13 February 2006 GST/HST Ruling 45733R - Services by Registered Massage Therapists

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

Review of GST/HST Ruling 45733 - Supplies of books with CD-ROMs and/or online access in the participating provinces

Thank you for your letter XXXXX requesting that we reconsider our ruling XXXXX concerning the application of the Goods and Services Tax (GST)/ Harmonized Sales Tax (HST) to supplies of printed books with CD-ROMs and/or online access capabilities made in the participating provinces.

All legislative references are to the Excise Tax Act (ETA) and the regulations therein, unless otherwise specified.

Statement of Facts

1. Five publications were submitted with the original ruling request that were considered a representative sample of the publications for which XXXXX (the Company) was requesting the ruling.

2. The sample publications are supplied with CD-ROMs and online resources that expand on the subject matter of the textbook they accompany and include exercises and activities to enhance the learning of the subject matter described in the textbook. The covers and/or outer packaging of the sample publications highlight the features of the accompanying CD-ROMs and online resources.

3. Three of the sample publications XXXXX include an electronic version of the textbook on the CD-ROM (excluding some copyrighted information such as images and newspaper articles).

4. The online resources supplied with two of the sample publications XXXXX provide a year's access to a database that provides far more resources than the textbook.

5. The CD-ROM and the online resources provided with XXXXX, in addition to providing interactive study resources specific to the text, provide videos and self-assessment tests that relate the concepts in the textbook to real-life situations.

6. XXXXX is a box set including a computer programming textbook and a XXXXX on CD-ROM.

Ruling Requested

You would like us to reconsider whether the sale of these products generally consists of two supplies (i.e., (1) a printed book, and (2) a CD-ROM and/or access to online resources, hereinafter referred to as new media content) and, if so, whether the supply of the new media content can reasonably be regarded as incidental to the supply of the printed book for the purposes of section 138 of the ETA.

Ruling Given

Based on the facts set out above, we confirm our previous ruling that sales of these products generally consist of a single supply of a new product that is not within the meaning of "printed book" under subsection 259.1(1) of the ETA, and are therefore not eligible for the point-of-sale rebate.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Rulings. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal, that no future changes to the ETA, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

Explanation

The relevant provincial sales tax legislation in the three participating provinces allows for the point-of-sale rebate of the provincial component of the HST on all supplies of qualifying goods. Qualifying goods are a printed book or an update of a printed book, an audio recording all or substantially all of which is a spoken reading of a printed book, and a bound or unbound printed version of scripture of any religion, where "printed book" has the meaning assigned by subsection 259.1(1) of the ETA.

GST/HST Memoranda 13.4, Rebates for Printed Books, Audio Recordings of Printed Books, and Printed Versions of Religious Scriptures, outlines the GST/HST status of supplies including a printed book and another item, under the heading Products Packaged Together:

In some cases, an item that consists of a book and another product packaged together and sold for a single price will be considered to be a single supply of a new product that does not fall within the definition of a printed book.

In other cases, a printed book and another item packaged together and sold for a single price will be considered to be two separate items. In these cases, it is necessary to determine if the supply of one item is incidental to the supply of the other.

The criteria in Policy Statement P-077R2, Single and Multiple Supplies, are applied to determine whether there is a single supply or multiple supplies for each sample publication provided. Policy Statement P-077R2 states that every supply should be regarded as distinct and independent, and a supply that is a single supply from an economic point of view should not be artificially split. Multiple supplies occur when one or more of the elements can sensibly or realistically be broken out.

While Policy Statement P-077R2 states that in identifying and analyzing the various elements of a package of property and/or services, a distinction must be made between elements that are actually supplied to the recipient and those that are simply inputs consumed or used in making a supply, we would like to clarify that we do not view the printed book or the new media content as inputs into a new product. They are not consumed or used in making a supply; rather, they are the elements of a single supply that cannot be categorized as being a single supply of one of those elements.

You raised the following points in your analysis: earlier editions of the publications did not contain new media content; other educational books are published without new media content; and some new media content may be supplied separately, either free or with a premium if there is sufficient demand. You conclude that the new media content and the printed book can easily be broken out and the two products are not inextricably bound together and do not have to be sold together.

Each transaction must be examined on its own merits. In our view, how the Company sold earlier editions of a book or how it sells other educational books would not affect how the supply at issue should be considered in determining whether there is a single supply or multiple supplies.

Policy Statement P-077R2 includes questions to help determine if a transaction consists of a single supply or multiple supplies. You have provided the following answers to these questions from P-077R2:

1. Is the property/service provided by two or more suppliers?

You argue that two independent parties supply separate products that the Company processes to make supplies of two separate products: Your employees are responsible for ensuring that new media content can be delivered through a variety of channels (e.g., the Company sets up, develops, and maintains XXXXX websites) and for the publishing and manufacturing processes to create a printed book, using the content supplied by its authors. The content of the printed books and the new media content are generally provided by different suppliers (although occasionally the same author will provide both).

In our previous ruling, we considered the questions in P-077R2 from the perspective of the Company as supplier and bookstore as recipient, and the bookstore as supplier and the student as recipient. As such, we conclude that there is only one supplier - either the Company or the bookstore. The author may make a supply to the publisher, but the author does not supply the book to the bookstores or the students.

2. Is there more than one recipient?

There is only one recipient (e.g., the consumer).

3. What did the supplier provide for the consideration received?

You state that the new media content and the printed book are distinct and are sometimes supplied independently (either for free or for consideration). In many cases, either element could satisfy the student's needs. For example, many of the CD-ROMs contain the complete text of the printed book in portable document format ("pdf") files, and the use of the CD-ROM would be sufficient for the consumer. However, in the majority of cases, the consumer prefers to own and use the printed book to satisfy his needs.

The publications provided by the Company were declared a representative sample of their publications. Our research, including a review of the Company's web site, generally found that the textbook and the new media content were supplied as a package. If the available edition of a textbook includes new media content, then the Company only supplies the textbook with the new media content included. The new media content is designed to enhance the student's knowledge and understanding of the subject matter outlined in the textbook by providing study resources that reinforce that material, and additional resources related to the subject that go beyond the textbook material.

4. Is the recipient made aware of the elements (in detail) that are part of the package?

The recipient is made aware of the elements that make up the package.

5. In the context of the particular transaction, does the recipient have the option to acquire the elements separately or to substitute elements?

You indicate that in some cases where the printed book has related new media content, the new media content is supplied separately for no consideration, i.e., the content is freely available on websites accessed over the Internet. In other cases, the Company protects access to the new media content by means of appropriate security (e.g., password protection) for two reasons: (1) the Company will charge for the supply of the new media content where there is sufficient consumer demand, at a price level that generates sufficient revenue and profit; and (2) the Company gives access to the new media content only to consumers who have acquired the printed book, but does not separately charge for this supply because the demand and expected level of revenue would not justify the costs of making it available on a paid-for basis. In these cases, the Company restricts access to purchasers of the printed book with new media content because the free supply of all the content through new media channels might deter some consumers from purchasing the printed book.

As noted above, we found that the new media content was generally not available separately. If the available edition of a textbook includes new media content, it is generally only available as such; the customer cannot choose which elements will be included, or choose to have none of the elements included. The only exceptions for the samples provided were the following:

•   The access code for the XXXXX online resources was added to XXXXX, and the other new media content provided with that textbook, for no additional cost. XXXXX could be purchased without this element, or with an access code to another online resource such as Blackboard. However, a package that includes access to the XXXXX online resources cannot be broken up by a bookstore in order to sell the XXXXX online resources, or any other element, separately. A bookstore orders the package that includes access to the XXXXX online resources if the professor intends to use XXXXX in the course, and a student is required to purchase that package to participate in that course. The access code can also be purchased separately for those students who already have a copy of the textbook.

•   The book XXXXX is available separately, at a lower price than the box set with the new media content. However, if the bookstore purchases the box set, it cannot break up the package to sell the CD-ROM and book separately.

The facts indicate that the printed books with the new media content are supplied as a package and, in the context of the particular transaction, the customer has no option as to what elements are included. We feel that these are determinative factors for characterizing the transaction as a single supply. In coming to our determination, we have also considered the jurisprudence you mentioned in the appendix to your letter.

While the Company may create more sophisticated and powerful learning products for its consumers when it combines a printed book and new media content, the point-of-sale rebate only applies to printed books, not to learning products that include a printed book. The combination of a printed book and new media content is more than just a printed book, and as such, is not eligible for the point-of-sale rebate.

We recognize that the trend is for more printed books to be supplied with new media content, especially educational books. However, the legislation is clear as to what is eligible for the point-of-sale rebate, and at this time, printed books with new media content are not eligible. The ETA or the provincial legislation of a participating province that imposes the point-of-sale rebate would have to be amended for the point-of-sale rebate to be extended to printed books supplied with new media content. The Canada Revenue Agency is responsible for administering the legislation as passed by Parliament. Any change to the legislation is a tax policy matter, which falls under the responsibility of the Department of Finance. In this regard, we would like to assure you that officials of the Department of Finance and the Departments of Finance of the participating provinces are aware of the views expressed on this matter, and are currently examining this issue to determine what, if any, legislative changes are required.

If you require clarification with respect to any of the issues discussed in this letter, please call me directly at (613) 954-4397.

Yours truly,

Costa Dimitrakopoulos
Manager
Goods Unit
General Operations and Border Issues Division
Excise and GST/HST Rulings Directorate

2006/02/01 — RITS 53100 — Registration Requirements for a Non-resident