British Columbia’s (“BC’s”) new PST rules regarding online marketplaces have been in effect for about three months now. First announced in the 2022 provincial budget, the provincial government claims the changes will close tax loopholes and “better adapt BC’s consumption taxes to the rapid expansion of e-commerce during the pandemic.” It is expected to result in an additional 100 million of revenue for the province in each of the next two years.
But where is all that new revenue really coming from?
Background
Who is directly affected by these new rules?
Two groups are directly affected – “online marketplace facilitators” and “online marketplace sellers”:
- Online marketplace facilitators (“online marketplaces”) include anyone who operates, owns, or controls an online marketplace through which sellers can sell or lease personal property, software, or other taxable services. These marketplaces collect payment for these transactions on behalf of the seller. Amazon is an example. However, the definition excludes marketplaces that do not facilitate payments (like Kijiji).
- Online marketplace sellers (“sellers”) are the users of the marketplace services that transact through the online marketplace. This could include small businesses that operate through a marketplace like Amazon, for example, instead of, or in addition to, selling on their own website or at their own brick-and-mortar location.
What has changed?
- Online marketplaces must now collect and remit PST on all sales made through their platform. Previously, the obligation to collect and remit PST was on the sellers of each transaction. Whether a product is taxable has not changed, but the obligation to collect that tax has now shifted onto the online marketplace.
- Services provided by online marketplaces to sellers are now subject to PST. This is the biggest change! These marketplace services that are essential to a seller’s ability to transact on the marketplace – such as posting listings and advertisements, storage, and customer service – were not previously subject to PST. This means that sellers using these online marketplaces have a new added operating cost in BC!
- Online marketplace facilitators must register for PST. This is logical, as online marketplaces are newly obligated to collect and remit PST. This only applies to online marketplaces with a yearly gross value of sales above $10,000.
Commentary
Although the provincial government claims that these new rules are ‘better’ at addressing the recent increase in online shopping, applying PST to the services provided to sellers by online marketplaces puts BC businesses at a disadvantage compared to other provinces.
Unlike the GST/HST regime, where sales tax on operating costs can be recoverable as “input tax credits”, there is no way for the seller to recover the cost under the PST regime – they need to either bite the bullet and absorb the cost, or pass the cost on to the consumer by increasing prices.
That said, shifting the obligation to collect PST onto the online marketplace instead of individual sellers should not result in added costs for sellers, and may decrease operating costs for sellers who no longer need to worry about PST obligations. It also makes sense for online marketplaces that are facilitating the payments for these transactions to deal with the PST directly, and may potentially close loopholes as individual sellers cannot ‘slip through the cracks’.
However, it does create a temporary administrative headache for online marketplaces, and may cause increased prices while they adjust.
Businesses in this space should seek professional advice!
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