Thursday, March 26, 2009

"Harmonization" of Ontario sales tax will wallop magazines

[This post has been updated]Today's likely announcement in the Ontario budget of "harmonization" of its provincial sales tax (8%) with the federal goods and services tax (5%), will have a major impact on magazines sold in the province. It means that the provincial sales tax portion, never before paid on magazinesmagazine subscriptions, will now apply.

In effect, the decision will automatically add 8% to the out-of-pocket costs of magazine buyerssubscribers in a province where more than half of Canadian magazines are sold.

Though the Ontario government has tried to mitigate public anger by exempting a number of basic goods, including children's clothing, diapers and new homes costing less than $400,000, it is likely that the implementation of a provincial tax never before paid on magazine purchasessubscriptions (PST is already applied to single copy sales at the checkout) will result in an unknown loss of sales subscription income. (The government is also trying to soften the blow by giving families $1,000 over the first year to adjust to the new regime.)

Still, there is no way of getting around the fact that, for the average magazine buyer or subscriber, their costs are going up 8% and some of them will buy fewer magazines. Common wisdom in the industry is that for every percentage point increase in price, there is a 1% decrease in sales.

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7 Comments:

Blogger Jon Spencer said...

Correction: Magazine sales at retail are already subject to PST, added on to the cover price at the checkout, as is the GST.

Where this will impact consumers' price sensitivity is on subscriptions -- in Ontario, magazines have not hitherto been subject to PST.

Most circulators will probably agree that subscription sales are much more resistant to price increases than are newsstand sales, so an 8% increase in the subscription price (of which the publisher keeps 0%) would likely result in an approximate 8% decrease in subscription revenues to the publisher.

6:28 am  
Blogger D. B. Scott said...

My misunderstanding; I have amended the original post to reflect Jon's comments.

The fact remains that the sales tax harmonization will likely have a significant impact on magazine subscription sales in the province.

8:22 am  
Anonymous Anonymous said...

between this, the bankers, RCMP with tasers in Vancouver I think my head is going to explode

what about pst on postage?
what about pst on printing?

someone, get me a sedative!

1:47 pm  
Anonymous Dave @ YES Mag/KNOW said...

AHHHHH! BOOO! That sucks.

We're a small- to mid-size BC publisher and it is going to be a big burden. This will require a whole separate tax code to my (custom) database. I hate administering the QST, too, but at least I built my system with that in place from the beginning (and sales in QC pale to ON). What a headache.

And it will mean, most likely, a drop in revenue of 8% since our prices are tax inclusive. We may have to change that, but I hate the hassle of having to quote multiple prices on a sub form based on destination.

Aside from the obvious (increased revenue for the gov't) how does this help anyone?

3:22 pm  
Anonymous Anonymous said...

Why would any magazine increase their cover price if "Common wisdom in the industry is that for every percentage point increase in price, there is a 1% decrease in sales"? This doesn't make sense.

3:51 pm  
Blogger D. B. Scott said...

Magazines do increase their cover price from time to time, forced to by rising costs; however one of the reasons they do so very reluctantly is they know that, generally, there is a resulting fall-off in sales. Not for all magazines all the time, but for most magazines, most of the time.

4:00 pm  
Anonymous Anonymous said...

The trick is to find that balance where the increases helps your bottom line. Your 1 for 1 theory will never do that; you lose sales and dollars every time. Just want to make sure readers do their homework when making this type of decision.

4:10 pm  

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