If you’re confused about whether your Canadian business needs to pay US state and local taxes (SALT), you’re not alone. After all, each of the 51 states (counting Washington, DC) has different tax rules, tax regimes and tax rates—creating some real compliance challenges.
The key is to take a proactive stance to your SALT obligations. Grant Thornton can help. In this article, we set out a high-level state tax roadmap for determining your filing obligations, and we invite you to contact us to discuss how these complex rules may apply to your business in particular.
The good news is, if selling into the United States, some up-front planning can help manage tax compliance and effective tax rates. The bad news is that ignoring your SALT obligations can expose your business to penalties and interest that keep accumulating the longer you leave it, which ultimately negatively affects your financial statements. Certain SALT-exposures can be passed on as a successor’s liability to anyone who acquires or inherits your business, leaving the new owner with unaddressed tax liabilities and reducing the value of your company. It can also leave you out-of-pocket by requiring you to pay sales tax that you owe for prior periods, even if you never collected it.
If you’re entering into or growing in the US market, the best way to protect your business is by gaining an understanding of US SALT rules. A couple of highlights to note: First, by filing your state income taxes on time, you can generally claim those paid taxes as a foreign tax credit on your Canadian return—avoiding double taxation. Second, by voluntarily repaying any unaddressed tax exposures from previous periods, instead of waiting to get a notice from a state, you may even be able to catch up on unpaid taxes without paying penalties. We will expand more on these topics in future articles.
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Taking SALT seriously
The US market represents a significant growth opportunity for many Canadian businesses, but it may also trigger unanticipated tax consequences. That’s especially true as the Canada-US Income Tax Treaty doesn’t exempt businesses from state and local tax laws. If your company has any type of nexus with US states, you may need to file business tax and/or sales and use tax returns, collect and remit taxes on your sales to state and local tax authorities.
We continually monitor legislative changes, industry trends and economic policy to support the business community and are committed to providing you with the most up-to-date advice so you can grow with confidence. We can help you assess if you have SALT obligations in any US state and work with you to access relevant voluntary disclosure programs that may allow you to remit outstanding taxes without penalty. Additionally, our team can assist and support with related Canadian sales tax issues and concerns.
Contact your Grant Thornton advisor to understand how these complex laws may affect your business.