What is “Place of Supply” and how does that apply to sales taxes?
Sales taxes can be confusing. In particular supplying goods or services across a country, province or state border.
Many sales taxes in Canada and the world in general work on the concept of “Place of Supply”. Sales taxes is a broad term that includes retail sales taxes and value added taxes.
The “Place of Supply” concept is that if you are selling a product and you ship it out of your province or country and into another province or country, then the sales tax rules of that destination province or country apply.
For example, if a company in British Columbia sells a widget to a company in Ontario, the sales tax rate that applies is the Ontario sales tax rate, which is the Harmonized Sales Tax (HST). Likewise, if the situation was reversed and a widget was sold from Ontario to British Columbia, then the British Columbia sales tax rate would apply. The actual location of ownership change is often a clue as to the “Place of Supply”.
However, some sales taxes can have a different set of internal rules and even if legal title transfers in one place, the sales tax transfer for determining “Place of Supply” might be in another location.
One particularly tricky item to determine “Place of Supply” is for intangible goods such as software. Some jurisdictions like British Columbia have carefully defined software and have made it clear that the law makers consider the “Place of Supply” to be in British Columbia if the software is used by people in British Columbia. Other jurisdictions have taken other approaches.
Services can also be tricky to determine a “Place of Supply” largely because services can be provided by people in person or by remote tools like the internet and other computerized tools. This is especially challenging when the services cross an international boundary such as the USA/Canada border.
General thoughts to consider when thinking about “Place of Supply” are:
- Where is the customer?
- Are we thinking of this as an exported or imported item?
- Where was the contract signed?
Grant Gilmour, BSc (Hons), MBA, CPA, CA, CICA – ITC
Partner, Gilmour Group CPA’s
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