US Sales Tax Considerations for Canadian Companies Selling into the US

With more and more Canadian entrepreneurs opening e-commerce stores on Shopify & Amazon.com and selling in the US marketplace, what do you need to think about? 

US Sales Tax. Historically, the collection and remittance of US sales tax were only applicable to businesses with physical office spaces or employees on the ground (commonly referred to as physical nexus).

But since 2018, non-US corporations are now required to charge and remit US sales taxes if certain revenue thresholds are met.

What happened in 2018?

The US Supreme court, in South Dakota v. Wayfair, Inc., overturned the long-standing physical nexus test, noting that this test is outdated given the substantial technological changes in the contemporary business environment, particularly today’s internet based e-commerce market.

Nowadays, companies can have million(s) of dollars of sales in a particular country or state without the need to ever set foot in that jurisdiction. So the court concluded that where a company’s sales in a particular US state exceeds a certain revenue threshold, you are deemed to have a taxable presence in that state (the economic nexus). 

These nexus rules are enforced by each state so the revenue threshold to be taxable varies from state to state. For example, California’s threshold is at US$500,000 while Florida’s nexus threshold is US$100,000.

What does it mean to you?

Business owners should now be monitoring and tracking their sales very closely and ensure that, where the revenue thresholds are met, taxes are properly collected and remitted (hefty penalties are imposed on non-compliant businesses).