How To Know If Your Canadian Company Needs To Pay U.S. Sales Tax

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Are you a Canadian company selling to the U.S?

If so, sales to the U.S. are considered exports if consumed outside of Canada – therefore exempt from GST/HST. In addition to this, you may need to obtain a sales tax permit and pay U.S. sales tax depending if the Canadian company with sales to a U.S. consumer has nexus in a particular state.

U.S. Sales Tax Basics

There is no national sales tax in the U.S. In other words, sales tax is only governed at the state level. The total sales tax is a combination of state and local government rates. Forty-five states and Washington D.C. have some form of sales tax, including state, local, or both. The remaining five states – Alaska, Delaware, Montana, New Hampshire, and Oregon are exempt from sales taxes. Sales tax you collect is determined by your business’s presence in the state, county, or city referred to as Sales Tax Nexus. For instance, if a person from Boston, MA, buys a luxury car in Montana, they only have to pay for that car.

Sales Tax Nexus – does your company need to collect U.S. Sales Tax?

Business activities that may trigger sales tax nexus in a state may include, but are not limited to the following:

  • Physical presence in the U.S., such as an office, warehouse, or store
  • Having remote personnel (employees or salespeople in a state)
  • Storing inventory with a third-party supplier 

Once nexus is established, a seller is required to register with the State Department of Revenue and charge state sales tax on in-state sales unless an exemption or resale certificate is provided. 

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A tax on the sale, transfer, or exchange of a taxable item or service at the point of sale.
Generally, this is added to the sale price and charged to the consumer. The business is responsible for collecting and remitting this sales tax to the appropriate government agency.

Use Tax:

A tax on the storage, use, or consumption of a taxable item or service where no sales tax is paid.
When you purchase a tangible personal property and/or services outside one’s state of residence, that’s where Use Tax is applicable. Business owners do not collect this tax and must pay directly to the state.

Two types of Use taxes: 
  1. Consumer Use Tax and Vendor
  2. Retailer Use Tax

To collect and pay sales tax you must know these four things:

  1. Determine the state’s sales tax requirements 
  2. Register your company with the state authorities 
  3. Calculate and collect sales tax
  4. File and remit sales tax

For more information on U.S Sales Tax and if it applies to your business, reach out to us directly, and we can help you out.