Guide to US sales tax for Canadian sellers
Updated December 2020.
Canada and the U.S. aren’t just countries that share a border. We’re more like best buds. So, it’s natural that Canadian ecommerce sellers ship orders to the US. We’re right next door, after all.
This coziness brings with it some complications. Canadian sellers who ship to U.S. customers may be liable for U.S. sales tax. Here is a guide to navigating the murky waters of U.S. sales tax for Canadian ecommerce sellers.
The basics of US sales tax
Like the Canadian provinces, each U.S. state can set its own sales tax rate. Unlike Canada, the U.S. has no national sales tax. Another difference: Within most states, there can be many different sales tax rates, as counties, cities, and other local taxing districts add their own sales taxes on top of the statewide tax rates. While most states allow additional local taxes, others don't.
When a Canadian seller ships to a Canadian customer outside her home province, she adds the Canadian sales tax of the province to which she’s shipping. In the U.S., it’s not that simple. Some ecommerce orders are subject to sales tax and some are not. The difference has everything to with a little thing called nexus.
US sales tax nexus for Canadian sellers
Just because you're manufacturing in Manitoba or crafting in Saskatchewan doesn’t mean you don’t need to collect and remit sales taxes on the orders you ship to customers in the United States. If you have sales tax nexus in the state where your customer is located, you must collect and remit sales tax on that order.
Sales tax nexus at its most basic is a physical presence in a state, such as a business location. In the era of online shopping, the definition of nexus has become more nuanced.
You can have sales tax nexus in a U.S. state, even if you're based in Canada, if you have a physical presence in the U.S. such as an office, store, or warehouse. Remote employees create nexus in the U.S. state where they live. If you have an employee, such as a sales rep, who travels in the U.S., the time your employee spends in a particular state can also create nexus, even if it’s just a few days a year.
If you sell through Amazon FBA, your merchandise stored in an Amazon fulfillment center could also create nexus. Track where your FBA inventory has created U.S. sales tax nexus through Amazon inventory reports.
Sales tax nexus isn't limited to physical presence.
Sales or transaction volume can now create nexus in 43 states, Washington, D.C., and some parts of Alaska (where there's local sales tax but no state sales tax). Learn more about economic nexus and its implications. Many states also enforce affiliate nexus and click-through nexus.
Most states now require marketplace facilitators to collect and remit sales tax on behalf of third-party sellers. As of December 2020, marketplace facilitator laws are in effect in all states that enforce economic nexus except Kansas, and Kansas will likely adopt a marketplace facilitator law in 2021.
Likewise, Florida and Missouri, the only two states that have a general sales tax but don't enforce economic nexus, are expected to adopt economic nexus in 2021.
Sales tax exemptions
There are many transactions between Canadian sellers and U.S. customers where there's no need to collect and remit U.S. sales tax. If you don't have nexus in the customer's state, you don't need to add sales tax to the order.
Likewise, if your sale is tax exempt (e.g., a wholesale order or a sale to a nonprofit if it's in a state where nonprofits are exempt from sales tax), there's no need to collect U.S. sales tax.
How to comply with US sales tax laws
Before you can start collecting U.S. sales tax, you need to register with each state where you have nexus. Once registered, you'll be required to comply with all applicable sales and use tax laws.
U.S. sales tax compliance can be tricky no matter what side of the border you live on. Sales tax automation software can help you grow your U.S. customer base and keep on the right side of U.S. sales tax regulations.
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