CANADIAN BUSINESSES DOING BUSINESS IN THE USA
Taking the confusion out for business owners! Do you need to collect and pay US sales tax? Where and how do you register?
Women’s Millionaire interviews Dena Oberst, accountant and indirect tax consultant from Gable Tax Consulting Group, Inc. California, USA.
Dena Oberst has been in the multi-state sales and use tax industry for over 28 years. Starting her sales tax career in corporate industry followed by an experienced management role at Arthur Andersen she continued to climb the corporate ladder and was the former Practice Leader and Office Managing Partner of a global tax firm.
Throughout her career she had unlimited opportunities to serve Fortune 500 companies, while assisting start-up companies with the same determination. If you’ve ever had the opportunity to receive Dena’s help, you know to expect dedication, professionalism, and unprecedented knowledge in all areas of sales tax. With having the vast sales tax knowledge, she developed throughout her career, all of her clients reap the benefit of her capabilities.
On March 1, 2017, Dena decided it was time to start her own company and created Gable Tax Group. Gable Tax Group is a safe landing for clients to be treated with the upmost importance.
WM: There is a lot of confusion for Canadian business owners selling to their US customers, on whether or not they have to collect sales tax. How do Canadian business owners determine if they have to collect and pay US sales tax to the US government or if they are exempt? How much do they have to collect from their customers and pay to the government?
DO: Due to the recent U.S. Supreme Court decision in South Dakota v. Wayfair, many U.S. states have passed Economic Nexus legislation which may require all businesses, both foreign and domestic, to collect U.S. sales tax. The term “Nexus” is defined as a connection between the business and the state.
Historically, in order for a state to impose sales tax collection on an out-of-state business, the business must have some sort of physical presence in the state. The term “physical” presence has many different definitions and may vary by state.
However, under the new Economic Nexus legislation, a business must register to collect and remit sales tax in a state if they have reached a certain income (revenue) threshold in that state. Therefore, there are several types of sales tax nexus creating activities that a Canadian business owner needs to take into consideration, and each state has different nexus creating thresholds.
Let’s start with the basic sales tax nexus criteria which is “Physical Presence”. If a business has physical presence in a state that activity will most likely give that business sales tax nexus and they will be required to hold a sellers permit and collect sales tax on all taxable transactions in that state. Physical presence can be described/defined as: Brick-and-mortar location, employee, inventory, sales rep (including independent 3rd party reps), trade show attendance, board meeting/retreat, on-site training or installation, essentially any physical activity in that state that constitutes solicitation of a potential customer in the state. This is not an all-inclusive list of physical presence activity, but it will give your readers an idea on the types of activity that could create nexus for sales tax collection purposes. If the business does not have any “physical” presence in a state, there are other business activities that could require a business to register for a seller’s permit.
WM: What if you are not physically present in the USA but still selling from Canada and exporting merchandise there to a direct customer. What is the minimum dollar value of product does one have to export in order to collect sales tax from their customers?
DO: For those states that have imposed Economic Nexus legislation, the minimum dollar amount varies from state-to-state and can be as low as $10,000 to as high as $500,000 in total gross or taxable sales over the past 12-months.
WM: What if they are shipping to a US distributor, are they exempt, or do they charge the distributor tax?
DO: If a Canadian business sells goods to a U.S. distributor and the U.S. distributor turns around and sells the goods to their customer, then the distributor is the retailer of those goods. In light of the new Economic Nexus legislation, the Canadian business may still meet the revenue threshold in that state which may require the Canadian business to hold a seller’s permit. However, as long as the U.S. distributor provides a valid Resale Certificate to the Canadian business for their purchase of the goods, then the Canadian business will not be required to charge sales tax. However, if the Canadian business ships goods to a U.S. fulfillment center then the Canadian business may have physical presence in that state due to inventory and will be required to hold a seller’s permit
WM: What if you are not exporting any products and just doing consulting in the US?
DO: Sales tax is generally imposed on the sale of tangible personal property unless specifically exempt whereas Services on the other hand are generally not subject to sales tax unless specifically taxable. Therefore, depending on the type of consulting service performed by the business, it may be subject to sales tax.
WM: What exactly are the new tax laws for Canadian owned businesses? What year did they change?
DO: Historically, if a Canadian business had no physical presence nexus activity in the U.S., they would not be required to hold a state sellers permit. However, over the past several year’s many states have passed legislation to require an out-of-state business to collect and remit sales tax. Here are a few examples of remote seller nexus creating activities that may require a Canadian business to hold a U.S. state seller’s permit: Affiliate Nexus, Click-Through Nexus, Economic Nexus, and Marketplace Nexus.
WM: What about selling on Amazon? What do you have to do and what Canadian businesses have to register? Are the big stores such as Amazon, eBay and Walmart not responsible for collection sales tax on behalf of their sellers?
DO: This is tricky as there are several things a business must understand when it comes to their sales tax collection responsibility when using a 3rd party facilitator. If the business was using Amazon FBA (Fulfillment by Amazon), then the business had physical presence in every state that Amazon stored their goods in Amazon’s warehouses (e.g., inventory) therefore if the business sold goods to a customer in a state where Amazon had a warehouse, the business had a sales tax collection and reporting responsibility. If the business did not register to collect and remit sales tax in those states, then the business may have exposure and owe sales tax on those prior transactions.
There is a very new law that many states have adopted, and it is called the Marketplace Facilitator Law. This law essentially forces the 3rd party marketplace platforms like Amazon, Etsy, eBay, and Walmart to collect and remit sales tax on behalf of all sellers. However, not all of the states have adopted the Marketplace Facilitator Law yet and therefore the business may still need to register for a seller’s permit in a few states. Additionally, to add more complexity and confusion to businesses, each state has different requirements as to whether or not a business stills needs to hold a seller’s permit even if 100% of the sales tax will be collected and reported by the 3rd party marketplace facilitator. Furthermore, if a business sells to U.S. based customers from their own hosted website, in addition to Amazon, then the business must still hold a seller’s permit for each state where they have inventory (e.g., Amazon FBA). Are you confused yet? There are so many parameters to consider in order for a business to understand their sales tax responsibility that it is highly advisable that they contact a multi-state sales tax consulting firm, like Gable Tax Group, to ensure they are not financially impacted for non-compliance in the various U.S. states.
WM: How often do you need to report sales tax in the US for your business? What if you don’t sell very much? How much do you have to sell before you have to comply?
DO: The filing frequency of a sales tax return vary by state and could range from Monthly, Quarterly, Semi-Annual to Annual and the frequency is sometimes determined based on total gross revenue generated by the business in their respective state. Additionally, if the sales tax volume is high, the state may require the business to make monthly or weekly prepayments. Lastly, there is no extension to file a sales tax return so please be sure to track the filing frequency due dates and monitor federal, state, and banking holidays to ensure the sales tax returns are timely filed or there will be penalties and interest.