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Taxes for Canadian Businesses in the USA – Glossary

This is the third FAQ of this series on taxes for Canadian businesses in the USA.

Question:

What are the names of the US taxes a Canadian business will pay in the USA?

Answer:

Sales Tax

Sales tax is measured by gross receipts from retail sales.

Use Tax

Use Tax is a tax on goods you use or store in the USA that should be subject to sales taxes but aren’t. You owe Use Tax in most states if you didn’t pay Sales Tax on goods that aren’t exempt. Use Tax is measured by the sales price of the property and therefore is often the same as a State’s Sales Tax. Use Tax is not imposed when the sale of the property to the consumer is subject to the state’s Sales Tax.

Payroll Taxes

Unemployment Tax/Unemployment Insurance – If you have employees working in the USA, you must pay Unemployment Taxes on their gross wages up to the taxable wage base to fund the Unemployment Insurance program. Unemployment Insurance is a federal/state insurance system funded by payroll taxes on employers, established to protect workers by paying benefits during periods of involuntary unemployment.

Withholding Tax

If you have an employee earning an income while in certain states you must withhold a certain percentage of their income from each payroll as Withholding Taxes. The amount of tax you withhold from an employee depends on the length of your pay period, the employee’s gross pay and the number of withholding allowances/exemptions claimed on their state-specific withholding form.

Income Taxes

Almost every state has some form of income tax on those doing business within the state. Corporate Income Tax is the most common, but it may also be called Business Income Tax, Franchise Tax, Commerce Tax, etc.

Franchise Tax

The term Franchise Tax refers to a tax paid by certain enterprises that want to do business in some states. A Franchise Tax is not a tax imposed on a franchise. Rather, it gives the business the right to be chartered and/or to operate within that state. Franchise Taxes are owed whether or not business is conducted or a profit is made.

Discussion:

If you remain under certain thresholds you are not responsible for taxes. However, understanding those thresholds that change from state to state and industry to industry can be challenging.


If you are considering doing business in the USA, for example, sales over $100,000 to residents and businesses in the USA, please contact a member of the EPR tax team by completing the contact form below. Our tax experts can advise on the best structure to reduce or minimize the impact of the taxes.

Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. EPR Maple Ridge Langley, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.


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