In March of 2023, the Supreme Court of British Columbia ruled to Canadian social media company Hootsuite that certain Amazon Web Services (AWS) technical support and cloud products are not classified as software programs, and therefore are not subject to British Columbia’s 7% provincial sales tax. In 2021, the British Columbia’s Minister of Finance determined that the services were subject to the 7% provincial sales tax as a software program and assessed the company for sales tax not collected. The determination was overturned by the Supreme Court because there is a distinction between “software” and “software programs”.
For a product to be classified as a “software program”, a computer user must be required to operate the software as an application, and the user must be able to interact with the software and create outputs based on those interactions. The court ruled that the nature of the AWS cloud products used by the taxpayer were on-demand computer infrastructure services. Cloud services do not have a clear definition and sometimes are considered computer programs. In this case, the items were defined by the court as professional services, which are non-taxable in British Columbia. The purchase made by the taxpayer was mostly for technical personnel, a professional service, and the support services were not offered separately. Additionally, the AWS direct connect service was not operated in British Columbia and therefore not taxable.
Any taxpayer should be aware of these definitions when purchasing similar products and services and also consider the location where the services are operated to determine the correct taxability in British Columbia. (Hootsuite Inc. v. British Columbia (Finance), 2023 BCSC 358)