Changing Tax Rates

Following are the steps for preparing and executing a change in tax rates. If your organization uses rounded number prices, click here for some things to think about before making these changes.

In all cases of tax changes, consult your accountant for official rules

When a new tax rate becomes effective at midnight, it is very important you shut down the web listeners at midnight. Then not bring them back online until all the pricing changes and/or tax rate changes have been completed. This ensures all the web ticket sales after midnight are using the new tax rate.

If you have not stopped your web listener please do not proceed. It is imperative the web sales be stopped at midnight the morning the tax rate changes. An end of day must be done and the steps below completed before online sales can be started again.

 

Miscellaneous questions we've been asked:

  • Do I need to create a new tax rate or can I just change the existing one? It's best to create a new tax rate. This will allow for more accurate reporting in the future and to keep better track of which tax rate was applied to each sale.
  • Should I shut down the web listeners before midnight? You could, however, you may find there are many patrons attempting to purchase tickets at the last minute to avoid the new tax rate change. We recommend you keep the web listeners running as long as possible to allow for ticket sales as the pre-existing rate to make your patrons happy. However, the web listener should not run past midnight the morning the tax rate changes.
  • Do I need to make all the changes to the pricing/tax rates after midnight or can they wait until the next day? Making the changes to the pricing/tax rates can be made the next day, as long as the web listeners and box office do not do any activity until the changes have been put into place and 'tested'.
  • What happens when tickets sold at the old tax rate are exchanged? The rules and government interpretation indicate the 'old' tickets are refunded at the old tax rate and the 'new' tickets are subject to the tax rate in effect at the time of the exchange. Theatre Manager does this automatically for you.
  • What should I do if there is a difference left over after "exchanging" tickets? When an exchange occurs it may be possible the patron originally paid more than the current value of the ticket. Depending on the organizations policy you may return this money to the patron, wave the difference, turn the balance into a donation or add an order fee for the value of the difference. If the difference in the exchange results in the patron owning you money then the next step would be to add a payment to the order and collect the required amount.

 

Steps that can be done in advance of the tax change

A. Rename the existing Tax Code to include the percentage value

If the tax code already indicates the percentage value move to step B.

  1. Go to Setup >> System Tables >> Tax Tables.

  2. Double click on the old tax code currently being used.
  3. Change the Tax Code name field to something that included the percentage of the rate.

    For Example:

    Province Current Name New Name
    British Columbia Tax or HST HST 12%
    Ontario Tax or GST GST 5%
  4. Click the Save button to save the changes.

 

B. Create a new Tax Code for the new Tax Rate

  1. Go to Setup >> System Tables >> Tax Tables.

  2. Click the button to create a new tax code.
  3. Set the name of the tax code to something to reflect the new rate. For Example:
    Province Tax Rate
    British Columbia GST 5%
    Ontario HST 13%
  4. Starting with the City tab, set the appropriate tax rate and G/L Accounts.

    The G/L Accounts will likely be the same G/L Accounts that were used for the prior tax table.

  5. Repeat for the PST and GST tabs.
  6. Click the button to save the changes.

Repeat steps A & B (above) for any other Tax Codes that contain the old tax rate. In a situation where the GL Account number is different click here to learn how to create a new account number.

For Step B above, you can change the name of the City tab in Tax Tables by going to Setup > System Preferences > Appearance tab and changing the right side of Federal Tax from City to HST.

 

Steps to take when the tax change occurs

The following steps must be completed after midnight on the date the tax rates are to change and prior to sales beginning.

If you are running Theatre Manager's Web Sales module, make sure to shutdown all listeners by midnight. The Web Sales listeners can be restarted after the following changes have been made.

A. Make a Backup

The first step in making any major change to the database it to create a backup. A backup not only provides a starting point but it also means there is something to revert back to should things go wrong. For details on how to create a backup of the database click here.

B. Update Events

  1. Go to Setup >> Events.

  2. Search for an event that is currently on sale and double click to open it.
  3. Click the Accounting tab.

  4. Change the "Ticket Tax Code" from the old tax rate to the new tax table.

    Changing the tax rate on the accounting tab changes it for all performances. If you wish to only change the tax code on a few of the performances, then do not change it on this tab.

    • Double click on only those performances that are to be sold under the new tax rate.

    • Change the Tax Rate Code in the Performance Detail window.
  5. Click the button in the toolbar / ribbon bar.

    If tax is currently backed out of the ticket sales price, the value of the ticket will need to be altered under the Pricing tab for each Event. This is done by:

    • Double clicking on the Price Code.
    • Entering the base price of the ticket (including tax).
    • Clicking the Calculate Price Excluding Taxes button.
  6. Repeat these steps for all other current and future events.

    7.  

    C. Update Ticket Sales Promotions

    If the tax rate switch is instantaneous (i.e. it all happens on one day), then simple change the tax rate on the promotions.

    However, if the tax rate is to be phased in, where an old tax rate applies to some events or performances and a new tax rate applies to other events and/or performances, you will need to create a second set of sales promotions to mirror the first and enable/disable them as appropriate.

    For example, if a regular ticket can be sold with only Ontario Sales tax up till a deadline, but regular tickets for other events require HST, then you will need to rename your old 'Regular' to 'Regular RST' and add a 'Regular HST' promotion - and enable them as appropriate for performances. After the tax change is full implemented, you can merge the two sales promotions together if you wish.
    1. Go to Setup >> System Tables >> Sales Promotions.

    2. Search for an active Sales Promotion
    3. Double click the Sales Promotion to open it.
    4. Select the Calculation tab.

    5. Change the Tax Rate(s) from the old tax rate to the new tax rate.

      There are four (4) tax rates per sales promotion that may or may not be effected.

    6. Click the button to save the changes.
    7. Repeat these steps for all other active Sales Promotions.

     

    D. Update Memberships/Passes/Gift Certificates

    In most cases, a gift certificate should not have any tax charged against it at time of sale as it is what called a 'financial instrument'. No taxes are payable buying a gift certificate and the tax is calculated at the time of exchanging the gift certificate for a ticket

    Some items like a play pass or merchandise may have tax applied and could need to be changed. You will need to decide which passes/memberships or gift certificates are subject to the tax change.

    1. Go to Setup >> System Tables >> Member Types.

    2. Search for an active membership.
    3. Double click the membership to open it.

    4. Select the Accounting tab.

    5. Change the "Tax Rate" from the old tax rate to the new tax rate.
    6. Click the button to save the changes.
    7. Repeat these steps for all other active memberships, passes or items to be purchased.

     

    E. Update Transaction Fees

    1. Go to Setup >> System Tables >> Fee Tables.

    2. Double click on the first Fee in the list.

    3. Select the Calculation tab.

    4. Change the Tax Rate from the old tax rate to the new tax rate.
    5. Close the window to save the changes.
    6. Repeat these steps with all other Fees.

     

    F. Update The Facility Management Module

    It may be necessary to update the tax rate on any projects where a future invoice is required. You may need to update resources and personnel for each task that spans over the date of the tax rate change for those projects that require billing.

    RESOURCES

    1. Go to Setup >> System Tables >> Resources.

    2. Double click on the first Resource.

    3. Select the Accounting tab.

    4. Change the Purchase Tax Rate and the Sales Tax Code from the old tax rate to the new tax rate.
    5. Close the window to save the changes.
    6. Repeat these steps with all other Resources.

     


    PERSONNEL/VOLUNTEER ACTIVITY
    1. Go to Setup >> System Tables >> Code Table.

    2. Select the Volunteer Activity option in the left column.
    3. Double click on the first activity in the column on the left.
    4. Select the Facility tab.

    5. Change the Sales Tax Code from the old tax rate to the new tax rate.
    6. Close the window to save the changes.
    7. Repeat these steps with all other Resources.

     

    Congratulations! New sales may now be processed, and all Web Sales listeners can be started.

Transitional rules: HST on Ticket Exchanges bought before HST implementation

This is a hot topic, very hot. There is general confusion reading the HST transitional rules and they are neither clear, nor pretty.

The Arts Management team are not tax accountants or experts, so Theatre Manager is designed to implement a somewhat safe interpretation of the rules. These rules were generally acceptable for the Maritime provinces HST transition some years back.

Please read the examples below that are taken from Ontario Transitional Rules and do check with your accountants. There is enough in this document to warrant taking the safer road on the taxation side. As I said, we are not tax accountants, so the actual rules may be different, or there may be specific exceptions that we are not aware of.

The approach that you can take in TM to handle exchanges is:

  • new tickets (and exchanged tickets) get the new tax rate that applies to the performance
  • refunded tickets are refunded at the tax rate used to buy them
  • venues who want to implement what are effectively tax rebates on subscription ticket exchanges need to discount the final order difference using a negative order fee to write off the HST. It will come through the end of day as 'negative' tax, but in the end, that is good because you can track it as an input tax credit.

    This assumes that it is legally valid to do that. Please please please, talk to your Accountant for your specific situation.

Background History to the TM Transitional Rules

The rules that we've been observing are are found in a published web article by the Ontario Government.

There is a small section in this document near the bottom labelled Returns and exchanges near example 28 which is excerpted below. it is the subsequent caveat that is the most interesting.

Example 28: In July 2010, a person returns a shirt that was purchased in June 2010 for $40. The vendor exchanges the returned shirt for another shirt that costs $60. In this situation, the vendor would collect the Ontario component of the HST on $20.

If the RST did not apply to property that was purchased before July 1, 2010, and it is exchanged on or after July 1, 2010, the Ontario component of the HST would apply to the full consideration for the replacement property.

Tickets generally have no RST. By that interpretation, exchanges for events that occur after July 1,2010 would be charged the HST on the full amount, even if bought before May 1, 2010.

Example 22 speaks to tickets (albeit a circus example) and has an implication that shows across the boundary of july, but sold earlier than May (i.e. buy now, go later), should probably have HST in them in the first place. It states:

Consideration due or paid on or before October 14, 2009: Notwithstanding the general RST wind-down rules, the RSTA would apply where consideration for a sale of goods, services or admissions becomes due or is paid on or before October 14, 2009.

Example 22: In September 2009, a vendor sells tickets to a circus show to be held in July 2010. The RST would apply to the price of admission.

Interesting interpretation of this is that if you were not charging RST (because you were exempt), then you cannot use the 'difference on the exchange' from example 28. Otherwise, you might be able to take advantage of example 28 - but you would have to have been charging RST on tickets last October.

Revenue Canada speaks to a transitional rule with a ticket example using Stratford Festival. It has a specific example where tickets are purchased after May and the performance is in July. It clearly states that HST applies. Revenue Canada speaks of a transitional rule that follows:

The HST will generally apply to a service to the extent that the service is performed on or after July 1, 2010. The HST will generally not apply, however, to a supply of a service if all or substantially all (90 per cent or more) of the service is performed before July 20

Our reading of that suggests that a subscription where 10% or more of the ticket value is after July 1st suggests that HST should be applied to the initial sale.

There are some exceptions to the transition rules listed in various places.

We took a representative example from Tax Tips for subscriptions. In every interpretation we've seen, this means magazine periodicals. Anything mentioning tickets refers to transportation.

Nothing specifically talks to non-profit arts organizations exchanging subscription tickets when a new tax rate applies.

Finally, there is a small note in the Ontario Transitional Rules document called 'anti-avoidance'.

It looks innocuous - but the meaning is clear - if the Government thinks you are doing something to avoid the tax (they coin it 'blatant tax avoidance arrangements', then trouble looms and the department of finance can make any rule they want. So, 'buy your pass now to avoid HST next year' may (or may not) be on that 'tax avoidance arrangement' category.

Anti-avoidance

Existing anti-avoidance rules in the ETA (Excise Tax Act) would apply to transactions to which the general transitional rules for the HST apply. Additional anti-avoidance rules may be implemented in order to maintain the integrity of the GST/HST and the RST during the period of transition to the HST in Ontario.

The legal ruling from University of Toronto is provided for your reference.

Would the Government prosecute? Might not, it may be bad press. On the other hand, Governments like their tax revenue, so they might, especially if it amounted to a significant tax influx when you consider the value of all advance subscription tickets sold for all venues in the entire Province for a year.

I hope these references help. If you are confused, I can understand it. Our reading is not necessarily correct, but in the absence of a very specific printed ruling, we've chosen to play safe, yet give the venues an option of using a negative order fees to effectively claim back the tax if that is what they wish to do.