In the Courts: Hootsuite can skirt PST on certain services, judge rules

B.C. ministry argued four services constituted telecommunications or software, and were taxable by the province

B.C. Supreme Court in Vancouver | Rob Kruyt, BIV

Vancouver tech company Hootsuite Inc. will not have to pay the provincial sales tax for services purchased from Amazon Web Services Inc. (AWS).

This comes following a B.C. Supreme Court review of an assessment by the province’s finance ministry.

A recent decision determined the social media management company requires substantial computing power and storage capacity to run its services. B.C. Supreme Court Justice Michael Thomas found Hootsuite uses Amazon Web Services infrastructure to host and operate its services rather than investing significantly in its own infrastructure.

The B.C. government informed Hootsuite in March 2017 it would be doing an assessment of the PST owed for the company’s purchases. Those purchases included the Amazon Elastic Compute Cloud, Amazon simple storage services, AWS direct connect and AWS support.

Thomas noted in his decision the ministry had previously found the products were taxable “because they involved either the purchase of software or telecommunication services.”

Hootsuite appealed the decision in what Thomas called an “unusual” case, in that “a number of experts were qualified to provide opinion evidence on the factual assumptions, submitted reports and were cross-examined on their reports after the ministry made its assumption of facts.”

In his decision, Thomas set out to determine if the services bought by Hootsuite constituted software or telecommunications.

Thomas separated software into two categories: that which the user can interact directly to generate outputs and “opaque” software, that which the user does not have direct access to.

In the case of AWS support, which allows users to access support from Amazon engineers through a web portal, Thomas said the software was opaque, “as Hootsuite cannot interact directly with the console or create an output. The console is simply a portal through which Hootsuite can communicate with AWS engineers.”

“The ministry says that the fact that Hootsuite uses a computer located in British Columbia to interact with the technical support staff through the console located outside of British Columbia is sufficient to trigger PST as a purchase of software under the [Provincial Sales Tax Act],” Thomas wrote.

But the judge disagreed with the ministry’s assertion, relying on his finding that AWS support software is opaque and is only a means to access the real service: technical support from engineers. He similarly found that while the AWS support console is a telecommunication service, it’s exempt from the tax because it’s incidental to the actual service that is being purchased.

Thomas made similar findings with respect to the cloud computing services, which largely allows Hootsuite to virtually access Amazon’s hardware. Thomas found that Hootsuite did not access programs provided by AWS on its virtual servers, but rather that it ran its own applications, created in-house, through the servers.

The only service that would have fallen under the PST laws was the AWS direct connect service.

Hootsuite and the ministry agreed it is a telecommunications service as defined by the PST Act. But Hootsuite argued that it was a service solely located in the U.S.  

Thomas agreed.