Lichtman Consulting

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A number of years ago, I read a book called “Built to Last”, by Jim Collins and Jerry Porras. The book, a classic of the genre, discusses a number of companies that the author feel to be “visionary” in nature. One of those companies is HP. The founders of the company built not just a company, but also a coherent internal culture, commonly called the “HP Way”. This has lead to the company being greatly admired in business circles.

The last few years have been rough on HP’s external image, in large part – I believe – unfairly. The past week has seen the second sudden departure of its CEO in only a few years. Both were due to scandal. While profitability has not been hurt (in fact HP is doing better than ever, with much credit to its recently departed CEO!), the stock has lately been pummeled in the markets.

Some of the commentary that I’ve read describe the most recent tenure as being one of building a solid financial foundation for the company. Which leads me to my point. What HP needs in its new leader is a vision for where the company should be moving technologically. Not just a specific set of goals, but something that is going to put fire in their bellies (and enthral their customers). In short, they need a BHAG – a Big Hairy Audacious Goal.

One possibility that comes to mind: HP is one of the largest manufacturers of electronics (both consumer and business) in the world. If they made a decision that in 3 to 5 years time, every single device that they manufactured would contain a wireless mesh device, they could theoretically blanket the entire world with free, decentralized, high speed internet connections. And by implication, free telephony and broadcast media. Yes, there are still big technical issues to address, and wireless mesh networks are still very much the realm of techy enthusiasts (and the US military, and also to some extent Google). But that’s the point of a BHAG. Yes, the telecom industry would scream (including likely some of HP’s board members – hey, I’m just sayin’) as their entire business model evaporated. Oh, and Apple might be in trouble as well – they make money on the telecom contracts for iPhones, not on the hardware. But imagine the sales pitch to consumers – buy our printers, our laptops, our telephones, and never pay for internet, telephone or cable TV ever again. Nice, eh?

Here’s another possibility: HP is already widely known for its environmentally friendly policies, and especially for its experience handling and recycling plastics. Imagine what effect a Fortune 500 company (with $100 billion plus per year in revenue) could have, if it would back a project like WHIM Architecture’s Recycled Island project? WHIM are trying to gather all of the waste plastic floating in the middle of the Pacific Ocean, and turn it into habitable land. I don’t know with any certainty if their economic projections are feasible, but there’s a potential for large profits from this type of venture.

There’s no doubt that there’s any number of highly talented people that can step into the chief executive role at HP. Let’s hope that whomever they chose will bring this kind of vision to the table, and that this remarkable company can quickly move beyond this temporary setback.

If you are using OS Commerce, and require an HST-related update, CO4 Computing (co4.com) have a specific flat rate deal for this service.

On the other hand, if you are using Ubercart, we would be happy to help you with this process!

I just found an interesting article slideshow via Slashdot, on how real-life social graphs work, and why current social media websites don’t do a good job of supporting them – http://www.slideshare.net/padday/the-real-life-social-network-v2.

The gist is that people’s “real life” social networks are highly faceted in nature, and the resulting online interactions can be jarring. There’s some food for thought here.

The following is very important for anybody who is selling products or services online, and is based in Ontario. I’m assuming that a similar situation also applies to companies in British Columbia, but I haven’t confirmed this.

On 1 July 2010, the HST (Harmonized Sales Tax) comes into effect in both provinces, replacing the separate federal GST and provincial PST sales taxes.

It turns out that the policy for anybody selling online is poorly documented right now, and further that there is still extensive disagreement within Revenue Canada regarding how to apply the HST under certain circumstances that are common online. I’ll do my best to provide as much detail as possible, based on what I’ve been able to find out so far.

A customer of mine recently spoke to a number of accountants (more than three) regarding how taxation should work when selling products (or services) online from Ontario. The answers were completely different in each of the responses he received, so he went to the source and spoke directly to Revenue Canada. The following rules apply according to what he learned there:

1. HST applicability is now firmly based on the ship-to address of the customer. This was never entirely clear with the GST previously, and we usually recommended charging GST to customers if either the bill-to or ship-to addresses were in Ontario. The HST is based on the destination of where the goods are going to. Check for further details below, because this doesn’t necessarily simplify anything.
2. For companies based in Ontario, selling to a customer based in Ontario, the HST must be charged on goods/services (we’re talking online stuff which in all likelyhood doesn’t fit into any of the large number of exempted goods) at 13%.
3. NEW: (For items being shipped out of province) If the customer is based in other provinces in Canada, the taxes as applicable in that province must be billed. Previously, most vendors charged only GST to customers in other provinces. I will include a chart of the specific tax rates as of July 1st below. If the destination province is part of the HST schema, HST at THAT province’s rate is billed. Otherwise GST at 5% plus whatever provincial tax applies, is billed.
4. Virtual items sold to customers in other provinces are a problem. The item isn’t being shipped outside of the province (it doesn’t actually exist in physical terms), so its likely that full Ontario HST of 13% needs to be charged.
5. There is still no clear policy on how to address customers outside of Canada. This is a serious problem given the short time frame until the HST goes into effect. One of the multiple opinions we were given is to charge 0% HST (not the same as no tax – charging 0% HST allows you to claim various deductions afterwards apparently) for US-based customers. Another option was that we should be billing full 13% HST for all customers outside of Canada, which would have severe ramifications for Ontario-based online businesses. I will try to get a clarification on this – and will post an update here if possible.
6. Its not clear if the US is treated differently than other countries, and whether it has to do specifically with tax treaties.
7. It appears that HST is billed on top of shipping. That means you need to do a subtotal with shipping first, and then charge HST on top of that. I’ll try to get this clarified as well. I know that some shopping cart systems (i.e. OS Commerce) already allow for a variety of configurations with regards to whether tax is charged on the shipping line item of an order. Other carts may not have this flexibility, so may need to have coding done to support this.

As you can see from the above, doing business online from Ontario is about to become much more complex than before.

Given the short time until this takes effect, I’m perturbed by the lack of good information available on this topic.

The majority of what I’ve read on the HST was aimed solely at consumers.

What’s even worse is that it appears that many accountants have no idea at all how the HST works, and particularly with regards to e-commerce.

Compounding the problem is the lack of coherent policy in place with regards to how the HST will work across jurisdictions – this kind of thing may have worked out back in the day when only large businesses sold across borders, but today virtually all businesses with an online presence view the entire world as a potential customer. Not having proper policy in place for the HST is just not acceptable. Its a serious, serious problem for a very large number of companies, small and large, that operate in the modern world. This was poorly thought out, and poorly implemented.

The following is a listing of the tax rates for the different provinces of Canada, as of July 1st 2010. They may change periodically thereafter, so don’t use this as a definitive list.

Update (29 June 2010):

I’ve received the following updates to the above info:

• Billing from Ontario to other provinces – for non-HST provinces, it is only necessary to bill GST (not that province’s PST). This appears to include Quebec (i.e. not QST).
• Shipping fees must have HST applied to them (i.ecreate your subtotal, add shipping, and then apply tax).
• Virtual products must have HST applied to them, if the customer resides in Canada (regardless of where). This is because nothing is physically shipped to the customer.
• US and international customers are not charged tax. Or maybe still charged 0% HST. I’m still not clear on this one.