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Canadian Business - US Clients - HELP needed for Tax info

     
4:46 pm on Feb 6, 2015 (gmt 0)

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Hi All,

I'm very new to this forum and may very well be the last place I can turn to without shelling out money on account/tax counselling.

I'm looking to open an ecommerce business very shortly (British Columbia based, sole proprietorship).

I will be acting as an online reseller. My clients will be in the US (I may expand this to Canada in the future, but mainly in the US for now).

My distributors (who carries and warehouses the goods) are located in the US (California and Pennsylvania).

I can get the business registered easy enough, I already have a fulfillment website lined up and my distribution channel is all but cemented. The big info gap I am facing is with regards to taxes.

How do I charge taxes? Do I charge them individually to each state? Someone mentioned VAT to me...how does this apply? Where do I remit taxes?

Oh the headaches. Forum-gods I beg thee for thy help! Any and all advice/answers are much appreciated.

Many thanks,
Norman
5:28 pm on Feb 6, 2015 (gmt 0)

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Welcome to WebmasterWorld!

without shelling out money on account/tax counselling

Do you want cheap advice or do you want good advice? Free advice will get you generic information that may or may not apply to your specific situation. And if it's wrong, "But I heard it on the Internet!" will NEVER fly if you get audited. In the end, you should invest the money and seek a professional who have professional liability and a reputation to maintain as incentives to give you sound legal/accounting advice.

That being said,... The U.S. has no VAT. As a Canadian business, whether or not VAT would apply to you for selling outside Canada is beyond the scope of my knowledge.

Individual states (that collect sales taxes- both California and Pennsylvania do) require merchants who have a physical presence in that state (called a nexus) to collect sales taxes and remit them to the state. Whether or not your distributors would be considered a nexus is up to the state. Your distributors can probably give you the answer, but I would guess they are, based on Amazon's experience.

Whether your products are subject to sales taxes also depend on the types of products and possibly where your website is hosted (this has more to do with the Canadian VAT).

I don't know about Pennsylvania, but California has something like 50 different sales tax rates depending on the location of the purchaser. Most are at the county level, but some go down to city granularity. I believe California also has an exemption if you sell less than a certain amount to California residents each year.
6:09 pm on Feb 6, 2015 (gmt 0)

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Thanks for the insight LifeinAsia,

I wanted any advice at this point, because I know that I cannot possibly be the only one who has faced this issue/hurdle (i'm not that special!). So was wondering if there was anyone out there that were in this position and what they did in their respective cases.
9:24 am on Feb 7, 2015 (gmt 0)

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I'm in CA, and yes, there's a bunch of tax districts, and yes, they expect you to pay/charge the amount based on the district where it ships to. Not the district where your business is. Which is ridiculous, because the difference usually amounts to pocket change in the end. I just did mine and the difference was $13. So I spent a day doing paperwork, for a $13 difference. But that's the CA government for you. Of course, for now, you would only be concerned with items that ship inside CA. Everything else you would list as interstate sales and a deduction. You can file/pay online at the [boe.ca.gov...]

They expect quarterly, but if you call them and whine enough, and your amounts are low enough, they'll let you do yearly.

I know nothing about PA. There obviously may be difference because your in Canada, which I also know nothing about.

If you don't plan on having much volume to start, you could possibly just pay out of your pocket and chalk it up. Believe it or not, that's what I do. I know how negative people are about paying tax, so I figured the sales lost, would probably be around the same as paying anyway. If they ever get it together to make it happen nationwide, then I'll charge.
8:50 pm on Feb 17, 2015 (gmt 0)

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My business is out of Canada, and we have US distributors, that sell products directly to Americans.

As long as you don't have an office in the USA, you don't collect taxes, for shipments to the USA.

If you do have an office in a particular state, then you may need to collect taxes. Every state is different, and you will need to check with state authorities if you have a physical presence in the state (often called NEXUS).

Your US Distributor, may be required to collect state tax from you, if they are shipping goods to customers that are residing in the same state as the distributor. Avoid distributors in those states, or eat the loss.

VAT only applies to Europe. Shipping from North America to Europe is expensive, so most likely you will not enter that market, unless you are dealing with high end goods.

This is not legal or financial advice. Just how we been running business for the past 15 years. A slight deviation from what we do, can put you in a liability situation.
9:17 pm on Feb 17, 2015 (gmt 0)

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Thanks lgn1!

This has been the most helpful post to date. I do not have a physical presence in the US. As for my distributors, one is based in California and the other is in PA. I am only planning on selling in the US.