Provincial Sales Tax as Part of Annual Budget Process.

• Position: Tax Executives Institute

On September 14, 2018, TEI filed a letter with the British Columbia's Ministry of Finance proposing changes to British Columbia's provincial sales tax. The letter was prepared under the aegis of TEl's Canadian Commodity Tax Committee, whose Chair is Chantal Groulx. Canadian Commodity Tax Committee Vice Chair Brian Moul and Pilar Mata, of TEl's legal staff, coordinated the development of the Institute's comments.

Each year, members of Tax Executives Institute, Inc.'s ("TEI") Canadian Commodity Tax Committee (the "Committee") meet in Victoria, British Columbia ("BC") with representatives from the BC Ministry of Finance ("the Ministry") Taxation Programs and Tax Policy branches. At these meetings, Committee and Ministry representatives discuss administrative and technical issues relating to British Columbia's Provincial Sales Tax Act ("PSTA"), Motor Fuel Tax Act ("MFTA"), and Carbon Tax Act ("CTA"). Following the meetings, the Committee typically prepares a written submission with recommendations for proposed changes to these taxes. This year's submission focuses on BC's Provincial Sales Tax ("PST") only.

The comments and recommendations in this letter are not listed in order of importance. TEI welcomes the opportunity to meet with the Ministry to discuss these recommendations further.

About Tax Executives Institute, Inc.

TEI was founded in 1944 to serve the needs of business tax professionals. Today, the organization has 57 chapters in Europe, North and South America, and Asia, including four chapters in Canada. As the preeminent association of in-house tax professionals worldwide, TEI has a significant interest in promoting tax policy, as well as the fair and efficient administration of the tax laws, at all levels of government. Our nearly 7,000 individual members represent over 2,800 of the leading companies in the world. Approximately 15 percent of TEI's members are resident in Canada and many of our non-Canadian members' companies do business in Canada.

Delivery Charges

In March 2018, BC amended PST Bulletin 302 - Delivery Charges to provide that PST applies to delivery charges incurred at or before title to the goods passes to the purchaser. This was a significant change to the previous version of PST Bulletin 302, which indicated PST did not apply to delivery charges if the goods were purchased from a BC supplier and title to the goods passed at the sellers premises.

When this change was issued, the Consumer Taxation Branch ("CTB") clarified the changes were effective on April 1, 2013. The CTB claimed the retroactive application of the change was necessary because the definition of "purchase price" in section 10 of the PSTA did not support the previous version of PST Bulletin 302.

On March 20, 2018, the Ministry issued a Remission Regulation 48/2018 ("the Remission"). The Remission provides:

"Authorization is given for the remission of a penalty under section 203 (1) of the Act imposed on a collector who has not levied tax on the portion of the purchase price of tangible personal property that is a delivery charge, if (a) the sale occurred on or after April 1, 2013 and on or before March 31, 2018, and (b) under the sale, title to the tangible personal property passed, or is to pass, to the purchaser at premises of the collector that are in British Columbia."

The Remission thus eliminated the CTB's ability to assess for non-collection of PST on delivery charges prior to April 1, 2018, essentially making the related March 2018 changes to PST Bulletin 302 effective on that date.

Sellers with delivery vehicles are now at a competitive disadvantage when compared with common carriers. In short, 7% PST now applies to most delivery charges when goods are delivered by a vehicle owned and operated by the seller, while no PST is payable if a common carrier is used for the delivery and paid for by the customer.

The competitive disadvantage for sellers with delivery vehicles was partially corrected on July 16, 2018, when Order in Council No. 308 (the "OIC") was approved. The OIC added a new exemption to the PST Exemption and Refund Regulation (the "Regulation") for charges to deliver "aggregate," which is defined as "quarry material and fill ordinarily used in the construction and maintenance of civil and structural projects" The new PST exemption for aggregate is available if the purchaser has the option to pick up the aggregate, use a common carrier, or acquire delivery services from the seller of the aggregate.

TEI recommends that the Ministry further amend the Regulation to expand the exemption to include deliveries of all commercial and consumer goods. The taxing provisions in the PSTA should provide a level playing field for all businesses that own and operate delivery vehicles.

Production Machinery & Equipment Exemption

Manufacturers, mine operators, and oil and gas producers can acquire production machinery and equipment ("PM&E") on a PST-exempt basis if the PM&E is used "primarily and directly" in a manufacturing, processing, or mining activity, and such machinery or equipment is "obtained for use primarily at the qualifying part of the manufacturing site." Part 5 of the Regulation sets forth a detailed set of rules that must be met to qualify for the PM&E exemption. These rules are difficult to interpret and often result in assessments based upon differences of opinion between taxpayers and PST auditors.

1. Integrated Plant Theory

   TEI recommends that the Ministry amend Part 5 of the Regulation to conform the...