British Columbia is the last province in Canada to introduce marketplace facilitator rules that will require online marketplace facilitators rather than sellers to collect BC PST on sales made through the marketplace. The proposed legislation is to come into force on July 1, 2022.
However, British Columbia is unique in making virtually all fees between marketplace facilitators and sellers taxable. Starting on July 1st, tax will apply to online marketplace services provided by the marketplace facilitator or associated entities in connection with sales made through an online marketplace.
The term “online marketplace service” is broadly defined to include services such as listing, advertising, customer service, storage, fulfillment of orders or bookings, collecting payment and other services provided by an online marketplace facilitator or an agent, partner, joint venturer or associated corporation of the marketplace facilitator to an online marketplace seller.
Under the proposed charging section, online marketplace services will be taxable if they are:
- provided in British Columbia or in respect of accommodation in British Columbia; or
- provided to a person in British Columbia if the service relates to a sale of products or services for use or consumption in British Columbia.
Notwithstanding that the changes are touted as being to ‘level the playing field with brick-and- mortar businesses’, the same services, such as storage, order fulfillment, and advertising are not taxable for sellers who are not online marketplace sellers. Accordingly, retailers selling through brick-and-mortar stores or through their own websites will not pay tax on their purchases of the same types of services. In addition, online marketplace sellers in British Columbia will pay more tax than their competitors who are not in the province on services provided outside of the province. Online marketplace sellers will be required to self-assess the tax if it is not collected by the service provider.
The proposed legislation poses several challenges, including but not limited to the following.
- The tax will apply to services that relate to exempt sales of goods and services, such as food, children’s clothing, and restaurant meals, when sold through certain online marketplaces.
- If the seller is registered for GST/HST, many of the online marketplace services may be subject to GST/HST as well as BC PST. For example, a seller based in Ontario will be required to pay 20% on listing services provided in BC even if the related sale is to a customer in Alberta (13% GST/HST plus 7% BC PST).
- Determining the application of the tax can be difficult. For example, it is not clear where electronically supplied services are being provided or how tax would apply to a charge for storing goods outside of BC if the charge is not collected at the time of sale.
- For services provided outside of BC, the tax applies if the online marketplace seller is a person in the province which leads to the question as to how the tax will apply to sellers who carry on business in multiple provinces.
Thus, notwithstanding that the BC budget documents refer to purchasers not paying any more PST, this will only be true if online marketplace sellers do not increase their prices to recover the additional PST they will be paying. The decision to levy a new tax on local sellers, particularly on small and medium-sized businesses that are struggling to survive, is surprising.