Ben Hume takes a break from producing aluminum railings and screen doors at his Langley-based Alco Ventures Inc. It is a busy day even though business is off about 30% since the boom year of 2008.
Hume, however, always has time to speak about how the harmonized sales tax (HST) helps business.
Hume supports the new tax because:
- he will save about $30,000 in provincial sales tax;
- it is simpler to administer, requiring businesses to keep only one set of books and one set of auditors; and
- it levels the playing field by expanding the range of goods and services that are taxed.
Manufacturing is one of the sectors the HST helps the most, and Hume, who sold about $15 million worth of aluminum products last year, eagerly launches into anecdotes about how the HST saves him money.
Previously, when Hume bought a $1,000 computer, he would have to pay $70 in tax. He still does. Now, however, he gets reimbursed for that $70.
Those savings add up.
A potentially bigger source of savings stems from the simplicity that the HST provides.
“We used to get bills from a supplier who sold us things such as grinding discs, safety goggles or even soap for the washroom,” Hume said.
“We had to go through each one of those line items and figure out which ones we had to pay the PST on. Safety goggles, we didn’t have to pay the PST; grinding discs, we did.”
Arcane complications made that process incredibly time consuming, not only for Hume’s account payables employee but also for him and his CFO, who had to prepare separate PST audits.
Freight bills are perhaps the best example of the daunting intricacy of what is taxable and what is not.
These bills were PST-exempt when they were for products that Hume shipped. Whenever the freight bills were for him importing items from the U.S., however, the bills suddenly got taxable.
If one part of a purchase fell into a PST-applicable category, he would have to either swallow a huge tax bill or pay an accountant to argue his case.
For example, years ago, Hume owned a software company and bought about $1 million worth of source code that came bundled with a small executable file that was only for demonstration purposes.
PST auditors wanted him to pay $70,000 in tax because that tiny executable file rendered the entire package of source code as taxable. Hume paid an accountant $12,000 to successfully convince government auditors that the source code did not qualify as a taxable item.
PST auditors also scrutinized exactly where Hume’s forklifts operated.
If they were used in his factory, they were PST-exempt. But if they ever moved goods around in his warehouse, they were subject to the PST.
What gets Hume’s blood boiling more than anything else is that consumers used to have to pay tax when they bought his products. They could buy other products, such as restaurant meals, tax-free.
“I get really incensed with the idea that the work of my employees was taxed yet the work of people in the service industry was not taxed,” he said.
Hume’s preference is for Ottawa to slap a flat tax on everything – groceries, diapers, gas and everything else that is now exempt – as a way to ensure an even playing field.
“As soon as you start saying, ‘No, this is not taxable,’ then, you get into stupid stuff where buying two doughnuts at the supermarket is taxable but if you buy a dozen, they’re not,” Hume said.