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They have hired a warehousing company to ship there products for them, and they buy wholesale in the states also.
Is this ok from a legal standpoint or have you heard otherwise?
1. VAT: The US has not VAT/GST type tax as Canada does. As long as Canada does not require GST on sales outside the country (which it does not), then they do not have to charge this tax.
2. US Import taxes: Depending on the product, the US may charge a duty on the importing of that product into the United States. However, most import/export activities between the US and Canada are governed by NAFTA (North American FREE TRADE Association) and most products have no import duty. Canada is the US's largest trading partner by dollar value - mostly having to do with imported oil.
3. Sales tax: In the US, a business must charge customers sales tax if both the customer and business are located in that state. Defining the location of the customer is generally easy: where the product is delivered. Where a business is located is more difficult to determine. A business must have a "nexus" of activity within a state to be subject to that state's sales tax rules. Shipping products alone is not sufficient to trigger the rule. Nor would having a relationship with a vendor in a particular state. A business with an office or warehouse operation in a state would certainly be required to collect sales tax from local customers.
Also, some states don't have sales tax - having an office in that state would not trigger any sales tax.
Don't worry though, even though that Canadian ecommerce store may be outselling you, they are probably taking less home to their family. Income tax rates in Canada hit 50% quickly (soon after $100,000). The current top US rate is 36% and doesn't come into play until $250,000.