The debate about internet sales taxes is raging in the United States.

When I started selling things online 9 years ago, one of the first revelations that hit me was my competitive disadvantage vis-a-vis my American competitors, because I had to charge the 7% GST (now 5%).

“Shipped” goods from the U.S. to Canada could get hit with customs, and, of course, higher shipping, so a Canadian “e-tailer” selling to Canadians was pretty safe (selling to the U.S., they could not charge GST, but they’d have all the shipping disadvantages going the other way).

“Virtual” goods (such as domain names and website hosting, which we sell) are at a major disadvantage when marketing to a U.S. customer. And Canadian consumers could buy from a U.S. company and skip the GST. (There are a number of other business reasons Canadians shouldn’t do this, though, which I’ll have to cover in a different article.)

Now the U.S. is on the move to level the taxation playing field (or complicate it further … we’ll see).

Alas, that’s just one story shaking up e-commerce.

The (largely ignored) story is Ontario’s agreement with the Federal Government to move to the Harmonized Sales Tax (HST).

This development is massive.

First of all, most Canadian “e-tailers” operate out of Ontario.

Right now we charge 5% GST. Presumably our Ontario competitors will be charging 12 or 13% HST, and presumably this tax will apply to all their Canadian customers.

This will create a massive competitive disadvantage for any “e-tailers” located in Ontario who are peddling “services” online (which are generally PST exempt in “disharmonic” provinces). Of course Atlantic Canada has had HST for years, but they are not the hot-bed of Internet retailers that Ontario is (and maybe the HST is one reason why).

I’ve spoken to a number of business folks in Ontario who are strongly considering moving their entire operation out of Ontario if the HST goes through.

Meanwhile, the Federal Government is hoping all provinces will harmonize their sales taxes. Fat chance. I think B.C. should definitely not move forward with it if Ontario does – the influx of investment dollars from Ontario into the internet business will be massive.

  • Brian Dodd

    Having been an entrepreneur for 40 years, and a former accountant, I have proposed a new type of Goods ans Services Tax (WST,GST,VAT,etc). It would work like this, the country that manufactures the product or provides the service receive 50% of this WST (World Sales Tax) and the country where the product or service consumed receive the other 50% of the tax.

    Personally, I would like to see both personal and corporate taxes abolished altogether. The WST could replace both of them. Since the rich spend more money, they will pay more taxes. A WST tax rebate could go to the poor, similar to our current GST rebate.

    Where would this social concept be best advocated?

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    I would never like to have accustomed of online sales tax