Home Depot admits that it has been charging customers across B.C. seven per cent provincial sales tax on numerous tax-exempt items for at least a year and a half.
The company's mistake came to light after Tosh Suzuki, a Home Depot customer from Delta, B.C., checked his receipts and found he'd been overcharged about $70 on tax-free items.
"I knew certain goods were — or should be — PST exempt. The only problem is, I never checked at the store," said Suzuki. "When you purchase goods at a retail outlet, you hardly ever look at the receipts."
Suzuki's receipts, dating back to January 2009, show he was charged PST on several bags of blow-in insulation, a smoke alarm and weather-stripping — all items which are exempt from provincial tax in B.C.
"Because I participated in the [federal] home improvement tax credit program, I bought a lot of material to upgrade my home," said Suzuki, who also took advantage of energy efficiency rebates under the province's Live Smart program.
Numerous products exempt from tax
Numerous PST exemptions apply under two broad categories — products to make residential homes more energy efficient, and safety equipment. Many of the exemptions have been in place since the 1970s and '80s.
Consumer products on the exemption list, sold by Home Depot, include fire extinguishers, smoke detectors, caulking to keep heat in, insulation, weather stripping, Energy Star certified windows and doors, as well as many other items.
"This is huge because many other consumers participated in the two government incentive programs that I participated in," said Suzuki. "Unless they checked their receipts, they may find that they have paid PST unnecessarily.
"[Home Depot] should be aware of the tax laws in this country," he added.
CBC News also bought several PST-exempt items at Home Depot stores in Surrey and Vancouver and was charged seven per cent PST.
After being contacted by CBC News, Home Depot issued a written apology.
"We apologize to all customers that may have been impacted by these PST exemption errors," said a written statement, which quotes Dan McAreavey, Home Depot's vice-president, contract services and Canada west operations.
"We encourage customers to visit their local Home Depot store with their receipt to see if they are eligible for a refund on the PST that may have been incorrectly charged," he added.
"The operational processes around tax compliance are being fully reviewed to prevent this from happening in the future."
Other stores don't charge tax
When CBC purchased fire extinguishers at Canadian Tire and Rona, PST was not charged. Customer services representatives at those stores said the tax is automatically taken off at the till, because the exemptions are pre-programmed.
Suzuki said his initial complaints to Home Depot got little response. At one store in Surrey, where he bought some of the tax-exempt items, he said he was told the PST is applied through the computer system on all products.
"The acting manager explained that the PST is embedded in their system and they can't do anything about it at the store," said Suzuki. "He immediately reversed all my purchases and when I repurchased the goods the PST was taken off."
Suzuki then faxed a letter to Home Depot's head office in Atlanta, on April 23, with copies of his receipts, stating, "I request that Home Depot immediately cease the practice of the improper collection of PST."
Suzuki said he went back to the store on May 4, and was again charged provincial sales tax on weather stripping, a PST-exempt item.
"I wasn't surprised," said Suzuki, adding he then decided to contact CBC News.
Home Depot has 179 stores in Canada. The company's reported annual sales in 2009 totalled $6.8 billion dollars — an average of $38 million per store. That means B.C.'s 25 stores accounted for approximately $1 billion in sales last year.
Customers potentially overcharged millions
The CBC asked an accountant to estimate how much money would be involved if five per cent of the company's B.C. sales involved PST-exempt items. The accountant estimated customers could have been overcharged $3.3 million in taxes last year alone.
Home Depot's manager of public relations, Tiziana Baccega, told CBC News the mistake stems from a nationwide change made to the company's inventory and checkout computer system a year and a half ago.
She said the PST exemptions were programmed into the system for all B.C. stores, but for some unexplained reason, the tax was not taken off at the till.
"One part of the system was not talking to the other part," she said, adding the problem appears to be B.C. wide.
"The Home Depot in no way benefited from this error, as all PST collected has been remitted to the B.C. government," Baccega said.
"It seems like Home Depot has acted like a little tax agency for the government," said Maureen Bader, B.C. spokeswoman for the Canadian Taxpayers Federation.
Other provinces apparently aren't affected, Baccega said.
In Ontario, Home Depot does not sell products that are exempt from provincial sales tax.
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Nova Scotia, New Brunswick and Newfoundland all have harmonized sales taxes, while Alberta has no provincial sales tax. Quebec's sales tax is also harmonized with the GST, but is managed at the provincial level.
"It's really unbelievable to see this in a company as big as Home Depot," said Bader.
"Obviously we can't really count on these companies to be properly managing the coding in their very own system," Bader said. "This could be quite devastating for the company — when people start to wake up to the fact that they could have been ripped off by Home Depot."
Provincial auditors involved
B.C.'s finance minister indicated the province is now looking into the matter.
"I can't comment on any particular investigation or complaint," said Colin Hansen. "But, certainly, when we do receive complaints, they are followed up on and we have our investigators and our auditors that will look into issues that are brought to our attention."
The finance ministry also issued a statement, which said a company found to be overcharging PST could face "inspections, desk audits, audits at a business location and investigations."
The statement concluded, "Any taxpayer who has overpaid the PST in the amount of $10 or more may apply to the Ministry of Finance for the refund, within four years from the date of purchase."
Suzuki said he got a different response when he called the ministry in April to complain about his PST overpayment and spoke to the director of the compliance division.
"He explained to me that they weren't quite able to direct Home Depot or anyone else to stop charging PST, because he thought the free market system would take care of that," said Suzuki.
"In other words, if someone charged PST improperly, then people would stop shopping at that retail outlet. My comment to him was, 'I cannot believe what I am hearing right now.'
"As long as they are getting their money they [the provincial government] obviously do not care," he concluded.
Home Depot seeking clarification
Home Depot said it is now fixing the problem and indicated it will have staff on hand in B.C. stores to take care of any customers who were overcharged.
"We have captured a significant portion of the PST exemptions and are now reaching out to the B.C. government for clarification on the more complex exemptions," the company said in a statement.
The exemptions on energy efficient products and safety equipment will no longer exist in B.C. when the harmonized sales tax (HST) comes into effect on July 1.
Suzuki said he finds it ironic that while some B.C. residents have been signing petitions and complaining about the HST, they've effectively been paying it — in advance — at Home Depot.
"Soon we won't have to worry about what is tax exempt and what isn't," he said. "We are just going to be taxed to death on everything."
A previous version of this story incorrectly stated that in Ontario, Home Depot does not sell products that are subject to provincial sales tax. In fact, in that province, Home Depot does not sell products that are exempt from provincial sales tax.May 11, 2010 10:30 AM ET