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PST — reducing tax on sale of book with CD-ROM

My client was a publisher of a looseleaf publication targeted to a business market. He wanted to start providing a CD-ROM version together with each regular looseleaf release, and asked me if there would be a problem with the Ontario Retail Sales Tax. (The looseleaf publication was PST-exempt.)

I advised my client that there was indeed a problem. If the annual $355 subscription fee covered both the print and the CD-ROM products, the entire $355 would be taxable and he would have to collect 8% PST on the total! Only printed books, not CD-ROMs, are exempt in Ontario.

I spent some time discussing the matter with senior officials at the Retail Sales Tax Branch, to determine how to minimize tax. Although the print and CD versions were equally valuable, my client and I designed a pricing structure whereby either one on its own was $290, while the two together were $355. Furthermore, where the two were sold together, the print product would be priced at $290, and the CD would cost only $65 as an add-on. I submitted a request to the Ministry for a formal ruling.

The Ministry agreed that the combined product could be sold in this way, with tax charged only on $65.

Cost to customers significantly reduced!

(2000)