Do Canadian Corporations which sell online product or services in the United States need to consider filing sales and/or income tax in both Canada and the United States?

Well, according to RCI Section 882, 1A, in general, “A foreign corporation engaged in trade or business within the United States during the taxable year shall be taxable as provided in section 11 or 59A,[1] on its taxable income, which is effectively connected with the conduct of a trade or business within the United States.” (See 26 USC 882)

In layman terms, any individual or corporation doing official business within the United States are subject to taxation. Thus, to answer the initial question: yes, Canadian Corporations selling online product or services in the United States should consult their Certified Public Accountant (U.S.) about filing taxes for both Canada and the United States – more specifically, sales tax.

This is done on Form 8833, Treaty-Based Return Position Disclosure, which is filed along with the taxpayer’s Form 1120-F (Canadian Corporation needs to obtain a U.S. EIN by filing SS-4 with the IRS). Where a Canadian corporation is claiming no permanent establishment according to the treaty, only the information section of the Form 1120-F is required to be completed. In practice, this type of filing is referred to as a treaty-based return, or ‘short form’.

Remember to file Form 7004 by the 15th day of the 6th month after the end of the tax year to request a 6-month extension of time to file with no permanent establishment.

 

The above information is of a general nature only and should not be relied upon for specific situations.  We do not endorse the accuracy of the charts on the websites above.  Click here for additional tax accounting services information. 

Call Marlies Y Hendricks, CPA at 416-766-3941 to discuss your best options and set up an appointment.