9 March 2000 GST/HST Interpretation 13390 - Application of the GST/HST to the Sale of Publications Through Subscriptions

Dear Sir:

Thank you for your letter of November 12, 1999 further to the meeting of November 9, 1999 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the sale of magazine subscriptions within Canada.

Please note that on November 1, 1999, Revenue Canada became the Canada Customs and Revenue Agency (CCRA).

Facts

•   The XXXXX is comprised of magazine publishers, subscription sales agents and fulfilment houses. The members constitute a majority of the publishers in Canada who are offering magazines for sale through subscription agents.

•   About 30% of all magazine subscriptions sold in Canada on behalf of member publishers are sold through subscription agents.

•   All of the subscription agents, the publishers, and the fulfilment houses are registrants.

•   The subscription agents offer magazines to the customer in conjunction with prize packages and other forms of incentives. Solicitation by the subscription agent to the customer is done by mail, telemarketing, and door to door.

•   When a customer places an order with the subscription agent, the agent issues an invoice to the customer and payment is received by the agent. The subscription agent then forwards the order to the publisher who in turn fulfills the subscription with the customer.

•   In a typical transaction, the subscription agent will retain XXXXX percent of the subscription price.

•   Third party fulfilment houses, are nearly always used to complete the order transaction process. In this case, the subscription agent transmits the order information along with the customer payments to the fulfilment House.

•   The fulfilment house deposits the receipts into the publisher's account and prepares a reconciliation report establishing that the receipts obtained from agents match the number of subscription orders issued.

•   The fulfilment house prepares a sales tax report setting out the tax remittable by the publishers in respect of the sales to the subscription agent.

•   Fulfilment houses arrange for order processing by preparing mailing labels for the publisher which are then sent to a particular magazine's printing facility.

Interpretation Requested

Is the publication supplied to the customer in Canada by the subscription agent as a principal or as agent for the domestic publisher?

Interpretation Given

It is the position of the CCRA that a person will be considered and treated for GST/HST purposes as an agent based on fact and the principles of law. Policy statement P-182, "Determining the meaning of Agent and Agency", details the guidelines for use in determining whether or not an agency relationship exists for purposes of the GST/HST.

It is the CCRA's view that for GST/HST purposes, an agency relationship does not generally exist between the subscription agent and the publisher in respect of the sale of the subscription to the customer. Therefore, the magazine is generally considered to be supplied to the customer in Canada by the subscription agent as a principal on its own account and not as an agent for the publisher. However, should a legal agency relationship exist between a publisher and a subscription agent, it will be incumbent on the parties to show that the subscription agent is not selling the subscription on its own account. Where such an assertion is supportable, the CCRA will accept the subscription agent as the legal agent selling on behalf of the publisher.

As discussed, this treatment of domestic sales of publications is consistent with the treatment of imported publications as detailed in Policy P-185R, "Imported Prescribed Publications and Subscription Agents"[.]

On April 1, 1997, the harmonized sales tax (HST) replaced the goods and services tax (GST) and the provincial sales tax (PST) in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland with a harmonized tax rate of 15%. To the extent that publications are taxable supplies (which are not zero-rated) and are supplied in a participating province, tax must be collected at the harmonized rate.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the CCRA with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613-954-9700.

Yours truly,

Donato Licursi
Services and Intangible Property Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate