Doing Business in the States and State Amnesty Programs

Doing Business in the States

Canadian corporations doing business within a state can result in tax compliance obligations, notwithstanding its filing obligations with the IRS. For instance, in-state sales and related activities may lead to tax obligations including: collecting and remitting sales taxes, as well as filing corporation income tax returns, if certain thresholds are met. Recent trend shows that more states are starting to impose tax filing obligations when certain “economic” thresholds (otherwise known as “economic nexus”) within the states are met, regardless of physical presence. For example, for California tax purposes, where a company meets the following thresholds for taxable years beginning after 1/1/2016, it is considered as “doing business” in the state, and is therefore subject to California income tax:

  • in-state sales (lower of $547,711 or 25% of total sales)

  • in-state property (lower of $54,771 or 25% of total property); or,

  • in-state payroll (lower of $54,771 or 25% of total payroll).

For sales tax purposes, California’s threshold includes various factors, including dealing with independent in-state websites (so called “affiliates”), that promote sales of the Canadian retailer and the in-state sales of tangible properties for the previous 12-months exceeds $1 million.

Another example is Colorado and Vermont who on July 1, 2017, have imposed a sales and use tax reporting requirement that applies to retailers with sales of at least $100,000 to in-state customers during the previous 12 months. In general, non-collecting retailers must now notify customers that tax is due on purchases, as well as notify the state of each in-state purchaser showing the total amount of purchases. There are penalties for failure to comply.

State Amnesty Programs

Some Canadian corporations may determine that they were not compliant as to sales & use and income/franchise taxes. For sellers that sell online or through an online marketplace, The Multistate Tax Commission (“MTC”) National Nexus Program has introduced a Voluntary Disclosure Initiative (“VDI”) for the duration of a two month window, August 17, 2017 to October 17, 2017. Certain participating states will waive sales and use tax, income or franchise tax liabilities including interest and penalties for prior year delinquencies regardless of the lookback period, under the states’ respective VDI applications and processes. Other states will require payment of back taxes and interest with a limited lookback period.

Participating states are Alabama, Arkansas, Colorado, Connecticut, the District of Columbia, Florida, Idaho, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Minnesota, Missouri, Nebraska, New Jersey, North Carolina, Oklahoma, South Dakota, Tennessee, Texas, Utah, Vermont and Wisconsin.

For more information please contact a member of our U.S. Tax Services team at 403-296-0082.

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