Hootsuite – Supreme Court of BC finds that the purchase of Amazon cloud infrastructure services was not subject to BC PST

Hootsuite, which provided its customers with an online social media management system, did not itself have the servers and storage facilities to host its platform, and instead accessed those of Amazon Web Services (“AWS”). The Ministry of Finance assessed BC provincial sales tax on the basis inter alia that Hootsuite’s access to AWS software allowing it to access the remote AWS hardware virtually constituted the provision to Hootsuite of software. The PSTA definition of software referenced the delivery, accessing, or the right to use, a software program.

In finding that there was no use by Hootsuite of “software,” Thomas J stated:

[T]he fundamental nature of … [this] product is to provide an on-demand computer infrastructure service. As such, the products are not subject to PST.

Furthermore:

[T]he key distinction between “software” and a “software program” for the purposes of the PSTA is that a “software program” requires the purchaser to utilize the software as an “application”; that is, the user must be able to interact with the software and create an output based in part on those interactions with the program.

Applying this distinction, there was no use by Hootsuite of a “software program” because the AWS programs were opaque to it rather than something it interacted with.

A similar analysis indicated that technical support provided by AWS through an online chat feature provided through a web interface (the “Console”), which was opaque to Hootsuite, did not entail the use by Hootsuite of a “software program” – and, in any event, the fundamental nature of what was being provided here was AWS technical expertise rather than software.

The Ministry also assessed on the basis that the above technical support service, as well as Hootsuite’s access to dedicated telecommunication service in the U.S. allowing AWS to maximize the efficiency of its virtual hardware, constituted a taxable communication service. Thomas J found that these services came within an exemption in the Regulations for telecommunication services that were “merely incidental” to a contract for non-taxable services.

Neal Armstrong. Summaries of Hootsuite Inc. v British Columbia (Finance), 2023 BCSC 358 under the Provincial Sales Tax Act, (B.C.), s. 1 – software, telecommunication service.