The QST and “FOB” Terms of Sale

Is there an obligation to collect the Quebec sales tax (QST) when a company resident in Ontario but registered for the purposes of An Act Respecting the Québec Sales Tax (AQST) sells corporeal movable property to retailers in Quebec subject to “FOB” terms of sale? The answer is yes, according to the Court of Québec (Techtronic Industries Canada inc. c. Agence du revenu du Québec, 2014 QCCQ 7394).

Techtronic’s sales policy included the term “FOB our distribution centre” (the distribution centre was located in Ontario). This policy also stipulated that Techtronic would select the carrier and deliver the supplies to clients in Quebec using the most cost-effective means. FedEx made almost all the deliveries (90 percent) to Quebec clients pursuant to an agreement negotiated by Techtronic. Techtronic, however, had registered for the QST in 2004.

The Techtronic decision addressed two principal questions: First, did the AQST apply to Techtronic, which was a company with no place of business in Quebec? Second, if the answer to the first question was yes, did the AQST apply to the transaction—in other words, was the place of supply in Quebec?

The judge stated that Techtronic was subject to AQST because it was a “registrant” within the meaning of the AQST due to its voluntary registration in 2004, even though it had no permanent establishment in Quebec.

With respect to the place-of-supply rules, the court found that Techtronic’s use of the FOB term of sale had the effect of transferring the risk of loss of the property to the purchaser at the place and time when the delivery company took possession at the distribution centre, but that it did not have the effect of overriding the application of the AQST. The judge held that the deeming rules in sections 22.7 and 22.9 of the AQST applied to the case under review because Techtronic organized the delivery of corporeal movable property from Ontario to Quebec in accordance with its sales policy and the agreement negotiated with FedEx. In this regard, the judge found that a company like FedEx qualified as a common carrier, especially for the purposes of those deeming provisions, despite Techtronic’s arguments to the contrary. Accordingly, by virtue of the deeming rules, the sales to Quebec retailers were deemed to have been made in Quebec and therefore Techtronic was required to collect QST on those sales.

Obviously, the judge’s decision would have been different had the company not been registered for the QST. But this decision confirms that a person, once registered, cannot claim that the AQST and its deeming rules do not apply because it has no permanent establishment in Quebec or because of the terms of a contract.

Author’s note: the opinions expressed in this article are those of the author and not of Revenu Québec.

Alex Boisvert
Revenu Québec, Quebec City
alex.boisvert@revenuquebec.ca

Canadian Tax Focus
Volume 5, Number 2, May 2015
©2015, Canadian Tax Foundation