Tax me if you can: Remaining in compliance with Canadian cross-border tax

Jeffrey Brown • November 09, 2018

In the shadow of the recent Wayfair decision, more and more Canadian remote sellers now have to deal with state and local sales tax collection responsibilities. All too many are still thinking they can play the catch me if you can game, erroneously citing the US Canada Tax Treaty or assuming the states can’t or won’t come to Canada for enforcement. In my 15 plus years advising clients in Canada, I’ve represented many clients in state sales tax audits and enforcement actions. Not only do they come to Canada, they love to come to Canada, not just for poutine, but for cross-border tax enforcement.

Sales tax compliance can be a costly pain in the butt. Registering as a vendor in each state. Securing exemption certificates from customers who insist they’re not subject to tax. Computing the amount of tax to collect from customers. And not just state taxes; often and more confusingly, local sales taxes as well. Paying over collected taxes to the authorities. Filing tax returns.

Fortunately, most states have made the process of registration a fairly easy online effort. In addition to the services offered by Amazon and Shopify, quite a few private vendors offer cloud-based sales and use tax compliance solutions that remotely “bolt on” to in house invoicing and payment systems. Today sales tax compliance can be near fully automated from computing the tax due, making the payments and preparing the returns for e-filing. Yes, compliance is a cost centre. But non-compliance can be worse, making a customer’s sales tax the seller’s tax, and tacking on interest and penalties.

Non-compliance can rear its ugly head at the most unexpected time. If non-compliance goes undetected by the tax authorities, it often becomes an issue in the context of the purchase and sale of a business. Prudent buyers will conduct sales tax due diligence, demand representations and warranties about tax compliance and even insist on a hold back to cover unforeseen tax liabilities. And the tax authorities can make things difficult for less than cautious buyers using successor liability laws to go after the buyer for the seller’s past sins.

The tax authorities can use enforced collection actions to collect taxes due and owing, including the ability to levy US bank accounts and accounts receivables.

Even the smallest Canadian company selling into the US needs to be aware of its sales tax obligations since compliance costs can outweigh the profits of limited sales into the US.

Let us help you keep in compliance with cross-border taxes by calling today!

Business decisions involving the US marketplace should consider state and local sales tax compliance particularly in light of the expanded reach of the states’ taxing jurisdiction unleashed by Wayfair. We can help. At Fuller Landau US tax, that’s all we do. For more information on cross-border taxes, call Jeffrey Brown or Holly Haber at 416-645-6500.


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