Under the Provincial Sales Tax Act (British Columbia), a software program, or a right to use a software program, purchased for use on an electronic device ordinarily situated in B.C. is subject to PST. However, the emergence of cloud computing, including software-as-a-service business models, challenged the application of PST.
In Hootsuite Inc. v. British Columbia (Finance) (Hootsuite) the Ministry of Finance assessed Hootsuite Inc., a social media management company, for failing to self-assess PST on cloud computing and storage services and support services purchased from a United States supplier. The B.C. Supreme Court agreed with Hootsuite and held that the cloud computing and storage were the purchase of on-demand computer infrastructure service and the support services were the purchase of technical expertise. On-demand computer infrastructure services allowed virtual access to the vendor’s hardware and the support services were accessed through an online chat feature which was opaque to Hootsuite. These were both non-taxable and not included in the definition of taxable software or any other taxable service.
In response to Hootsuite, the B.C. government published a notice to providers and purchasers of cloud software and services. The notice states that the B.C. government intends to introduce retroactive legislation in the 2024 provincial budget that would impose tax on these services. In the intervening period, cloud computing service providers and their customers should continue to follow the Ministry of Finance’s policy set out in Bulletin PST 105 and Bulletin PST 107.
Zvi Halpern-Shavim is a partner and Elena Balkos is counsel with Blakes.