Cross-Border Tax
Selling into the US? The rule changed in 2018. Most Ontario sellers don't know it.
In June 2018, the US Supreme Court decided South Dakota v. Wayfair. The decision eliminated the physical presence requirement for US state sales tax nexus. Before Wayfair, a Canadian business selling into the US had to have a physical presence in a state — an office, a warehouse, an employee — to owe that state sales tax. After Wayfair, selling enough into a state is sufficient.
Each state sets its own threshold. Most have adopted $100,000 in annual sales OR 200 transactions into the state as the threshold for economic nexus. Once you cross either threshold in a calendar year, you are required to register, collect, and remit sales tax to that state. The clock started running the day you crossed the threshold — not the day you found out about it.
The businesses most exposed to this rule are Ontario e-commerce sellers and manufacturers selling directly to US customers. Many of them have been selling into the US since before 2018. Many of them have crossed the thresholds in multiple states. Almost none of them are registered.
US states have become aggressive about enforcement. Voluntary disclosure programs exist — and they are the right strategy for most businesses that have non-compliance exposure — but they require proactive engagement. The longer you wait, the narrower the lookback period you can negotiate, and the larger the exposure.
A proper cross-border review starts by mapping your US sales by state over the trailing three years. It identifies the states where you have crossed the threshold, calculates the uncollected tax exposure, and determines the best disclosure strategy for each state. In most cases, voluntary disclosure eliminates penalties entirely and limits the lookback to 3–4 years.
If you have been selling into the US since 2018 or earlier and have not had a cross-border tax review, you have an exposure you are not aware of. The question is not whether to address it — it's when, and on whose terms.
Written by Jasneet Singh, CPA (NY), MBA — Managing Adviser at Bibeka Advisory.