Publisher phone lines in Ontario are buzzing today with talk about the impending Harmonized Sales Tax to be announced this afternoon in the provincial budget. Among the key concerns are whether the tax will be added to costs such as printing, and whether publishers will need to charge the new HST on subscriptions.

The HST blends the 8% PST with the 5% GST and would come into effect in July 2010. Currently, printing and postage are PST exempt. It appears the HST will apply to those bills. However, it's believed the HST will work like the GST, which means businesses can claim an input tax credit on all HST paid. This effectively neutralizes any tax impact on business.

And it could actually save publishers money, if input tax credits can now be claimed on expenses that currently generate PST, such as group insurance or non-magazine print products such as directories. Also, instead of two sales tax regimes, there will only be one, reducing paperwork.

Regarding subscription sales, a tantalizing sidebar in a news report in the Hamilton Spectator says the new HST would not be applied to "books, newspapers, and subscription magazines."  However, the HST already in place in New Brunswick, Nova Scotia and Newfoundland does apply to subscription sales in those provinces. If HST is extended to magazine subscriptions, it could have a major effect on price-sensitive subscription sales. Publishers would be faced with passing on the 8% increase to subscribers—a $25 subscription could rise to about $27, for example—resulting in a loss of sales. Or they could eat the additional cost, hurting margins.

Single-copy sales in Ontario would presumably be subject to HST, a continuation of current practice as PST is already charged on newsstand sales (a long-standing sore point).

Here is an explanation of HST from Canada Revenue Agency’s web site as it works in the three Atlantic provinces:

Three provinces - Nova Scotia, New Brunswick, and Newfoundland and Labrador - harmonized their provincial sales tax with GST to create HST. These three provinces are known as participating provinces. Effective January 1, 2008, the GST rate is reduced from 6% to 5%, and the HST rate from 14% to 13%.

The HST is composed of the GST and the 8% provincial tax and applies to the same base of goods and services that are taxable under GST. HST follows the same general rules as GST.

GST/HST registrants continue to collect GST on taxable supplies (other than zero-rated supplies) of goods and services made in Canada outside the participating provinces. On supplies made in the participating provinces, they collect HST. All GST registrants are automatically registered for HST.

The HST could be the most explosive issue in the budget as it pushes more costs onto weary consumers.

You can find the current Ontario PST rules regarding Publications here.

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