This is the 3rd FAQ of this series on taxes for Canadian businesses in the USA.
What are the names of the US taxes a Canadian business will pay in the USA?
Sales tax is measured by gross receipts from retail sales.
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.
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.
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.
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.
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.
If you remain under certain thresholds you are not responsible for taxes. However, understanding those thresholds that change by state to state and industry to industry can be challenging.
If you are considering business in the USA, for example, sales over $100,000 to residents and businesses in the USA, please contact us and we can advise on the best structure to reduce or minimize the impact of the taxes.