Magazines Canada is warning of a potentially “serious” drop-off in subscriptions for Ontario-based magazines when the new harmonized sales tax (HST) in that province kicks in on July 1, 2010.

The warning comes after the Ontario government announced recently that newspapers would join the small list of HST-exempt goods and services. Books were already on the HST-exempt list following the introduction of HST legislation earlier this year. Despite industry lobbying, magazines willl remain subject to the tax.

“The potential for a serious drop-off in subscriptions is high,” says Magazines Canada CEO Mark Jamison. “A lot of circulators think that they could lose a solid eight percent.” (The provincial share of the HST—which replaces the PST— is 8%.)

Jamison adds, however, that the full impact won’t be known until after the fact, since much depends on how price sensitive consumers become after the tax is in place. “Some of us remember when GST was put into place, people became very price sensitive. Because HST will have an impact on so many things the same could happen now.” Under the “Don’t Tax Reading” banner, the magazine industry fought a ferocious battle to be exempt from the GST when it was introduced in the 1990s, but lost.

Jamison hopes the small price-point for magazines compared to big-ticket items such as appliances will work in their favour. “One of the aspects of renewals is that people just renew,” he says. “They don’t put a lot of thought into it. We’re hoping people can promote to overcome the negative.”

Ontario circulators should also know that subscriptions paid for but not activated before July 1, 2010 will not be subject to HST. This means that multi-year subscriptions can be sold to readers without the new tax if they buy before July 1—suggesting a “beat the tax” promotion opportunity.

Although Magazines Canada has expressed disappointment that newspapers have received special treatment over magazines, members are not against the tax as public policy, says Jamison. “Our members are very concerned about this potential inequity in a market where readership remains very strong through these times,” he says. “As advertising moves up again we are in a good position to get a lot of attention from consumers.”

HST also means publishers will be able to claim a GST-style input tax credit on any goods or services they purchase that are subject to HST. In Nova Scotia, where HST has existed for several years, the tax has saved president of Progress Media Neville Gilfoy “enormous amounts of money.” He said to Masthead that this is because the former 8 percent sales tax was a cost he had to bear while now the HST is a flow-through tax like GST.