5 Important U.S. Tax Questions For Online Canadian Businesses!

Key Takeaways

Sell­ing to U.S. cus­tomers may trig­ger income and sales tax oblig­a­tions
Cana­di­an e‑commerce busi­ness­es that sell to U.S. cus­tomers may be sub­ject to both fed­er­al income tax and state-lev­el sales tax. Under­stand­ing your nexus expo­sure and whether you must file U.S. tax returns or col­lect sales tax is essen­tial to stay­ing com­pli­ant.

Your busi­ness struc­ture and reg­is­tra­tions mat­ter
Whether you’re oper­at­ing as a sole pro­pri­etor, Cana­di­an cor­po­ra­tion, or U.S. enti­ty, your tax oblig­a­tions dif­fer. You may need an EIN or ITIN, even with­out a U.S. phys­i­cal pres­ence, espe­cial­ly to open bank accounts or receive pay­ments from U.S. clients.

Prop­er tax plan­ning pre­vents dou­ble tax­a­tion and penal­ties
Fil­ing the right forms — such as Form 1040NR, Form 1120‑F, or Form 5472 — depends on your busi­ness activ­i­ties and struc­ture. A qual­i­fied U.S. tax advi­sor can help you reduce tax expo­sure, claim treaty ben­e­fits, and avoid com­pli­ance issues across bor­ders.

NOTE: This arti­cle was orig­i­nal­ly pub­lished in a pri­or sea­son and has been updat­ed for the 2026 (2025) tax sea­son based on infor­ma­tion avail­able at the time of update.

ADDITIONAL NOTE: Cross-bor­der rules and busi­ness con­di­tions can change quick­ly, includ­ing pric­ing and sup­ply-chain impacts from shift­ing U.S.–Canada trade pol­i­cy and tar­iffs. Whether any of this affects your U.S. tax or com­pli­ance oblig­a­tions depends on your spe­cif­ic facts and how your busi­ness oper­ates. If you have ques­tions, feel free to con­tact our U.S. tax advi­sors for a review. 

It’s 2026, and more and more Cana­di­an busi­ness­es are scal­ing in the dig­i­tal econ­o­my. In fact, Sta­tis­tics Cana­da report­ed that Canada’s retail sec­tor gen­er­at­ed $73.7B in e‑commerce rev­enue in 2024, as dig­i­tal buy­ing con­tin­ues to grow. (Source: Stat​can​.gc​.ca) If Cana­di­an e‑commerce busi­ness­es sell into the U.S. mar­ket, there are tax impli­ca­tions that can come into play—particularly around state sales tax. Since the 2018 South Dako­ta v. Way­fair deci­sion, many states have expand­ed their abil­i­ty to require out-of-state sell­ers to col­lect sales tax based on eco­nom­ic thresh­olds, even with­out a phys­i­cal pres­ence. (Source: supre​me​court​.gov) Gen­er­al­ly, the goal is to put remote sell­ers on the same foot­ing as in-state com­peti­tors, so the play­ing field is more even. In this arti­cle, we touch upon 5 impor­tant U.S. tax ques­tions that online Cana­di­an busi­ness­es must ask them­selves if they sell their goods and ser­vices across the Canada/U.S. bor­der via the inter­net or have U.S. cus­tomers.

1. Do Canadian online businesses selling to the U.S. market have to report income to the Internal Revenue Service (IRS) or Canada Revenue Agency (CRA)?

The answer to this ques­tion depends on how you con­duct your busi­ness, as there are sev­er­al ways in which the tax lia­bil­i­ty may arise and may be shared between the two juris­dic­tions. How­ev­er, this is not a sce­nario where no tax should be payable — at the very least, your busi­ness will be sub­ject to tax in one juris­dic­tion (where it is incor­po­rat­ed or oth­er­wise poten­tial­ly treat­ed as a tax res­i­dent of). As a gen­er­al propo­si­tion, your busi­ness should be sub­ject to tax in the coun­try of your res­i­dence. Yes, there is tax, even if all of your busi­ness is done online. If you are con­duct­ing your busi­ness as a solo pro­pri­etor (self-employed, with­out form­ing or incor­po­rat­ing a busi­ness enti­ty), while being phys­i­cal­ly present in Cana­da, you should be sub­ject to tax in Cana­da with respect to the ser­vices per­formed in Cana­da. If you are also sub­ject to U.S. tax on some of your income, you should be able to avoid dou­ble tax­a­tion by claim­ing U.S. tax­es (or oth­er for­eign tax­es) paid on your Cana­di­an indi­vid­ual income tax return. If you do your busi­ness through a Cana­di­an cor­po­ra­tion or a U.S. cor­po­ra­tion, the tax­a­tion becomes more com­pli­cat­ed, but for the sake of sim­plic­i­ty, your busi­ness may be required to pay tax­es in both Cana­da and the Unit­ed States. Based on your sit­u­a­tion, you may be required to file both Cana­di­an and U.S. tax returns, as well as addi­tion­al tax dis­clo­sure fil­ings, for instance, when you are claim­ing cer­tain Canada‑U.S. income tax treaty ben­e­fits, have cer­tain inter­com­pa­ny trans­ac­tions that are required to be report­ed, or would like to claim a reduced tax with­hold­ing. If you are sub­ject to tax in the Unit­ed States and claim a for­eign tax cred­it on your Cana­di­an tax return, the CRA would typ­i­cal­ly require you to pro­vide proof of your ulti­mate U.S. tax lia­bil­i­ty before grant­i­ng the for­eign tax cred­it claim. Such proof would include pro­vid­ing var­i­ous tax slips (such as Form W‑2 in case of employ­ment income), a copy of your U.S. tax return, an IRS tran­script of account, state account tran­script, and oth­er forms of proof accept­able to the CRA. Quite evi­dent­ly, we can’t give you a blan­ket answer to this ques­tion. We rec­om­mend that you get in touch with your qual­i­fied U.S. tax advi­sor or the team at U.S. Tax IQ and we will ensure that your busi­ness is tax-com­pli­ant in both coun­tries while assist­ing you in effec­tive man­age­ment of poten­tial tax expo­sure or in avoid­ing tax con­tro­ver­sies down the road.

2. Do sellers need to charge sales tax when selling to U.S. customers?

State sales tax is col­lect­ed at the state and local lev­els. It is not a fed­er­al tax Busi­ness­es may be required to col­lect this tax on any sales to the cus­tomers in those states where there exists a sales tax nexus. A nexus is the min­i­mum lev­el of activ­i­ty in that state or a min­i­mum sales thresh­old amount that could lead to the state tax lia­bil­i­ty for the out-of-state sell­er. Due to the large num­ber of states impos­ing the sales tax­es, var­i­ous exemp­tions avail­able (for exam­ple, for whole­sale ven­dors, pro­vid­ed cer­tain pro­ce­dures are met), and con­stant­ly chang­ing sales tax frame­work, we rec­om­mend that tax­pay­ers eval­u­ate var­i­ous online tax soft­ware solu­tions that pro­vide assis­tance in iden­ti­fy­ing sales tax lia­bil­i­ty, mon­i­tor­ing it, report­ing it, and remit­ting the tax in some instances. How­ev­er, the online busi­ness own­ers should under­stand that they are the tax­pay­ers and have the ulti­mate respon­si­bil­i­ty for the sales tax. As such, they should not ignore this issue if, for exam­ple, their e‑commerce plat­form does not deal with state sales tax­es.

3. Do sellers have to be registered with the IRS to do business in the United States?

As a for­eign sell­er sell­ing tan­gi­ble prod­ucts to the U.S. mar­ket and hav­ing no oth­er phys­i­cal pres­ence in the Unit­ed States, there is no pre­req­ui­site for obtain­ing a Tax­pay­er Iden­ti­fi­ca­tion Num­ber (TIN). In the case of a busi­ness, it is the Employ­er Iden­ti­fi­ca­tion Num­ber (EIN). In case of an indi­vid­ual, it is the Social Secu­ri­ty Num­ber (SSN) (issued to U.S. per­sons or non­res­i­dent alien indi­vid­u­als autho­rized to work in the Unit­ed States) or the Indi­vid­ual Tax­pay­er Iden­ti­fi­ca­tion Num­ber (ITIN). Being able to open a U.S. bank account or hav­ing the abil­i­ty to receive pay­ments from cus­tomers locat­ed in the Unit­ed States is a dif­fer­ent sto­ry alto­geth­er. Some pay­ors require a TIN from non‑U.S. online entre­pre­neurs. If you want to open a bank account with a U.S. bank, the bank would also require you to pro­vide a valid TIN. The Cana­di­an Social Insur­ance Num­ber (SIN) or Busi­ness Num­ber for a busi­ness does not qual­i­fy as TINs for these pur­pos­es. Of course, regard­less of whether or not you are in the pos­ses­sion of an EIN or ITIN, there are cer­tain goods that are restrict­ed and can­not be sold in the Unit­ed States. It’s best to check with local gov­ern­ment and reg­u­la­to­ry author­i­ties to apprise your­self of these restric­tions as well as any safe­ty cer­tifi­cates or approvals that may be need­ed pri­or to com­menc­ing your busi­ness in Amer­i­ca.

4. What U.S. returns must Canadian sellers file if any?

This varies based on the nature of your busi­ness and U.S. trans­ac­tions. The tax fil­ing require­ments range from Form 1040NR, U.S. Non­res­i­dent Alien Income Tax Return for indi­vid­ual entre­pre­neurs to Form 1120‑F, U.S. Income Tax Return of a For­eign Cor­po­ra­tion (treaty-based pro­tec­tive return, if no U.S. per­ma­nent estab­lish­ment), includ­ing Form 5472, Infor­ma­tion Return of a 25% For­eign-Owned U.S. Cor­po­ra­tion or a For­eign Cor­po­ra­tion Engaged in a U.S. Trade or Busi­ness for cer­tain Cana­di­an cor­po­ra­tions.   Your best course of action in fig­ur­ing our applic­a­ble U.S. tax fil­ing and report­ing require­ments is to reach to a qual­i­fied U.S. tax advi­sor and deter­mine what are those require­ments in your sit­u­a­tion. This should also allow you to struc­ture your U.S. busi­ness activ­i­ties prop­er­ly in a tax-effi­cient man­ner.

5. Does the seller have to be incorporated in the United States or Canada?

Not nec­es­sar­i­ly. How­ev­er, the deci­sion on how to con­duct your cross-bor­der busi­ness should not be made with­out a con­sul­ta­tion with a qual­i­fied U.S. tax advi­sor. Struc­tur­ing your busi­ness activ­i­ties in the Unit­ed States prop­er­ly out­right will ensure smooth oper­a­tion in the future. So, it is worth eval­u­at­ing the best pos­si­ble tax struc­ture in your sce­nario ahead of time. U.S. Tax IQ’s qual­i­fied U.S. tax and cross-bor­der tax advi­sors have over 45 years of expe­ri­ence in tax law and make the return prepa­ra­tion and fil­ing process pain­less. We advise on U.S. tax and cross-bor­der tax issues, includ­ing U.S. tax return prepa­ra­tion and fil­ing, so that you can focus on your busi­ness, while we take care of tax com­pli­ance for you. Con­tact us and we can put your tax affairs in order so that there are no has­sles down the line!DISCLAIMER: Please note that the infor­ma­tion con­tained in this arti­cle is gen­er­al in nature, is cur­rent only as of the date of post­ing the respec­tive infor­ma­tion on the web­site, and does not (nor is intend­ed to) pro­vide legal or tax advice or an opin­ion on any mat­ter or issue dis­cussed. You should con­sult your qual­i­fied U.S. tax advi­sor for any advice on any mat­ters or issues dis­cussed in this arti­cle.