Effective July 1, 2022, tobacco retail dealers in British Columbia (“BC”) must register to collect and remit provincial sales tax (“PST”).
The tobacco industry is no stranger to high taxes and complicated regulatory schemes – but BC appears made the situation even worse, by making provincial sales tax (“PST”) apply on top of its pre-existing stand-alone tobacco tax!
Background
BC’s Tobacco Tax Act (“TTA”) imposes a strict regulatory scheme around the sale, purchase, possession and transportation of tobacco. The TTA is set up to charge tobacco tax on consumers at the time of sale, with the rates for various products as follows (as of July 1, 2021):
- Cigarettes and tobacco sticks:
- $6.50 per pack of 20;
- $8.13 per pack of 25; or
- $65.00 per carton of 200.
- Heated tobacco products (i.e., tobacco that is heated but not smoked – for example, shisha):
- Cigars
- Loose tobacco (i.e., the residual category):
- 65 cents per gram
Before July 1, 2022, section 46.1 of the TTA excluded tobacco and related products from the definition of “tangible personal property” under the BC Provincial Sales Tax Act (“PSTA”). Therefore, BC PST did not apply to tobacco products – which made sense given that the TTA is already a tax on retail consumers!
How the New Approach Works
Tobacco retail dealers must now register to collect and remit both tobacco tax and PST – which is currently 7%. The PST is applied on the total purchase price, which includes tobacco tax.
Tobacco wholesalers (and their own suppliers) do not need to collect and remit PST as long as they are not selling to consumers or end users – but only if they follow the “resale” rules under the PSTA!
Exclusions
Notably, this change to the PST only applies to tobacco products. E-cigarettes and vaping liquids are not included in this list, regardless of whether or not they contain nicotine.
A Missed Opportunity?
Instead of applying a stand-alone tax to e-cigarettes and vaping substances, BC applies a special 20% PST rate to these products (as of January 1, 2020) – showing that it is indeed possible to have one tax for these kinds of products.
While the TTA has its own licensing and permitting scheme (which might still be necessary from the government’s perspective, given that high rates of tax have created booming black markets – and headaches for authorities), does that necessarily require that the goods be taxed?
From our perspective, it looks like there may have been a missed opportunity here to keep the regulatory scheme and apply one tax (however, that might have made the TTA’s already eye-popping rates of tax stand out that much more when compared to the base 7% rate of BC PST!).
The Bottom Line
Tobacco taxation and regulation is a niche area that requires specialist knowledge to navigate properly – and given the tax rates and potential consequences of making a mistake, getting the right legal advice is crucial!
Do you require assistance in this area? If so, please click here.