In the years before Ontario and British Columbia harmonized their provincial sales taxes with the GST, the graphic design industry was under close scrutiny by PST auditors. Some graphic design services were considered to result in deliverables of tangible personal property (goods) and, therefore, were PST-taxable. Some graphic design services were accepted by auditors as being purely services and, therefore, not PST-taxable. In this situation, where some sales are PST-taxable and some sales are PST-non-taxable, the industry is in desperate need of guidance. As of March 10, 2013, the graphic design industry in British Columbia has not seen a new bulletin or specific guidance for the industry. This industry in an important industry in Canada and needs guidance.
The Provincial Sales Tax Act does not contain a provision dedicated to graphic designers. That being said, there are many general provisions of the Provincial Sales Tax Act that apply to graphic designers (including the new provision on bundled services, the software provisions). However, since the rules for graphic designers are not simply set out in one or two provisions, statutory interpretation is required and consideration of the administrative policies (to the extent there are policies).
The old British Columbia Bulletin SS 128 Graphic Designers may be under re-development and the administrative position may change dramatically. However, the old bulletin may be a helpful starting point in planning for post-April 1, 2013. When reading the old Bulletin, please remember some of the old underlying statutory provisions have changed.
One of the problems for the graphic design industry is that not all graphic designers do the same thing. There are many categories of graphic designer. Prior to harmonization in Ontario, I worked with the Association of Registered Graphic Designers to develop charts so that the industry could help the Ontario Ministry of Finance develop its policy. The charts used to be publicly available to the graphic design industry, but have been removed since they do not apply in an HST world. The categories of graphic designers in the charts for which we explained the phases of a typical project were:
- Exhibit Design
- Environmental/Architectural Graphics and Wayfinding Design
- Editorial Design
- Web Design
- Package Design
- Advertising Design
- Corporate Communications
Based on previous experience in Ontario, graphic designers and graphic design firms must start with the question - What is the deliverable? If the answer is a good (such as business cards, brochures, packaging, promotional materials or a movable display/booth), then the deliverable is taxable and all or some of the services prior to the final deliverable will likely be considered to be PST-taxable. If the answer is real property (such as wayfinding), then all or some of the services prior to the final deliverable will likely be considered to be not PST-taxable. If the answer is services (such as the development of concept or a logo provided electronically only), then all or some of the services prior to the final deliverable will likely be considered to be not PST-taxable.
To make things more complicated, the interpretations by Ontario and British Columbia would permit a design project to be divided into more than one component. It was recognized that in any project, there could be a bundle of identifiable PST-taxable deliverables and PST-non-taxable services/intangibles or real property. For example, in most graphic design projects, there is a creative pre-implementation phase that could have non-PST-taxable services (e.g., concept development, creative ideas storming). Under the previous rules, there needed to a clear point in time when the entire project might end because the graphic design proposals were rejected (e.g., the client did not like any of the logos presented). Whether or not British Columbia will still permit non-taxable components is yet to be determined - but, would be consistent with their rules with respect to software.
If a graphic designer or graphic design firm does not charge a client PST on the entire contract price, they will have to justify not charging PST. There is the opportunity to claim a competitive advantage over graphic designers located in Ontario and Quebec who must charge HST on the entire purchase price. If a B.C. graphic designer plans to use the new PST rules to their advantage, it will be important to develop clearly drafted contracts that divide the project into components. It will also be important to develop other paperwork to document any component of the project where PST is not charged. We would be pleased to help.