For Canadian-based entrepreneurs who sell goods or services into the U.S. market, tax must be paid to an applicable tax authority on income earned online — and to avoid the risk of double taxation, you must comply with both U.S. and Canadian tax laws and have the proper business structure within which you are operating, says Oakville-based U.S. tax attorney (NY, DC) Alexey Manasuev.
As Manasuev, principal of U.S. Tax IQ, tells AdvocateDaily.com, U.S. and cross-border tax issues can become complicated for entrepreneurs with businesses based on online platforms or those in the internet marketing and digital commerce spaces.
“Generally, if you are here in Canada, you have your online business, you have some sales, or you provide services, you may think — and sometimes reasonably so — that there should be no U.S. taxes owed. Oftentimes, this is not quite right. It all depends on your specific facts and circumstances. U.S. tax law is complex, and whether or not you are subject to U.S. tax depends on several factors.”
In terms of how tax liability is determined, Manasuev says different states follow different rules.
“Some states still require physical presence. If you don’t cross the border and are not physically present in that state, you will be fine. In more and more cases, the sales threshold is imposed, and as long as you sell in that particular state and exceed certain threshold amounts, say US$250,000, you will then be subject to sales tax in that state.”