Canadian starting online sales in North America - where to incorporate? Please Help with Tax Treatment

[emelie]

Hi All (re-post from r/Canadianbusiness - Thanks Starbucks)

I am @ whiteboarding stage of my entrepreneurial venture and could really use your help around company setup. I did setup a few "local" businesses previously but my next venture is mostly online and it would take me to a much broader customer base and I would have to incorporate and plan for a whole bunch of stuff.
I plan to connect buyers and sellers and keep their $$ in escrow until they both agree goods are ok. My profit will be based on x% commission, monthly subscriptions, and weekly paid ads. Something like eLance/oDesk plus eBay with a healthy mix of Craigslist.. so no biggie right - sounds straightforward enough - but here is where I get stuck:
I’m in Ontario Canada, would sell services to buyers and sellers in Canada and USA. I’m a complete noob when it comes to online sales and I have to answer the following questions to ensure I set this up right.
1) I plan to incorporate federally in Canada. Do I need to incorporate or apply for anything in the USA as well?
2) Do I have any obligations to register with the IRS
3) Every state/province has a different sales tax. I personally would rather avoid this altogether but do I have to charge users their respective tax rate?
Thank you kindly – any other advice or resources on company setup is much much appreciated! Cheers!!

 

[orthodoxcrusaderuk]

@emelie I can't believe you're relying on advice on such a serious matter from internet strangers. Go talk to an accountant but verify first they have experience in matters such as this. I believe there are treaties in place to deal with this type of issue but you need professional advice.

 

[sarahs_]

@orthodoxcrusaderuk This. I'm a financial professional, and I wouldn't touch this with a ten-foot pole, because it's outside my expertise.

Call the IRS and ask for help on US taxation. Use some manner of business sales tax software to calculate taxes. And hire a good incorporation lawyer to structure your company properly(I know a pretty good one in Toronto, actually - PM me if you want info).

 

[emelie]

@sarahs_ Thank you both. I will deffinitely seek pro help once there but as I mentioned Im trying to white board this and have this conceptual problem

A simple version of the question would be "how does ebay handle tax?"
Say there is a buyer of sunglasses in Quebec and a guy selling them from BC or Texas. Just curious how would the company handle this
cheers

 

[gigatt18]

@emelie I'll give you some general comments but I also suggest you obtain advice from a professional tax advisor. You should speak to both a CDN and US tax advisor (although I agree with /@jtyrer that I don't believe you'll have a US tax obligation if you don't have any presence in the US).

Presumably you'll structure this so that you never take possession or title of the product so effectively you're just charging a transaction fee (presumably to the person listing the product) to list the product on your website but the fee is calculated as a percentage of the sales price. For purposes of calculating the applicable sales tax you'll need to determine what person is responsible for paying the transaction fee and then what province that person is located in. I'll call this person the customer.

Where the customer is located in Canada the applicable tax (GST/HST/QST) will be determined based on the province that the customer is located in. If the customer is located outside of Canada you will, generally speaking, not need to charge GST/HST/QST.

The fact you're holding money in escrow may complicate the analysis as the fee you receive might be considered to be for something other than (or in addition to) listing the product (eg. whether any portion of the service could be considered a financial service).

Assuming you follow a model similar to above then the person selling the physical product is responsible for collecting GST/HST/QST as required on the sale of the physical product.

 

[christian_bibin]

@emelie Charge and remit Quebec tax. Note, I did zero research to give you this answer

 

[jtyrer]

@emelie For a definitive answer check with an accountant.

But for a simple online business you can incorporate federally, register for HST and ignore the IRS.

If you have no presence in the US I don't believe you have any obligation to them. I don't see how they could claim jurisdiction over the business.

Though if you expect a large amount of your business to be in the states then the whole escrow business is going to complicate things. I'd guess a large legal bill will be necessary in getting that all set up correctly!

 

[dkeefe]

@emelie For #3 I found http://www.canadabusiness.ca/eng/page/2651/ to be a good overview. I only really deal with two provinces but I wish I could just look at some Canadian tax and charge that if you do business with more than 1 province.