On June 21, 2018, the South Dakota v. Wayfair decision eliminated the physical presence standard for establishing sales tax nexus in the United States. This decision has opened up the possibility for states to impose sales and use tax collection and remittance responsibilities on remote sellers based solely upon their economic presence in that state. While the same nexus concepts do not apply to Canadian provinces, recent legislative activity in Quebec highlights the need for remote digital platform providers and certain U.S. businesses providing services and digital goods to be diligent about possible indirect tax concerns not just in the United States.
While the Canadian federal government has yet to weigh in on the subject of the taxable status of digital transactions, the Ministry of Finance of Quebec recently enacted changes to its sales tax legislation. As with the United States, the Ministry has focused its attention on non-residents of Quebec that do not have a physical presence in the province. Quebec will now tax Netflix, Amazon and other U.S. streaming services (locally referred to as the “Netflix” tax). At this point, there is no plan for the Canadian federal government to align the GST/HST (Canadian sales taxes) legislation with Quebec.
The new legislation requires certain non-resident businesses of Quebec making taxable sales exceeding $30,000 CAD a year to “specified consumers” to register with Quebec Revenue Agency, and collect Quebec Sales Tax (QST). A “specified consumer” is generally a person that is resident in Quebec and that is not registered for QST purposes. While taxable supplies generally include the provision of digital supplies and services, under certain circumstances, the provision of tangible personal property (goods) may also trigger a registration requirement.
Operators of digital platforms (such as Apple, Audible, Electronic Arts, Expedia, Facebook, Google, Netflix, and LinkedIn) that provide or enable the sale of services and digital property such as movie, book, and music downloads/streaming to specified consumers in Quebec are also required to register, and collect QST on sales made through the platform.
The registration requirements for non-residents of Quebec that have no physical or significant presence in Canada became effective on Jan. 1, 2019, while the registration requirements for non-residents of Quebec that have a presence elsewhere in Canada will become effective on Sept. 1, 2019.
Non-resident businesses that may be affected by the new Quebec legislation should focus on determining whether they are required to register, and if so, register, collect, and remit tax as required.