Since May 2021, Amazon has been charging most British Columbia-based sellers (unbeknownst to most of them) an additional 7% on advertising and referral fees. Worst of all, they've been charging this on sellers' global sales—whether those sales occurred in Canada, the United States, or Timbuktu. Because of this, many BC sellers have been paying a minimum of 1% of their sales (and most will be closer to 2% or greater) of their sales in provincial sales tax (PST).
The good news is that it appears that a very large percentage of these fees have been incorrectly and erroneously charged by Amazon, and sellers may be able to get back all or most of this PST paid.
To give you some perspective of the scale of this problem, a seller with $1 million in revenue with a 10% TACoS (Total Overall Advertising Cost) may have been charged over $33,000 in PST since May 2021. As most will know, PST is not recoverable like GST/HST is, so it represents completely lost money to sellers (well, at least until now). Also, this PST has been hidden in a multitude of reports that the vast majority of sellers would not know about—until now.
In this post, I'll show you exactly where these fees have been hidden, who may qualify to get them back, and how to get them back.
I must point out that while I have spent considerable time researching this topic, including speaking to multiple CPAs, speaking to the British Columbia Ministry of Finance's Rulings and Interpretations office, and speaking to sellers who have successfully claimed this PST back, this post should not be viewed as official accounting advice. When it comes to sales tax, there are nearly endless variables that may affect your eligibility. Speak to your accountant and refer them to this article to determine what is right for you and your business.
- What Happened and How Did Amazon (Potentially) Screw Up Big Time?
- Why Amazon Has (Probably) Misinterpreted the Law
- PST on Non-Canadian Amazon Advertising
- PST Charged by Amazon on Non-Canadian Amazon Referral Fees
- PST Charged by Amazon on Canadian Amazon Referral Fees
- What Can Amazon and The British Columbia Ministry of Finance Do?
- How Can Sellers Get The PST They've Paid Back?
What Happened and How Did Amazon (Potentially) Screw Up Big Time?
This entire mess started in 2021 when British Columbia proposed some new laws regarding sales tax collection for Marketplace Facilitators, Marketplace Sellers, and Online Marketplace Services. Essentially, British Columbia was trying to get its “fair share” of sales tax from online marketplaces like Amazon, eBay, and others. The spirit of the law appears to be that British Columbia wanted marketplace facilitators like Amazon to collect PST on items stored or shipped in British Columbia warehouses and/or items shipped to customers in British Columbia. Let me be clear here as well: we are talking about PST paid on fees, NOT what customers pay on orders.
Here's the exact verbiage from the Ministry of Finance's own bulletin:
Marketplace sellers must pay PST on online marketplace services that are provided or to be provided:
- in B.C.
- in respect of accommodation located in B.C.
- to a marketplace seller located in B.C. that relates to the sale of:
• goods or taxable services (other than accommodation) for use or consumption in B.C., or
• software for use on or with an electronic device ordinarily situated in B.C.
An online marketplace service is considered to be provided in B.C. in the following examples:
- If the service is a service to goods (e.g. picking, packing, storing, delivery), then the service is provided in B.C. if the goods are located in B.C. when the service is provided to them
- If the service is not a service to goods (e.g., customer service, advertising), then the service is provided in B.C. if the service has strong or substantial factors connecting the service to B.C. at the time the service is provided.
There is some ambiguity around what exactly “strong and substantial factors connecting the service to BC” means. We reached out to the Ministry of Finance's Rules and Interpretations team, and they offered some clarification as you'll see below. Regardless of this ambiguity, one thing is certain: these new rules took effect on July 1, 2022. But Amazon, for some inexplicable reason, started charging PST beginning May 2021.
Why Amazon Has (Probably) Misinterpreted the Law
When the laws were originally written, there was some very ambiguous language used in the bulletins. The Province has since updated the bulletin with some very clear examples of when marketplace facilitators need to charge PST.
In my opinion, given the ambiguity in the laws, I would suggest that Amazon made a strategic decision that there was a minimal downside to them erroneously collecting PST as sellers can technically file to get this back. On the other hand, if it did not collect, it would lead to a bigger problem if it eventually turns out that it should have. However, none of this explains why they started collecting PST in May 2021, fourteen months before the rules took effect (perhaps it was just a blunder?).
There are three primary areas that Amazon has been charging sales tax on:
- non-Canadian advertising
- non-Canadian referral fees (i.e., the approximately 15% commission you pay to Amazon every time you sell a product) and
- Canadian referral fees.
Let's look at each of these three areas along with the official bulletin and actual written responses from the Ministry of Finance's Rules and Interpretations team.
PST on Non-Canadian Amazon Advertising
Amazon has been charging you PST on your non-Canadian advertising costs since May 2021 (ironically, they have not been charging it on Canadian advertising).
You are a marketplace seller located in B.C. and you advertise your goods through an online marketplace. You pay a service charge to the marketplace facilitator to have your listing higher in search results. The advertising service does not have any strong or substantial factors connecting it to B.C. You do not pay PST on this charge as it does not relate to the sale of goods for use or consumption in B.C. and the service is not considered to be provided in B.C.
I am not an accountant, so will not give an official opinion here. But I think the language is pretty clear. Regardless of your opinion on the above verbiage, these new rules took effect July 1, 2022, and Amazon has been charging PST since May 2021.
Very annoyingly, Amazon does not even list the PST. Instead, it applies it as a “mystery tax” that conveniently works out to exactly 7%. You will also only find this applied in the PDF invoice, not the browser-based invoice.
As mentioned, Amazon does not display that the 7% is PST. It took a considerable amount of back and forth with Seller Central to finally get them to disclose what this fee is exactly (see below, you may also want to reference this in refund requests with the Province).
It should be noted that Amazon's advertising invoices are completely non-compliant with British Columbia law. They neither list the tax being charged nor the seller's name.
PST Charged by Amazon on Non-Canadian Amazon Referral Fees
There's one other major area where Amazon is charging PST, and that is on Amazon referral fees.
In this situation, the verbiage is far less clear as the tax bulletin does not address this situation. Normally, Amazon Referral fees are accounted for as commissions on a tax return but the tax bulletin doesn't address this exact situation. The closest thing is the advertising verbiage above.
So with this ambiguity, I reached out to the Ministry of Finance's Rules and Interpretations team once again on August 14, 2022.
An Amazon marketplace seller is located in British Columbia. This seller makes a sale for $100 to a customer in New York. The item is fulfilled and shipped from Florida.
Amazon charges the seller $15 in Selling on Amazon (SOA) fees.
Is this $15 Selling on Amazon fee subject to PST?
The Ministry of Finance replied on August 15, 2022:
The charge for the OMS would be subject to BC PST if the OMS is provided in BC, as discussed on page 7 of the bulletin:
- If the service is not a service to goods (e.g. customer service, advertising), then the service is provided in B.C. if the service has strong or substantial factors connecting the service to B.C. at the time the service is provided
However, provided that the OMF is not located in BC, or otherwise providing the marketplace service in BC (as discussed on page 7 of the bulletin) – as apparently is the case in your example — then the $15 “Selling on Amazon” (SOA) fee in your example is not subject to PST.
The question I asked the rules and interpretations team could not have been clearer—and so was their answer.
Where do I find the PST in Amazon referral fees for non-Canadian orders? You can see the PST charged on individual transactions.
First, go to Transaction View under Reports -> Payments. Click on Total for any individual order.
From here, you will be brought to a screen showing sales tax added to the referral fee on individual orders. Incidentally, Amazon is also collecting GST/HST on these referral fees. The GST/HST collection, whether it's correct or incorrect, is less of an issue as the GST/HST is completely recoverable as an input credit on your GST return.
Amazon also provides a monthly invoice of your PST paid on Referral Fees. To find it, go to Reports -> Tax Document Library -> Seller Fee Tax Invoices. This report will have the invoice type SOA Canada Merchant Consolidated VAT Invoice as shown below.
PST Charged by Amazon on Canadian Amazon Referral Fees
This is where things start to get a bit murkier.
Amazon has been charging PST on referral fees for all of your sales performed in Canada since May 2021.
The law would seem to indicate that PST should be charged for an order shipped from B.C. to a buyer based in B.C. However, Amazon is charging PST on all of your Canadian sales whether to someone in Ontario or someone in B.C. and shipped from Alberta. Amazon does not identify in its sales tax reports where orders are shipped from or to where.
Given the complexity above and the limitations of Amazon, it probably makes requesting a refund on this PST difficult.
However . . .
Amazon has been collecting PST on referral fees since May of 2021 and should not have until July 2022. As quoted in a written response from the Ministry of Finance's Rulings and Interpretations office on August 18, 2022:
As noted above, OMS only became subject to PST as of July 1, 2022. Therefore, any charges for OMS prior to July 1, 2022, are not subject to PST.
This means you should be eligible to get back the PST that you paid prior to July 1, 2022. For those incurred after July 1, 2022, I'll leave that to you and your accountant to decide.
Where do I find the PST in Amazon referral fees for Canadian orders?
Once again, go to Reports -> Tax Document Library -> Seller Fee Tax Invoices. This report will have the invoice type SOA Canada Merchant VAT Invoice as shown below.
Amazon Has Been Applying PST Since April 2021 Even Though New Tax Laws Didn't Come into Effect Until July 2022
Despite the official tax bulletin verbiage and the clear written responses to our examples received from the Ministry of Finance's Rules and Interpretations team, you may still be wondering if perhaps Amazon is correctly interpreting the laws. Even if you believe this, there's one clear and undeniable fact: the new marketplace facilitator laws came into effect on July 1, 2022, and Amazon has been charging these fees since April 1, 2021.
Why would Amazon apply these rules nearly 18 months ahead of a new tax law being applied? Amazon has some of the best tax attorneys working for them on the planet—the idea that an Amazon seller with little accounting background could figure out the application of the rules and not them isn't realistic. The only answer I can come up with is that it was a calculated decision by Amazon. They are aware of what the rules most likely mean and they also know the consequences of erroneously remitting the PST are little to none and that sellers can technically get back this tax.
Could the New British Columbia Marketplace Facilitator Laws Just Really Be That Egregious and What Would the Consequences Be?
The problem with interpreting many tax laws is that they are often ambiguous. While I feel like the new rules have been written quite clearly, and the Ministry of Finance's Rules and Interpretations team has clarified many points, there are still areas where their wording could be clearer, e.g., what exactly constitutes “strong or substantial factors connecting a service to BC.”
The Ministry of Finance released an updated bulletin in July 2022 with many examples clarifying the exact situations and the Rules and Interpretations office has been extremely responsive. However, the ambiguous language still remains throughout the bulletin.
Let's just imagine a world in which Amazon has applied the rules correctly. What would the consequences be for marketplace sellers and for British Columbia as a whole? Basically, a seller with a 10% TACoS (total overall advertising cost) and 15% referral fee category would pay roughly 2% of their revenue in PST. If we consider many e-commerce companies are around 10% in net margins, this would mean they would effectively lose 20% of their overall profit and many e-commerce companies relying heavily on marketplaces would likely leave the province. Thankfully, it appears it's not the law that is broken but Amazon's application of it.
What Can Amazon and the British Columbia Ministry of Finance Do?
Both Amazon and the Ministry of Finance can take some steps to ensure this fiasco comes to an end. I'd propose several things:
- Amazon should immediately stop charging PST on fees in which it should not.
- Amazon should immediately make all of the advertising invoices compliant with British Columbia law and list the tax being charged and the company name.
- Amazon should alert sellers to the potential erroneous collection of PST and notify them that they may be eligible for a refund from the Ministry of Finance.
- The British Columbia Minister of Finance should update the bulletin to remove ambiguous language and clearly define what “strong or substantial factors connecting the service to BC” are.
How Can Sellers Get Back the PST They've Paid?
There's really good news and some minor bad news.
The really good news is that you're probably entitled to get back all or most of the PST you've erroneously paid back from the government (and thankfully, you don't have to go through Amazon which would be even worse). The slightly bad news is that it's going to take a bit of work from you.
The main challenge in getting back the PST is the sheer volume of invoices you're going to need to submit.
First, you will need to download all of your advertising invoices since May 2021. For us, it represented hundreds of invoices (each invoice for us was roughly $500). Each of these invoices will most likely be in US dollars, and you will need to convert them to Canadian funds using either a daily or monthly average exchange rate from the Bank of Canada.
Second, you will have invoices and credit memos for your non-Canadian referral fees. Each month, you'll likely have two of these. These invoices go back to May 2021, so it means if you file for a refund in August 2022, you will have roughly 15 months of invoices to gather.
Third, you will have the invoices and credit memos for the Canadian referral fees you paid.
Once you have all of these invoices gathered, you will submit an Application for Refund General (PST). This form will include 10 rows for you to submit receipts. Depending on your advertising spend and how many months you go back, you will almost certainly need 100+ rows (for us, it was hundreds of rows).
For this number of rows (clearly, we're not the first people to go through such a mess), the Ministry of Finance has a special Excel document you can use. You're going to need to mail in each invoice. It will be hundreds or thousands of pages so you can also mail a USB thumb drive with the PDFs—they won't accept emailed documents in most cases (don't ask me).
An auditor is almost certainly going to contact you to ask you to clarify exactly what is going on. I suggest you point them to this article, which should make your life quite a bit easier. Expect a few rounds of back and forth with the auditor to clarify everything. Eventually, you will get a refund.
In my case, it was a good 10 hours of work between me and a VA, but we were also looking at a refund of tens of thousands of dollars, so it was a no-brainer.
If you're a six-figure or higher British Columbia-based seller, this post should get you a considerable PST refund from the province. My hope is that this post will not only save sellers a ton of money but it will also result in both Amazon stopping the erroneous collection of PST and the Province updating the verbiage used in the tax bulletin.
A very special thanks must be made to Dann Ilicic of Wow Branding. Two months ago, he sent me a cold email notifying me of this entire issue. Over several weeks, we spent a ton of time on the phone, via email, and in person to help me understand the problem in its entirety. If and when you get any money back from the province, remember Dann.